Artur Kogdanin, LEDEL: “Tatarstan will cease to be the arena of competitive battles with FEREKS”

LEDEL is joining the international distribution of IEK GROUP, which sells electrical equipment for 10 billion rubles, prior to stagnation

“LEDEL goes for to the acquisition in exchange for getting into the international distribution network of IEK GROUP, in return IEK has received the production capacities to strengthen the LED direction” — such major bonuses were announced in the regional representation of IEK from the merger deal signed on 4 July with LEDEL. IEC GROUP acquired a 64% stake in the authorised capital of LEDEL, and the founders of the company — the Kogdanins brothers retained the leadership of their offspring, leaving a 33% stake. The cost of the transaction the signatories do not name, but competitors believe that it could be from 300 to 500 million rubles.

The merger with a view to compete with Philips Lighting

The Russian electrotechnical holding IEK GROUP acquired a controlling stake in the share of Kazan led lighting manufacturer LEDEL. It has been reported about the transaction in the regional office of IEK, illustrating the news with a solemn photo from the central office in Moscow. The top officials of the companies are smiling on it — Chairman of the Board of Directors of IEK GROUP Aleksey Stepashin, Executive Director of IEK GROUP Andrey Zabelin and Artem and Artur Kogdanins brothers. “On July 3, IEK GROUP acquired a 64% stake in the authorized capital of LEDEL, which will allow the companies to combine their efforts for the most effective work in the lighting market,” the release notes. Together, they expect to increase their share in the lighting market of Russia to 5%, say the signatories of the transaction, “forgetting”, however, to specify the likely date of conquest of the domestic market. By the way, the Russian lighting market is estimated at about $1 billion euros, in which the depth of penetration of LED-technologies is estimated at 34,5%. So the application sounded more than impressive. At the same time, LEDEL will retain its independence as a business unit.

IEK GROUP is one of the few domestic producers of the electrotechnical equipment who, besides release of habitual devices and “consumables” for big power, is fond of innovative technologies of led lighting. But until today, the electrical holding had not have strong production capacities for the expansion of LED technologies, while the producers of the scale of Philips Lighting are increasingly displacing domestic lighting producers due to energy-efficient LED technology. Looking up to the world's giants of lighting, the holding IEK has been looking for a production complex for a year and a half for the development of LED-technologies and completion of a new division, and LEDEL, in its turn, was looking for a strategic partner, as the lighting segment was narrowing, told sources close to the deal. After a year and a half of the negotiations, the owners of the companies went for a merger.

IEK GROUP has been seduced by 5 billion LEDEL portfolio

“IEK GROUP has been searching for a strategic partner for many years, in turn, LEDEL was looking for new opportunities for intensive growth,” the IEK GROUP press release notes. “The companies see the ways of development in the same way, and their complementary interests, views on cooperation successfully coincided, which eventually has led to partnership.”

The future strategy of the joint development is described quite vaguely. “For IEK GROUP, the partnership will result in the expansion of the product range, the range of lighting equipment of the company will have a complex technical light of Russian production. The well-known brand LEDEL will remain on the market along with the line of lighting IEK Lighting. IEK GROUP will strengthen the R&D direction, in particular, it will expand the Centre for the development of lighting equipment,” IEK GROUP notes.

The ideologist of the deal, Artur Kogdanin, considers the deal successful because “the market will not grow much further” and those who will be with a strong partner will get an advantage on it. “In my opinion, the market will not grow much because there is little funding for infrastructure projects,” he said. “Most likely, there will be stagnation or a slight increase of about 4-5% a year. This will lead to increased competition and lower prices from other players, but at the same time, professional players will have the opportunity to occupy a large niche.”

Why IEK GROUP with a huge variety of led manufacturers has chosen the Kazan company LEDEL? Artur Kogdanin explains this by that at the time of the transaction the company had accumulated a solid portfolio of long-term contracts worth up to 5 billion rubles. “Among them, there are energy service contracts for the renewal of street lighting in large cities-millions and small towns. But I cannot name them until the end of the contract,” he said. Artur Kogdanin notes that with the strategic partner LEDEL will rise to a new level. “Our partner is very thoughtful and consistent. During the year, they were collecting all the information about Russian companies producing LEDs, personally we have communicated for 1,5 years. They analyzed our structure, studied how we create products and how we implement them. Existence of such portfolio of orders — one of advantages, but not the main one,” he considers. “The main reason was the presence of a professional team, good products.” However, he does not expect a momentary growth. “We have plans for growth and sales volume, but it will not happen tomorrow, but it will take several years,” he said.

In recent years, LEDEL has tried to firmly hold the revenue from sales at the level of 1 billion rubles, admitting, however, a slight downfall at the end of 2016 (then sales amounted to 944,3 million rubles — editor’s note). At the same time, the Kogdaniny brothers managed to neutralize the costs so that they received a double increase in net profit for the first time in 2017. The improvement in financial performance occurred at the very moment when the brothers were negotiating to attract a strategic investor in the capital of the company. They had something to show the future strategist: net profit amounted to 112,7 million rubles instead of 64,9 million rubles, despite that they failed to “catch up” the revenue — the market was at a standstill.

Integrating into international distribution

“LEDEL went for the acquisition in exchange for getting into the international distribution network of IEK GROUP, and in return, IEK received the production capacities to strengthen the LED direction,” they noted in the regional office of IEK, commenting on the merger deal signed with LEDEL. “Our network has good sales channels, where LEDEL will join.” The company denied the possibility that the production base can be transformed into the production of electrical equipment, which ceased to be produced after the Tatarstan engineering and production holding INVENT ceased to participate in tenders in the domestic market. Meanwhile, LEDEL began to employ the former directors of INVENT. Recently, they have employed the former head of the security service of INVENT. Speaking about the competition, Artur Kogdanin noted that Tatarstan will cease to be an arena of competitive battles with the company FEREKS, which is engaged in the lighting of regional roads.

Let us note that LEDEL is almost not interested in state contracts. According to Spark-Interfax system, the last time it participated in competitions under 44-FZ was in the far 2011 year, winning several orders from the regional offices of the tax service. But it is active in the procurement of state-owned companies under 223-FZ, but not too zealously not to take the procurement contracts everything and anything. As can be seen from the Spark-Interfax system, LEDEL approaches these competitions selectively. Last year, the company participated in only four tenders of state-owned companies worth 72,2 million rubles and won. In particular, last year LEDEL became the supplier of LED equipment for the municipal Kazenergo JSC and for the Russian Rostelecom. Prior to that, he was the supplier for three gas transportation subsidiaries of Gazprom for a total of 10 million rubles. LEDEL fulfilled the largest municipal contract in 2015, received an order from the former Kazgorsvet MUE to update the street lighting in Kazan. The portfolio of LEDEL has a small proportion of government contracts so far. But its competitor, FEREKS Trading House Ilnur Kurmaev, for example, once managed to win tenders for the reconstruction of street lighting in Moscow.

Advanced issues found
Ilnur Kurmaev, the owner of the trading house FEREKS, said that the absorption of LEDEL is a consequence of globalization in the market and did not rule out that the merger would take place in the next 2-3 years. He admitted that he received an offer from a European manufacturer to sell the business, but he refused. According to him, his business feels better than LEDEL’s. “Their revenue was 1,1 billion, mine — 1,5 billion rubles,” he boasted. At the same time, he admits that the competitive battles that had been taking place with LEDEL for 7 years will continue, but he is not afraid to compete with the “pumped up” LEDEL.

By Luiza Ignatyeva