Finns acquire biggest building supply stores in Estonia

TALLINN - Finnish marketing and logistics company Kesko Corporation acquired Estonia's biggest building material merchandiser AS Fanaal on April 30. Fanaal is the owner of the Ehitusmaailm chain of building material stores in Estonia and Latvia.

The price of the deal was not disclosed. Peeter Raudsepp, chairman of the board of Fanaal said that the sales price of the Fanaal share was higher than its nominal value and shareholders of Fanaal should be satisfied with the deal. The company belonged to three large private investors and a number of employees of the company. Shareholders of Fanaal made the decision to sell almost a year ago, said Raudsepp.

Fanaal would have survived without a strategic investor for some time but it would have been difficult to continue successfully as the competition was becoming stronger on the market, said Raudsepp, and it was difficult to compete with Western chains planning to start their operations in Estonia.

"The investment opportunities of our previous investors were depleted. The future perspectives of the company are much stronger now," said Raudsepp.

According to Paavo Moilanen, vice president of Kesko's Builders' and Agricultural Supplies, this investment is a part of Kesko's internationalization strategy and its enlargement. Kesko Corporation has 125 building material stores in Finland and seven in Sweden operating under the K-Rauta chain.

Besides the sale of building materials, the company is selling food products and agricultural goods in Finland, Scandinavia and the Baltic states. Anttila, Carrols and Citymarket are just a few of the well-known brand names belonging to Kesko.

"Our target is to be in the Baltics," said Moilanen. "With the acquisition of Fanaal we bought a small marketshare in Estonia and Latvia. Our next step will be to apply K-Rauta's concept in Fanaal," said Moilanen.

Raudsepp said that unlike the Latvian market, the Estonian market is better regulated with three to four leaders on the market.

Fanaal is the biggest building material seller in Estonia with five stores in Tallinn, Tartu and Parnu and a store in Riga. The company has over 300 employees in Estonia and more than 100 employees in Latvia. The net sales of Estonian companies in 1999 were 583 million kroons, while the turnover of the Latvian subsidiary was 190 million kroons. Raudsepp said that the turnover of the Latvian subsidiary was bigger because it was concentrating more on wholesaling.

The company made a small 3 million kroon profit last year. "We had two objectives last year: to clear the balance and increase our marketshare on the falling market," said Raudsepp. The Estonian construction market fell by 16 percent last year and will recover in a year or two, said Raudsepp. He said that the construction market is in a declining stage, where the drift is towards renovating and finishing started buildings rather than building new ones.

Valeri Kridnev, chairman of the board of the competing Famar-Desi building material company, said that Fanaal is a strong company which will become stronger by inheriting K-Rauta's service and logistics know-how.

Famar-Desi, which is operating under the Ehituse ABC trademark, is also operating in Latvia and Russia.

"We tried to operate in Lithuania until we found that the Lithuanian market is not ready. They are trying to cope with their local material and they have problems with payment also," said Kridnev.

Kridnev said that unlike Fanaal, their company is targeting profits rather than the market share.

"There will never become a monopoly on this market, that is for sure. Clients will gain most from the new ownership," said Kridnev.