02.02.2021 BDB’s equity fund acquires a 20% interest in Kolev & Kolev for BGN 1 million
The article was published in Capital
Children’s shoes producer Kolev & Kolev has a new minority shareholder with a 20% interest: the Capital Investments Fund, part of the Bulgarian Development Bank’s group. The BGN 1 million investment was disclosed by an entry at the Commercial Register.
Company CEO Ivan Kolev said this is just the first investment phase out of three and the fund’s share will hit 34% by June. This marks a change of Kolev & Kolev’s strategy – one year ago, it intended to be the first company in the new SME sector at the Bulgarian BEAM stock exchange. This project is currently on hold due to the crisis.
Small steps towards the global market
The raised funds will turn mostly into working capital, but part of the amount will be invested for development of the toddler booties line. “We claim that we invented the booties that we have been producing for almost two decades. They are easy to put on and take off and are a transition from socks to shoes. We are selling almost 35,000 pairs of booties at 60,000 newborns per year, which means every other baby wears our product,” said Ivan Kolev.
Kolev & Kolev is developing a technology for production of 3D knit booties that is new for the company. “This is a technology created by NIKE which is used by all leading sports goods manufacturers and minimizes manual labor. We want to keep up with global trends; meanwhile, we will continue to manufacture and market the current leather booties,” explained Ivan Kolev.
“Our goal is to turn the booties into a global product. They are well-known in Bulgaria and some neighboring countries, but the investment will allow us targeted distribution and marketing in certain foreign markets,” Kolev added.
The company is also planning to expand its product range with shoes for the parents, as well as children’s textile shoes.
The emergency situation has a mixed effect on the company. Since 10 company stores were shut down during the pandemic, the company will report a 20% turnover decrease in 2020. Operating revenue in 2019 was BGN 3.6 million, and that was also a decrease compared to BGN 4.9 million in 2018 due to the company’s refusal to manufacture shoes for other brands and the decision to focus on developing its own brand. On the other hands, the management’s accounts for the crisis-impacted 2020 report 2.5 times more profit (the profit in 2019 was BGN 78,000) thanks to cost optimization and a growth of online sales.
Despite that, the company clearly does not intend to give up on brick-and-mortar stores and part of the investment may go there. A second company store will be opened mid-February in Plovdiv, this time at Plovdiv Plaza Mall. Another store will soon be opened in Varna.
“By the end of the year, we will start an online sales site for the Romanian market. We also aim to open at least two stores in Romania in 2021,” said Ivan Kolev.
The new investor
The BDB’s capital investments fund was established in 2018 with a capital of BGN 65 million but it began operations 2020, and it has financed only one other company before Kolev & Kolev.
The structure of the transaction is interesting. Before that, the shareholders at the company were Dimitar Kovachev with 81.2% and the founder, Ivan Kolev, who holds the other 18.8%. The fund subscribed 337,250 new ordinary shares of BGN 1 each. They provide the fund with a 20% share, and the shares of the previous co-owners dropped to around 65% and 15%.
Apart from that, the new investor also received one privileged share of BGN 662,750. It allows the fund to receive a liquidation quota and to be compensated for the investment before payments to ordinary shareholders. There is also a 2% guaranteed dividend from the profit, and a right to appoint one of the board members. Angel Hadzhiev was already elected at that position. He is also the authorized signatory of the Capital Investments Fund, and previously he has been a financial consulting manager at Deloitte. The CEO and main owner of the cosmetics company Lavena, Konstantin Shalamanov, was also on the board of directors of Kolev & Kolev until now but he was released.
A change of the stock exchange plan
Kolev & Kolev had ambitions to raise BGN 2 million of capital at the Bulgarian Stock Exchange. The company began working on this plan more than a year ago and wanted to be first in the new alternative sector for SMEs where the requirements to the company are smaller – BEAM (Bulgarian Enterprise Accelerator Market). Tech company BIODIT did that literally a few days ago and successfully raised BGN 1 million at BEAM, with significant interest by investors.
“We did everything that was required of us. We complied with all of BEAM’s requirements: we registered as a joint stock company, we made the necessary changes to the company articles in order to protect the investors and the powers of the general meeting, we had audited financial statements, and we registered 500,000 shares in the Commercial Register in order to sell them. We initiated talks with potential investors and we were just a step away from the exchange, but then we froze everything because of the Covid crisis. Our business plan remained the same but we attracted an investor by another route – through the BDB’s fund,” commented Ivan Kolev.