Jürgen Benker, investment consultant and long-term companion of Arva, talks about future opportunities, moral obligations and the influence of the Ukrainian crisis on Arva’s business.
Herr Benker, for several years you have served Arva AG as a financial advisor. Last year the company found itself in financial distress. How do you think this happened?
Perhaps a brief review first: I got to know the founder of the predecessor company MOG AG, Genadi Man, at a conference in 2008.Back then, the company had a good reputation and a great product — the STORM-15, in particular, which was newly developed and at the time an entirely novel unit for the remediation of oil sludge and recovery of the extant oil. Capital was necessary for setting up the company internationally. I offered my services to help with the search for investors. We were successful quickly and able to acquire funds for the expansion.
Fundamental problems, however, soon became apparent. For example, there was no real sustainable corporate planning. Decisions by the management were often erratic. In addition, too little was invested in the development of the team. Cohesion was missing, as was a clear vision of the company’s future.
And then the downward slide took its course?
Right. And bad luck as well. The first major contract for use of the STORM unit had successfully begun in the Ukraine and produced cashflow. This was proof that the technology worked and thus a valuable reference. In 2013 the client TNK-BP was taken over by the Russian public enterprise Rosneft. Shortly thereafter began the crisis on the Crimean peninsula, where the machine was in use. The deal died. The company experienced its first serious financial difficulties. Ultimately, at the end of 2015, there was the threat of insolvency. Some voices in the board of shareholders advocated liquidation and wanted to start a new corporation with the same corporate objective. I fought this from the beginning because of the long-term investors loyal to the company, to whom I felt a responsible. As I saw it, the result was a moral obligation to save the company. Moreover, I strongly doubted that the business model could be easily copied, especially with regard to patents and licenses. We were able to convince the majority shareholders that the chances for a turn-around looked good. Bernd Sydow, who had just gotten on board as an investor, took the role of chief financial officer for an interim period to initiate consolidation and, a few months later, was promoted to CEO.
How do you assess the situation today?
The feedback from investors today is very positive with regard to the new management. In the meantime, the balance sheets have been adjusted, agreements reached with creditors, insolvency averted. In short: the crisis has been weathered, if nothing else because the inherited burden has been eliminated, in the style of the “honorable merchant.”
In the past, I have often had to take the fall to explain myself to investors. I am very pleased about the new start, the good phase that is beginning and, as I see it, will last a long time.
How does one become a financial advisor? And what are you doing for your clients?
I am a trained banker. After my studies in business management, I completed a training program at a major bank and received instruction to become a Certified European Financial Analyst, or CEFA. After positions in asset management, investment banking, equity sales and trading at various banks, I worked at Bankhaus Sal. Oppenheim from 2000 until 2009.
With my team, we initially set up the institutional equity business. Most recently, I was a senior vice president of investment banking and equity sales and trading and was responsible for the regions of Southern Germany, Austria, Italy and Switzerland. Then came the banking crisis, and new structures found their way into banking and the bank was split. My area and I were taken over by Maquarie, an Australian investment bank specializing in infrastructure.
Back then I thought: if I have to reinvent myself, then I will do it on my own terms and became self-employed. Due to my long-standing contacts in finance, I have since advised numerous small and mid-sized companies successfully during venture-capital financing and in their search for investors, especially in the fields of health care and biotech. With a small team of analysts and financing specialists, we consult market-listed companies, private investors and family offices, often in collaboration with banks as well as retirement and mutual funds. It is frequently a matter of corporate assessment and matching growth opportunities with investors to support companies and financiers with the best possible deal.
What are you currently advising Arva to do?
The most important questions right now are: how much capital is needed to finance the planned growth? And where will the money come from? Since the current cashflow is not sufficient to carry out plans, we have to secure liquidity in the medium term until the turnover comes as planned. Equity or debt capital — that is the next question. In other words, new liquid assets from an increase in cash capital or from credit? We are currently focusing on private equity, that is, equity from existing and new private investors who, like us, are convinced of Arva’s potential.
Sounds like a good plan. How should it be carried out?
Over the past weeks and months, we have had a lot of promising conversations and are currently in negotiations. The subsequent process will have to happen in phases. At the beginning of the coming year, an increase in capital will take place during a shareholder’s meeting. First we have to determine the price per stock, which has to be attractive to both current and future investors. Various factors will be considered in the calculation. How do we assess the prospects of new business? How do we evaluate the potential areas of business opportunities for Arva’s technologies on international markets? What is the value of the license for the unique NHS+ procedure? How are the current team and the distribution positioned? What results will the announced pilot projects bring?
What happens once these questions are answered?
The first step is to finance the plans for 2017. We will then evaluate the business plan for the first two quarters. If the plan goes accordingly, I consider a realistic increase in the stock value to be 7.50 franks. If the company continues to develop as planned, an appropriate rating could be 15 to 20 franks in the medium term. In this way, the company would have a value of between 45 and 60 million franks by the end of the coming year, the beginning of the following year. At its best point, the company had already achieved a market value of over 80 million franks, before the stock was removed from the market due to its corporate crisis. Today we are in a much better position, which is why I consider the development described to be quite realistic.
That means you see Arva on the stock exchange soon?
As I see it, Arva AG should strive to be listed in the medium term, perhaps even by the end of 2018. That would not only stabilize the financial situation but also promote the business model “green technologies” and draw the attention of suitable investors, such as funds specializing in investments in sustainable environmental technologies. It is a way of reaching investors who could or would otherwise not buy, because they simply do not know the company or only invest in listed companies. Furthermore, it facilitates an eventual IPO, or “major” launch on the stock market accompanied by investment banks.
What has to happen until then?
Currently the focus is on further stabilizing the company. If the team continues to work as they have and additional competence gets on board — and the conditions for this are outstanding — then I see great potential. The management has to advance the roll-out of products and services. Alongside product development, sales and distribution are at the top of the agenda. Any clever investor understands that capital is needed for this. The “proof of concept”—that is, the proof that the technology works on a laboratory scale—has been achieved. If NHS+ works as successfully in the upcoming pilot projects and, as the next step, the STORM remediation unit for the decontamination of oil sludge is reactivated, the chances for the company’s positive development are even greater than I have outlined. I have made no secret of the fact that I see huge opportunities for Arva. Today the conditions are better than ever.
What are these positive expectations based on?
In one sentence: Arva AG offers state-of-the-art clean tech. This technology remediates oil-based pollution in a process that is nearly 100% environmentally neutral. The problem and its solution are entirely plausible, because we all know that there are tremendous, global problems due to environment pollution from hydrocarbons. The cleaning methods that have been available on the market do not offer the potential of Arva technology, which is green tech in the best sense of word. And it is virtually unique. The combination of the proven degradation rates and the absence of poisonous residue is, in my opinion, unparalleled.
In which area of business and in which markets do you see the greatest opportunities?
Track remediation for railway companies is a major topic. Even more promising is the cleaning of real estate previously used for industry and in areas with oil production. All over the world there are gigantic tracts of top innercity plots or fertile agricultural areas that have had to be abandoned and now lie waste. These properties can be made useful again with Arva’s remediation methods. This is where I currently see the greatest potential.