The two leading Baltic computer companies expect that the merger will make the $500 million per year regional IT market more competitive: boosting sales and establishing a formidable hold in computer manufacturing, software production and the Internet.
"For the first time a Baltic company gains size comparable with Scandinavian IT heavyweights," Allan Martinson, MicroLink CEO, said.
Before the Latvian acquisition, MicroLink forecasted an annual turnover for this year around $40 million. The company now predicts the 2000 turnover will be over $70 million. Fortech had sales of $20 million in 1999.
Just south of Europe's so-called Silicon Valley, which boasts IT sales over $1 billion, the Baltic states have been encouraged by foreign investors to create bigger firms that can rival their Nordic neighbors.
Cheaper costs, proximity to Western Europe and strong human resources as well as future accession into the European Union are reasons that the three republics have strong potential in the high-tech industry and are attractive to investors.
"We welcome the merger very much," said Joakim Helenius, chairman of the board at Trigon Capital. "It is part of the consolidation of the IT sector that is going on in the Baltics. And, of course, it creates a Baltic group that can stand on its own in the region. It is a very positive development indeed."
Martinson said the deal places the firm 30th on a list of leading Nordic firms. The CEO also said the group hopes to be listed on the Scandinavian stock exchange by 2003.
The Baltic IT giant will have about 900 employees and be managed by a joint team. The companies will keep their business names. Martinson will continue as CEO of MicroLink and Jaak Anton and Antti Aasma will keep their board memberships at the Estonian firm. Normunds Bergs and Janis Bergs from Fortech, and Ville Jehe, of MicroLink's Internet arm, Delfi, have been added to the board.
MicroLink operates two factories in Riga and Tallinn that account for about 30 percent of regional computer manufacturing. Nearly half of thesecomputers are sold in Latvia and Estonia. The focus in the future is on expansion of its operations, including increased sales to Lithuania.
"Our strategy is to aim to be the first choice in all three Baltics. Now we are number one in Latvia and Estonia; next is Lithuania," said Anton, who is also director if MicroLink's IT division. "We will work hard on making steps in Lithuania."
The first contacts between Fortech and MicroLink started in 1996, Normunds Bergs said. In 1998 the companies set up the joint venture, MicroLink Datori, a computer assembly company.
The parties have agreed to keep the exact price of the deal and its structure confidential. "Less than half of it is in cash," Martinson said.
Fortech owners will become shareholders in MicroLink holdings and MicroLink will acquire 100 percent of Fortech shares. About 40 percent of MicroLink's shares will belong to the Baltic Investment Fund and the Baltic Republic Fund. The remaining shares will be divided between MicroLink's and Fortech's original founders and managers.