Arming Ukraine Makes the Soviet Tank Converter a Billionaire

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(Bloomberg) — The dilapidated factory on the edge of the Czech medieval town of Sternberk repaired military vehicles abandoned by the Nazis after World War II. Now part of a complex churning out hardware for Europe’s latest conflict, it has made a billionaire of its owner.

The Excalibur Army takes rusty Soviet-era tanks – often covered in mud and grass – and converts them for use. Since Russia invaded Ukraine in February 2022, Michal Strnad’s company has benefited from the highest demand for weapons since the end of the Cold War.

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Of course, war can be lucrative. Europe’s defense spending sent shares of military equipment makers soaring to record levels this year, driven by orders from companies such as Germany’s Rheinmetall AG. But Strnad’s family business stands out in a country that was once a major arms supplier to NATO opponents in the former Eastern Bloc.

At 31, Strnad is about the same age as Excalibur, which was founded by his father and is now the largest and most profitable part of Czechoslovakia’s Group AS (CSG). Sales jumped to 1.73 billion euros ($1.9 billion) last year, the company said last week, more than three times as much as in 2021.

“Even if the war ended tomorrow, it would take years to replenish depleted supplies, not to mention efforts to increase defense spending and boost production,” Strnad said in his office in Prague. “I’m confident there will be strong demand for a long time to come.”

The company, which also produces its own combat vehicles as well as civilian and military trucks, has had a full order backlog for years, according to Strnad.

CSG expanded by purchasing Spanish arms producer Fabrica de Municiones de Granada in 2020 and Italy’s Fiocchi Munizioni SpA two years later. It is currently seeking to purchase Vista Outdoor Inc.’s ammunition business, a deal that is facing political opposition in the United States.

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The new geopolitical landscape is a boon for defense contractors. Europe is taking steps to boost production and bolster military readiness, while the U.S. is withholding new funding for Ukraine and presidential candidate Donald Trump has threatened to abandon NATO partners that don’t meet spending requirements. Last month, the European Union agreed to develop an “industrial defense strategy.”

Read more: Ukraine says situation in east is worse as Russia steps up attacks. The war in Ukraine is entering a new phase that puts energy in its sights

Still, the industry faces its own challenges. The rapidly growing order books require larger premises and more staff. Added to this are supply chain disruptions, higher energy costs, restrictions on public spending and the fact that some investors are reluctant to finance weapons manufacturers.

Analysts at Goldman Sachs Group Inc. said last week that valuations of some defense companies are now stretched. Rheinmetall shares, for example, have risen more than 500% in the last three years, outperforming most major U.S. technology companies. said Guy Anderson, chief analyst at Janes, which specializes in defense and security.

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Strnad’s father, Jaroslav, founded Excalibur in 1995. He bought decommissioned Soviet tanks and other equipment from future NATO members in Eastern Europe with the plan of turning them into scrap for profit. But he discovered a thriving market for spare parts and used combat vehicles in places like Africa, and also benefited from some close political connections at home. Since then, Excalibur has renovated heavy military equipment, including approximately 300 T-72 main battle tanks. Around 100 of them have so far been loaded onto trains along with artillery shells and sent to Ukraine. CSG’s heavy munitions production increased more than tenfold since the start of the war in Ukraine, while its workforce nearly tripled to 10,000 people at sites in eight countries.

Michal Strnad succeeded his father as sole owner of CSG in 2018, when he was in his mid-20s. According to the Bloomberg Billionaires Index, he is now worth at least $5 billion and his company is one of the fastest-growing arms manufacturers in Europe. CSG spokesman Andrej Cirtek did not want to comment on the assessment.

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The group is building new assembly halls in three European countries and has offered to buy the Vista Outdoor unit for $1.9 billion. If the Vista deal goes through, CSG could refinance all of its debt, which currently consists mostly of loans from local banks, through international lenders and bondholders. The plans include investing hundreds of millions of dollars in a possible defense joint venture in Ukraine.

The expansion plans come amid increasing concerns about the situation on the ground in Ukraine due to the severe shortage of ammunition for Kiev’s armed forces. The warming weather is also increasing concerns that Russia will have a better chance of breaking the front line if attacks are renewed.

Czech Defense Minister Jana Cernochova praised the local defense industry for “playing an important role in supporting Ukraine since the beginning of Russian aggression.” While she declined to comment on individual companies, she said via email that proof of her commitment was “the issuance of export licenses worth almost 130 billion crowns,” or $5.5 billion.

The companies also draw on a history of weapons manufacturing. With the collapse of communism in 1989 and the collapse of the Warsaw Pact, Czechoslovakia’s factory network collapsed. Tens of thousands of people lost their jobs and sprawling complexes were left to collapse. But after Czechoslovakia split into two nations and both made their way into NATO, new opportunities arose.

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Sternberk, about 200 kilometers east of Prague and best known for its medieval castle and old town, illustrates this change. On the Excalibur site, decommissioned T-72s are gradually making their way through the facility. First they are dismantled piece by piece and then reassembled.

Opposite the older workshop, new buildings are being built as the company expands. The new halls will be used for the production of brand new combat vehicles, including self-propelled wheeled howitzers, another important artillery component that Ukraine needs.

An hour’s drive from Excalibur, CSG’s automotive company Tatra has just begun developing hydrogen and battery-powered alternatives to its civilian and military trucks.

Strnad, whose father introduced him to the company in elementary school and made him chairman when he was 21, said he was ready to take CSG to the next level. His longer-term goal is to measure Rheinmetall’s enterprise value compared to its earnings, a measure of what investors are willing to pay for a company.

“We are not Rheinmetall yet, but we are catching up,” he said. “I haven’t even thought about selling any of my assets, even though I get offers every month. If I sold, what would I do with the money? I’d have to go and buy something else, so what’s the point?”

– With support from Slav Okov and Peter Laca.

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