Dealbook: Danaflex, Rusnano Combine Forces in Danaflex-Nano
On 11 November 2011, Danaflex and Rusnano celebrated the official opening of a factory owned by Danaflex-Nano, a 2.45 billion ruble ($81 million) joint venture between the two companies created to produce nanotechnology-infused flexible packaging material.
The selection of this date was not accidental, but carefully planned to coincide with the 10-year anniversary of the foundation of Danaflex, a Tatarstan-based company that has come a long way since it was founded by a small group of friends back in 2001.
The high-barrier flexible packaging that Danaflex-Nano is producing in a new factory on the grounds of Technpark Khimgrad is a superior choice for packaging foodstuffs, household chemicals, cosmetics, and animal feed because it better preserves the contents, extending a products shelf life and allowing for a reduced use of preservatives. The packaging is also microwavable.
In December, this nanotechnology packaging was awarded “Best Product of 2011” during the 3rd Annual Nanotechnology Exhibition in Kazan. “Every producer is interested in lengthening the life of his goods, whether on the shelf in a store or in the consumer’s home,” Danaflex President Airat Bashirov was quoted as saying in a press release concerning the opening of the Danaflex-Nano factory.
Bashirov’s company has poured 1.25 billion rubles into Danaflex-Nano (giving it a 51 per cent controlling share in the company), an investment that Rusnano matched with 1.2 billion rubles of its own (49 per cent). Equipped with state-of-the art German, Dutch, and Italian machinery—some of which can print 1,000 meters of packaging per minute—Danaflex-Nano is not shy about stating its plans for the future. A placard hanging in a hallway in the new factory entitled “Development Plan For Danaflex-Nano” states the company’s goal to sell 34,185 tons of packaging in 2012 (7,000 tons of which constitute nanotechnology packaging). In 2014, projected sales will be 48,115 tons of packaging (11,000 tons of which are nanotechnology packaging). By 2015, the company expects to sell 6 billion rubles worth of packaging and 20 per cent as export.
From Birth to Rusnano
Airat Bashirov was working for Dialog-Invest more than 10 years ago when he was invited by his friends to join a new investment project. The plan was simple—purchase the most sophisticated machinery available in Europe and put it to work in Russia’s cheap labor market. At first Bashirov was only an investor, but that changed quickly. “I saw the huge development potential of this company and took over its management myself,” he explained in an interview with The Kazan Herald. “I sold all my other interests, invested all the money that I had in the company, and focused all my energy on it.”
The first few years were made difficult because of a lack of experience combined with fluctuations in the market price, but Danaflex continued to invest more and more in the company, building up a critical mass. By 2004, the company had mastered the process well enough to become the leading packaging supplier for mayonnaise in Russia. As the company continued to grow, it became apparent that they needed to build a new factory. “We began looking for financial investors when we understood that we couldn’t continue to grow on this site, it was too small for us,” Bashirov said in his office in the company’s first factory on ulitsa Rodiny. “And so we started to look for different financial investors.”
The company spoke with a number of private equity funds, but all of them suggested terms that Danaflex did not consider agreeable. Finally, in 2008, Danaflex found a potential investor in Rusnano (at the time named Russian Corporations of Nanotechnologies). A 100 per cent government-owned company founded to bring nanotechnology production to 900 billion rubles by 2015, Rusnano had been looking for investment opportunities in Tatarstan, which they found in Danaflex, a company that prides itself in constantly looking for ways to innovate. “For us, the word nanotechnology was unfamiliar at the time when we chose this project,” Bashirov said. “When we chose this project, it was simply because we wanted to make a high-quality barrier film.”
Equally important, however, was the equity that Rusnano brought to the table. “Without them it would be hard to imagine investments of such a scale,” said Bashiov, explaining that he views Rusnano not as a government organization as much as a financial investor, entering and exiting “like a private equity fund.”
Some of Danaflex’s clients have already switched over to the new packaging, explained Danaflex-Nano marketing manager Albert Akhmetov during a tour of the new factory at Technopark Khimgrad, but the first Danaflex factory continues to work. Bashirov explained that it will take time for many of Danaflex clients to switch over to the new packaging, but also stressed that the new product line supplements rather than replaces the company’s other lines: Danaflex will continue to produce its regular product lines, since higher-quality packaging is not necessary for all of their clients.
Public Support for Private Business
Four figures took the stage at the ceremonial opening of the new factory in November—Danaflex President Airat Bashirov, Rusnano CEO Anatoly Chubais, Danaflex-Nano General Director Viktor Molokin, and President of Tatarstan Rustam Minnikhanov. Indeed, from the outset, the Republic of Tatarstan played an important role in the extended courtship between Danaflex and Rusnano.
The union of the two companies was a strong move, according to Linar Yakupov, Chief Executive of the Tatarstan Investment Development Agency. “Danaflex has always been very interesting, it has always experimented with new technologies and continues to do so,” Yakupov explained to The Kazan Herald. “The company is always looking for more effective methods of production, so as to maintain its market position.” This “correct approach to business” was attractive to Rusnano, but Yakupov added that the “constant support of the Tatarstan government” was an equally important factor in Rusnano’s decision to invest in Danaflex-Nano.
“Rusnano knows that Tatarstan always vouches for any project that it brings up,” Yakupov explained. “A great deal has been done to avoid delays so that the project advanced as quick as possible, and the President even made a personal effort to stay abreast of the development of the Danaflex project.”
For Yakupov, the completion of this deal sends a clear message to potential investors that both federal and regional government are interested in helping projects develop.
Bashirov was careful to point out that Danaflex has always been and still is a private company. “I consider this project not a private public partnership, but rather private business,” he explained. “We don’t have government participation. There is Rusnano, but we view it as a financial investor, as a fund.” In his opinion, Public Private Partnerships (“Chastno-Gosudarstvennoe partnerstvo” in Russian) are not as effective as private businesses.
Nevertheless, Bashirov, had nothing but praise for the business climate that Tatarstan has created for private businesses to operate in. “If we had been in a different place—in Moscow, in St. Petersbug—I don’t know if we would have been able to achieve such rapid growth and become such a large company,” he said. “It is not only possible but profitable to do business here.” As an example, he explained that the new Danaflex-Nano factory was allowed to connect to the electrical grid for free—“in Moscow we would have had to pay hundreds of millions of rubles to do this,” he exclaimed—adding that, as an investment project, Danaflex-Nano gets tax breaks on assets and on profit from Tatarstan. “The republic’s leadership, in actions rather than in words, demonstrates its practical support,” Bashirov added. “I wouldn’t have built my second factory here if I felt that something wasn’t right.”
Made in Russia
Danaflex-Nano currently operates in Russia, Belarus, and Kazakhstan, but the company hopes to expand its client-base in Europe, so that exports constitute 20 per cent of sales by 2015. The company has already been audited by quality control regulators, Akhmetov explained during the tour of the factory, and has been approved for sales on the European markets. The company has opened a sales office in Ukraine and has a sales representative in Germany. “We see that we can offer high-quality product at a price lower than the one that currently exists in Europe,” Bashirov underscored, before adding that it would take time to impress this fact on the continent’s conservative market: “It is difficult to convince manufacturers to purchase raw material—in this case, packaging—from Russian companies.” For now, Bashiov and his team are working “step-by-step” to increase their presence in this market.
Foreign skepticism of Russian companies “is well known,” commented Jonathan Fianu, Managing Partner of PPP Local, a Russio-British consultancy firm operating in Tatarstan. “You have to be overly transparent, you have to develop a good client history, financials, and so on….The other half is dogged determination.” Even so, Fianu believes that Danaflex will be successful in entering the European market. “I am sure Danaflex will work it out in due course. It’s a company with serious prospects, and now a serious partner.”