The price of the deal was not disclosed, but both parties seemed to be satisfied.
"We are proud of being able to open up activities in the Baltics and having this co-operation with ESS. It took us 90 years in Denmark to win a market share, but six years for ESS in Estonia. We would like to complete that development in Latvia and Lithuania," said Lars Norby Johansen, president and chief executive officer at Falck Group.
Falck Group has widely expanded during the last 10 years, and now owns companies in nine Baltic Sea area countries.
"It is not a take-over. There would be a majority of Estonians on the board. The success you have built is fantastic," said Johansen.
Urmas Sooruma, head of the council of ESS, previously owned 35 percent of the company's 11 million kroon ($807,000) share capital, while Hansapank and Uhispank were the other big shareholders.
"The present management has a very strong know-how of the local market. That is where synergy arises. We can together make a very strong foothold in Latvia and Lithuania," said Johansen.
In Latvia and Lithuania, ESS has operations in close to 10 cities. ESS also owns an insurance company in Lithuania and Estonia. As ESS does not have a substantial market share in Latvia and Lithuania, Falck Group has decided to find partners in those two countries in the near future. The management of Falck Group believes that the service and management philosophy pursued in Estonia can be transferred to these two countries.
According to a Falck press release, the Latvian and Lithuanian markets are not quite as developed as the Estonian market, but may grow by approximately 25 percent in the next few years. The Estonian security market is expected to grow by 10 percent to 15 percent annually over the next three to five years. The largest operators in the Latvian and Lithuanian security markets, which are partially government-owned, are expected to be privatized.
In addition, Falck group has an option to buy the remaining 35 percent of the shares in ESS. ESS is also planning to sell some of its subsidiaries, which services differ from the ones that Falck group is offering.
ESS turnover in 1997 was 177 million kroons and the company earned 8.5 million kroons in profit. This year, the company predicts a 290 million kroon turnover due to the takeover of the Estonian security company EVK Group this summer. Falck's turnover is close to 11 billion kroons and together with ESS it has about 20,000 employees including ESS's 3,000 employees. ESS holds 40 percent of the Estonian security market and 66 percent of the guard services.
In connection with the acquisition, ESS will also be removed from the Tallinn Stock Exchange as the company no longer adheres to the exchange requirements and the new strategic investor satisfies the company's needs for capital. The amount of freely traded shares is below the required 25 percent and there are less than the required 100 shareholders.
In order to save the rights of the small shareholders, who might not receive the same information about the company, their shares will be bought back by other big investors.
" The stock exchange is necessary for increasing capital. If one is operating through an international concern, it is better to increase capital through a parent company," said Rain Tamm, manager of the investment banking division at Hansapank.
"For a developing company it is characteristic that additional capital is frequently needed because it is not possible to develop endlessly with one's own resources," said Sooruma, the man who founded the first private security company in Estonia seven years ago. "We have won the market share thanks to the hard work of our employees. We could then manage with the capital that we had, but now we need a strategic investor."
This is already the second merger of an Estonian security company with a foreign investor.
Two months ago, Europe's largest security company, Securitas, which also had a subsidiary in Estonia, acquired the third biggest security company, Estonian Security Center. Akropol holds the second position on the Estonian security market. Each of these companies control about 10 percent of the local market.