The company gained control of a minority stake in Ciklum

Horizon Capital is investing in Ciklum, a software developer with assets in Ukraine. Yesterday, the investment company reported that one of its funds acquired a minority stake in Ciklum - according to analysts, such purchases usually amount to 10-25% and could cost $6-15 million. Investor interest in the outsourcing programming market is caused by the recent successful IPO of a large Russian developer EPAM Systems, market participants note. Ciklum says that in three to four years they also plan to go public.

Horizon Capital has closed a deal to purchase a stake from software developer Ciklum, the investment company reported yesterday. The purchase will be financed from the Emerging Europe Growth Fund II. Horizon declined to disclose the size of the package, as well as other parameters of the deal. However, it is known that private investment funds usually buy from 10% to 25%, says Andrey Pivovarsky, director of the investment banking division of Dragon Capital. “Horizon’s investments were made in this corridor,” confirmed Ciklum COO Roman Khmil. Before the deal with Horizon, the company's sole owner was its president, Torben Majgaard.

Danish Ciklum was founded in 2002. The company specializes in outsourcing software development. Of its nine development centers, six are located in Ukraine, one in Belarus and two in Pakistan. Ciklum employs 1.8 thousand people, of which more than 1.5 thousand are in Ukraine. According to preliminary data, the company's revenue in 2011 amounted to $58 million, an increase of 78.5%

The funds raised from Horizon Capital will be used to develop development centers in Ukraine and Belarus, Roman Khmil told Kommersant. “We opened in Belarus last year, now about 300 people work there, and in the next two years we intend to double their number. In addition, we will strengthen regional offices in Ukraine,” he continued. According to Mr. Khmil, the company recently opened a sales office in Russia and expects to expand its presence in this region.

The interest of private investment funds in the domestic outsourcing programming market is caused by the recent IPO of a major Russian player, EPAM Systems, which also has offices in Ukraine, say investment analysts. In early February, EPAM raised $72 million on the NYSE by selling a 15% stake. “This placement was a real breakthrough for the market, now investors rushed to it,” notes Andrey Pivovarsky. EPAM shares grew by 68.7% over 2.5 months of trading - their price at the time the exchange opened yesterday was $20.24. Following EPAM, the Russian Luxoft plans to enter the stock exchange. “The Ukrainian market for outsourcing services in the IT sector demonstrated an astonishing average annual growth rate of 28% over the period 2004-2011, and Ciklum is growing faster than the market,” the investment company said in a statement.

A Kommersant source in one of the investment companies, familiar with the course of negotiations, claims that the deal for Ciklum was concluded with a multiplier (the ratio of the company's value to operating profit) 30% less than when placing EPAM - that is, about 6. Operating profit of Ciklum does not publish, but according to analysts, based on EPAM’s profitability, this figure could be about $9.5 million, and the company’s capitalization - about $59 million. As a result, a package of 10-25% of the developer’s shares could cost Horizon Capital $5.9 -14.8 million

Ciklum is planning an IPO in 3-4 years, during which Horizon Capital may leave the company, says Mr. Khmil. “We rely on their financial expertise and assistance in preparing for the placement,” he added. According to the manager, the company plans to go public after reaching revenues of $200-250 million. However, Horizon Capital claims that they intend to focus on the longer-term development of Ciklum, expecting the Ukrainian market of outsourcing IT services to grow by 20-25% per year in the next five years.

Igor Burdyga

Newspaper "Kommersant Ukraine" No. 69 dated April 25, 2012, p. 5

Horizon Capital is software enabled