The Bulgarians were jittery after some bad experiences with privatisation in the early 1990s, when a few state-owned enterprises were sold off to foreign investors and subsequently bankrupted.

“There was this great nervousness that some unknown financial investor would appear and asset-strip BTC and leave them with the ashes, which is entirely reasonable,” Ms James says. Privatisation of a national telephone company is also naturally more sensitive an issue than that of, for example, a factory or retail business.

Promising start

At first it all seemed relatively straightforward. There was an open and transparent bidding process, which Advent won at E200m (later raised to E230m), followed by final due diligence, and negotiation and initiation of the contract. But then nothing happened. A month later, the government announced that it was starting negotiations with the Turkish consortium of Koc Holding and Turk Telecom, which had offered E185m.

During the next six months, Advent fought 14 legal challenges in the Supreme Administrative Court of Bulgaria, winning them all. The contract was finally signed in February 2004 and the deal closed in June, but the fight was still not over. There was then bureaucratic stalling over fulfilment of various conditions of the contract, and two competitors protested against BTC being awarded a GSM licence. Some legal proceedings related to that matter are incomplete but Ms James is optimistic that they will be resolved by the end of this year.

For all the hassle, Ms James believes that Advent’s story says less about the ability to do private equity investment in eastern Europe than it does about the complexities of privatisation generally. “There were more similarities between this deal and a privatisation in, say, Italy than between this and a private deal in another eastern European country,” she says.

Privatisation lessons

Nonetheless, she has taken away three important lessons from the experience in Bulgaria. Foremost is that the goal of EU membership is essential to spurring investment in Bulgaria and its neighbours. “The reason why we invest in Romania and Bulgaria, and not Ukraine and Serbia, is that they have a fixed framework of laws and regulations that must comply with EU directives,” she says. “That creates a degree of predictability and certainty that is very valuable for an investor.” Bulgaria is scheduled to join the union in 2007.

Second, she says, delays can be deadly in private equity deals. In the two years it took for Advent to complete the deal, BTC lost its monopoly on voice telephony. Not only that, the company is now obliged to offer local loop unbundling in just six months’ time – something that realistically requires five to15 years of preparation.

“The door was pretty much slamming shut,” says Ms James. “If it had taken any longer the whole thing would have failed.” Collapse of the deal would have been unfortunate for Advent but, more than that, it would have been disastrous for Bulgaria to fail for the second time to privatise what is one of the government’s more appealing holdings (a previously unsuccessful attempt was made in 1997).

Determination pays

The third lesson is that persistence pays. “All these obstacles are thrown in your path and it’s not easy, but you have got to be determined to keep pushing through,” Ms James advises.

Advent stuck it out through the legal wrangling and setbacks, but was it worth it in the end? “I’ll tell you that in five years’ time,” she says. “In the investment business it’s only when you make the return that you can say whether it was really worth it. But from where I sit today I would say yes.”