15 years of value creation - ik investment partners news11final.pdf · of oriflame, secondary...

news “IK was one of the early adopters of atruly added-value strategy. It is far moreakin to an industrial holding companythan a traditional private equity firm.”

Fund Investor’s perspective, page 11UPDATE FROM INDUSTRI KAP ITAL ISSUE 11 WINTER 2004

15 years of value creation

15 years of value creation

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VIEWPOINT

Delivering on our promises

THIS SPECIAL edition of IK News is dedicatedto our 15th anniversary – an important land-mark for any firm but particularly so in thefast-moving world of private equity.

So far our teenage years have been exciting and not proven too traumatic. Infact, 2004 has been a very good year for IKwith three new investments to date, and a series of successful realisations.

This year IK has backed buyouts of thewholesale business Terje Høili AS includingthe franchise rights to the hard discountretail chains Europris and Max 20 inNorway, Eltel Networks in Finland and theenergy and environmental services companyIdex in France.

On the exit front, this year saw the IPO of Oriflame, secondary placings of shares inNobia and Alfa Laval, trade sales of Fives-Lille and Labeyrie, and the recapitalisationof Gardena. These realisations combined toreturn €814 million to our fund investors.

As always, we have continued to work hardwith our portfolio companies in terms of initiating and facilitating improvement programmes and efficiency enhancing measures.

Overall, the bounce-back in the businessclimate has positively influenced our portfoliowith the value of unrealised investments up16 per cent compared to 2003. Almost 70 percent of this value increase has come fromearnings growth in the portfolio companies,with EBITDA up 22 per cent in the overallportfolio. Debt continued to decrease and isdown almost 10 per cent on last year.

One of our greatest challenges this yearwas securing our latest fund – IK2003.Although we raised less than our original target, the fund received strong support fromexisting investors and, at €800 million, willstill enable us to continue to direct ourefforts at the middle market in the Nordicand continental European area.

The fundraising process has prompted usto take a long hard look at our strategy andour organisation – and we have learnt a lot.Now, having solidified and reconfirmed ourcore values and goals, established how wewill work going forward and taken steps toensure our competitiveness and success forthe future, welook forward todelivering on our promises toinvestors.

Björn SavénChief Executive, Industri Kapital

MUCH OF INDUSTRI KAPITAL’S success in theEuropean private equity arena hinges on itshands-on operational approach to both initialinvestment opportunities and to working withits portfolio companies. “We provide them withdirect strategic input and work closely withmanagement, over a period of years, to achievemajor performance improvements,” saysMichael Rosenlew, Partner and ChiefExecutive Region East.

“Essentially, we will assist with anything thatmight help a portfolio company grow. The endresults are invariably stronger, better focusedand more efficient companies with excellentlong-term prospects and the generation ofabove average returns for our investors,” he says.

When analysing prospective investments, IKgenerally looks for companies that have strongmarket positions but which are, for clearly identifiable reasons, not performing at their full potential.

Another important investment criterion is aproven ability to generate cash flow, as well asthe potential for a business to double operatingprofit within three to five years. “We identifycompanies that could be best in class but whichhave, hitherto, been under-achievers,” saysGustav Öhman, Partner and Chief ExecutiveRegion West. “Over our holding period, wework intensively to create the platform andopportunities which enable it to achieve best inclass performance,” he continues.

Expansion candidates

In particular, IK focuses on companies that arealready regional or national leaders, but whichhave the potential to become pan-Europeanleaders. “The idea is often to take a local

Value creation, IK styleEstablishing clear goals, setting

measurable performance

targets and working in close co-

operation with portfolio company

management. These are some

of the key features of the

philosophy behind IK’s long-term

approach to value creation.

Three of IK’s partners, Michael

Rosenlew, Gustav Öhman and

Anne Holm Rannaleet, share

some lessons learnt.


company and, after having refocused it arounda solid core business, turn it into a European orglobal market leader,” says Rosenlew

Nobia is a good example of this approach.When IK acquired the company in 1996 it wasa loss-making manufacturer of kitchens, doorsand windows, focused on the Nordic region.Following an intensive restructuring processand a series of kitchen business acquisitions, aswell as the divestment of its doors and windowsoperations, Nobia was transformed into a highly-focused, profitable kitchen companywith a market-leading position in Europe.

“Our companies typically make one to twoadd-on acquisitions during our holding period,”says Gustav Öhman. “We have an importantrole to play in these situations and normally we assist the companies in finding the rightopportunities. We can leverage the know-how

and network of our local teams in order to alsocover cross-border opportunities which aresometimes less obvious. We can also providefollow-on equity capital, arrange debt financingand negotiate deals.” Dutch fish processorPieters, for example, was bought by IK in 1998and sold in 2001 having doubled its sales andprofits through substantial organic growth andfive add-on acquisitions.

Other IK essentials in the value-creation process include establishing clear goals, settingmeasurable performance targets and ambitiousdeadlines. “We also need to feel we have a

common vision and ‘angle’ with a company’smanagement and will work in close cooperationwith them,” says Öhman.

Following the buyout of Viking SewingMachines in 1997, the company was rebuiltfrom the ground up with new management andnew systems plus a market-oriented approach inorder to capitalise on a niche consumer market.

In deals such as this, IK focuses not just oncapital efficiency but also works to enhance R&D and marketing efforts, invests in increased production capacity, and focuses onthe after-sales and service aspects of a business.

Cross-fertilising experiences

Another key element in IK’s value creation toolkit is the cross-fertilisation of acquired experiences and knowledge from earlier transactions into new situations. “For instance,

when we looked at Alfa Laval, we could leverage our experience from the KCI deal, in which we employed a strategy to boost theafter-market side of KCI,” says Öhman.

Vendor participation is another IK theme –17 out of 48 investments have seen the sellerremaining with a significant minority stake inthe business. This track record is particularlystrong in Finland, where five out of seven investments have been structured this way. “Wefeel comfortable that the company hasn’t been‘dressed up’ for sale, while the vendor knowsthat they will share in the company’s upside

going forward. The fact that the seller remains a minority owner is also a proof of their beliefin us as a ‘value creation catalyst’,” notesRosenlew.

A ‘people business’

Fundamental to IK’s past, present and futuresuccess is the high calibre of its investmentteam and support organisation. “We need to be able to attract and retain the best people,”says Anne Holm Rannaleet. She believes that,from the outset, IK has been very successful in finding and recruiting highly-skilled professionals with complementary backgroundsand experiences who have fitted well within the organisation. “From this diverse pool of different nationalities and backgrounds we havemanaged to create a stimulating entrepreneurialcorporate culture in which the individuals worktogether across our offices, sharing knowledgeand experience,” she says.

“We have also put significant efforts intobuilding platforms and systems that enable us toleverage past experiences, avoid reinventing thewheel and which make critical information anddata easily available to us.”

IK’s investment professionals span a range ofareas of competence including industrialists, M&A specialists and strategy consultants. Team members must also be able to combinetheir local knowledge with an international outlook. “They have to be well-rooted in thelocal business communities with strongnetworks and come with an entrepreneurialmindset,” says Rannaleet. “This you will see atall levels throughout the firm. It is very muchIK’s culture.”

“We identify companies that could be best in class but which have, hitherto, been under-achievers. Then, we work intensively to create the platform which enables it to achieve best in class performance.”

PARTNERS: Michael Rosenlew,Anne Holm Rannaleet and Gustav

Öhman talk to IK News aboutsome of the key features of the

philosophy behind IK’s long-termapproach to value creation.

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AS WITH MANY successful businesses, IK wasborn out of opportunity and necessity – privateequity was well-established in the US and UKin the late-1980s, but there were very few organised funds targeting the Nordic region.

1989 Recognising this gap in the market, I leapt at the chance to join Enskilda Securities(part of Sweden’s S-E Banken) in 1988 to set upEnskildaVentures in London and to raise the€108 million Scandinavian Acquisition Capital(SAC) Fund (later the IK1989 fund). I gathered a strong team with complementaryskills and experience – Kim Wahl, Harald Mix,Anne Holm Rannaleet, Mads Ryum Larsen andGustav Öhman – and we threw ourselves intothe task.

We got off to a strong start with encouragingopportunities emerging in the wake of the ongoing restructuring of Swedish conglomeratesand the prospect of some state sell-offs. Our firstinvestment was the buyout of the Swedishindustrial kitchen-supplies company Idesta in

15 exciting years

1989, an acquisition that was followed by astring of transactions in Sweden, Norway andDenmark over the next three years.

1992 By late 1992, however, S-E Bankenwas beset by financial difficulties and unable tocommit to a second fund. Out of this adversitycame the opportunity for us, SAC’s core investment team, to stage our own buyout.

The safe harbour of a large parent has itsmerits but, actually, for us it was great to have independence. Private equity is an entrepreneurial business and, as a separate entity,it was much easier for us to work with otherbanks and establish third-party relationships. At the same time, our relationship with otherparts of Enskilda actually improved as well.

We achieved three successful exits in 1993,and, having relaunched as Industri Kapital, wehad a track record that we could take into thefundraising market. Raising a fund as a newly independent firm is always a daunting and difficult task, but we had some good deals

As IK celebrates its 15th anniversary, Chief Executive Björn Savén looks back on one-and-a-half decades

of investment and growth: “We are very proud of our achievements and look forward to the next phase.”


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under our belt and a strong strategic story to tell.As well as organising the buyout, setting up

new offices in Stockholm and Oslo and raisingthe new fund, we were also sourcing deals and managing as well as realising existing investments. Needless to say, it was a hectictime!

1995 Our new fund – IK1994 – closed at€250 million in 1995. In conjunction with that,we managed to broaden our predominantlyScandinavian investor base to include ContinentalEuropean and North American institutions.

KCI Konecranes was IK1994’s first investmentand this ground-breaking deal was also IK’s firstinvestment in Finland and the country’s firstmajor buyout.

Although Germany, France and the Beneluxcountries had been included as part of our

geographic area from the outset and we haddone the CSE Oxford deal in the UK, our firstinvestment outside the Nordic region reallycame in 1995 when we acquired the Dutchfreight forwarding company Amas.

1996 Following KCI’s successful IPO on theHelsinki Stock Exchange and IK’s investmentinto the Finnish speciality chemicals companyNoviant in 1996, it became clear that Finlandmerited having its own investment team.Michael Rosenlew, a Swedish Finn who had joined the firm in 1993, was given theresponsibility to lead our Finnish team.

Also in 1996, Detlef Dinsel joined the firmto spearhead our entrance into the German private equity market. The following year, weopened our Hamburg office and closed ourthird fund – IK1997 – with

commitments of €750 million. Our first investment in Germany came in

1998 when we acquired the electrical wholesalebusiness, i-center Beteiligungen. Unfortunately,i-center proved to be a troublesome deal as theGerman construction cycle was more negativethan we had originally expected, and althoughwe fought hard to keep the company alive, itfinally went down in 2001.

We learnt a number of valuable lessons fromthe situation, not least that turnarounds in revenue-sensitive, cyclical industries with lesstop-line stability can be extremely challenging.It is also clear that it can be difficult to carveout distribution chains where the vendor is asignificant supplier. We now firmly believe thatcaptive distribution channels can only be successful with the clear, formalised support ofthe key supplier – combined with a significant


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minority shareholder position. We are also nowwary of companies requiring multi-dimensionalrestructuring.

2000 Despite the collapse of NASDAQ,the sudden death of the dot.com boom and thevolatility of European capital markets in theearly part of 2000, our strong track record andsecure investment strategy enabled us to closeour fourth fund – IK2000 – at €2.1 billion.Although we had set out to raise €1.5 billion,the interest from prospective investors was sostrong that we had to increase our target.

The fact that we had stuck to our originalstrategy, investing mainly in traditional manufacturing and service industries, and haddemonstrated our ability to invest successfullyoutside Scandinavia was very helpful to us inthis fundraising process.

In 2000, we started recruiting a dedicatedFrench investment team. This team, headed by Christopher Masek, has since then been successful in delivering a steady stream of investments, creating substantial value in thebusinesses acquired and, recently, selling two

of the companies as well. Over the last few years, IK’s investment pace

has normalised compared to the exceptionallybusy years in the late 1990s and early part of2000. Our investments during this period havebeen spread over our entire investment region

and range our preferred industries. On the realisations front we have, despite

tough market conditions, managed to completea number of successful exits including IPOs,trade and financial sales.

Looking back, with the number of investmentsgrowing rapidly between 1999 and2001 through a rush of large andoften complicated deals and withnumerous exits on the runway,there was little room for us tobreathe. In addition, we faced theexciting but time-consuming

challenge of managing our own growth anddevelopment as a firm.

IK grew particularly rapidly following theclose of the IK1997 Fund – from eigth peoplesitting together in a room at the time of ourown buyout, we suddenly, or so it seemed, had

“On the realisation front we have, despitetough market conditions, managed to complete a number of successful exits including IPOs, trade and financial sales.”


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15 years of value creation: the figures tell the story

Time of acquisition

Time of exit

EquityInvestment

EarningsGrowth

MultipleArbitrage

DebtReduction

Other ExitValuation

100

252

100

+91% -6%13% 2% 308

OPERATING PROFIT SOURCES OF VALUE CREATION

INVESTMENTS BY COUNTRY INVESTMENTS BY INDUSTRY

Norway

Denmark

Germany

France

The Netherlands

UKBelgium

Finland

Sweden

Manufacturing

Service

Retailing, wholesale

& distribution

Food processing

Specialised process

Media

Building materials

1) 2)

3) 3)

about 30 people spread between four offices!This kind of growth introduces a different

dynamic which made it necessary for us todevelop new systems, procedures and internalcontrols. Dedicated resources for both portfoliomanagement and investor relations have nowalso been established.

2004 It can be difficult to balance growthwith effective management but I feel that now,with 32 investment professionals and a total staff of about 70 people, IK has reached a comfortable size – the appropriate size for what we want to accomplish. With the right framework in place, we also now have solid pillars to lean on.

This year has seen the closing of our fifthfund at around €800 million. The fundraising

process this time around was a tougher challenge, with many hurdles to be overcome.However, as is the case with challenges, one

learns a lot, particularly from mistakes made,and one gets valuable insights into many matters – insights which will serve us and ourinvestors well going forward.

Although the fund closed below the original target, it received strong support fromexisting investors and will still enable us to

continue to direct our efforts at the Nordic andContinental European middle market. Weexpect the fund to make around 12 investments.

Like many of our portfolio companies,IK has come a long way in the last 15years and here, our results speak volumes.Since inception, IK has made 48 primary investments, having put a total of €2.9 billion of new money into value creation.This has grown into €2.9 billion of realised capital We still hold stakes in 26

companies with our investment portfolio valuedat €2.3 billion.

We are proud of this achievement and trustthat our next phase of growth and developmentwill be equally rewarding.

“IK has reached the appropriate size for what we want to accomplish. With the right framework in place, we also now have solid pillars to lean on.”

1) Indexed, weighted average, 23 fully-realised investments as of 30 September 2004.2) Indexed, based on unweighted numbers, 23 fully-realised investments and 4 substantially-realised investments as of 30 September 2004.3) By number of investments, 48 investments as of 1 October 2004.


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Views from the sharp end

Konecranes was born. This was IK’s first deal inFinland. It was also by far the biggest privateequity investment seen in Finland at that time,so it was a big step for everybody.

Right from the beginning our relationshipwith IK was a partnership – a deep, knowledge-based, trustful partnership. And today, eventhough IK has exited the business, Björn Savén,Michael Rosenlew and I remain close friendsand business associates – I sit on IK’s industrialadvisory board and I am also a member of several portfolio company boards. There is ahuge amount of mutual respect.

Obviously there were many challengesduring the 22 months of common ownershipbefore KCI joined the stock market. IK wasalways very involved. But it was also ready tostand back and give us space. When KCI waspreparing for its listing, for example, IKentrusted me to lead the flotation process fromstart to finish.

Generally IK is very hands-on, althougheach investment case is different. Thefirm does not have one single rule that overlayseverything. Some managements are very capable but, equally, IK will step in and changeor supplement a team if necessary.

IK are skilled professionals but they will alwayslisten, and there have been times when I haveconvinced them to follow my suggestions. I also like to joke that they are typical Swedes –they look, and they talk and then they donothing. At KCI we have really stepped up thepace of decision-making for them!

IK’s investment in Konecranes was pioneering.Since then the private equity industry has reallyexploded in Finland. It has become a real force

KCI Konecranes

Industri Kapital backed the buyout of KCIKonecranes - one of the world’s leading manufacturers of overhead travelling cranes – inApril 1994. The company floated successfullyon the Helsinki Stock Exchange in March 1996capitalised at some €170 million.

Stig Gustavson: “In late 1993 KONE’s cranesdivision – of which I was Managing Director –was up for sale and had been offered to a buyerthat I was not keen on. So I began seekingother solutions.

I was referred to Björn Saven and Michael

Rosenlew of Industri Kapital by some bankingcontacts. IK listened carefully to our plans for the business, we had some very positivediscussions and I felt very comfortable dealingwith them.

Once IK had conducted its own researchinto the industry and checked my backgroundcarefully – and still liked what they saw – inFebruary 1994 we committed to buying thebusiness. This began the most hectic six weekperiod of my life.

The negotiations were often nailbiting and there was a last minute flurry to pull thefinancing together but, on 15 April 1994, KCI

“Our relationship was a deep, knowledge-based and trustful partnership right from the beginning.” We

asked two industry leaders - Stig Gustavson, President and Chief Executive of KCI Konecranes, and

Fredrik Cappelen, Chief Executive of Nobia – to describe IK’s partnership approach to maximising value.

TRAVELLING HIGH: IK made a pioneering investment with Konecranes in 1994. Since then, the private equity industry in Finland has exploded. “This is a really healthy development,” says Stig Gustavson, right.


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in the economy and this is a healthy development. The worst thing for anybody is to work for a company with no future. IK reallycommits to the future of the companies inwhich it invests and, invariably, that future isgreatly improved by having IK on board.”

NobiaNobia is one of IK’s most successful investmentsyet. It backed the company in a buyout fromStora in 1996. Since then the company hasbeen transformed into a leading, internationalkitchens group. In June 20002 Nobia floated on the Stockholm Exchange, valued at €490million.

Fredrik Cappelen: “Nobia was being auctioned-off by Stora Group in 1996. I was thecompany's Managing Director for the businessarea Stora Byggprodukter at the time and hadnever been involved in a process like this before.I found it difficult. It was time-consuming andit took energy and focus away from the business.Above all, we didn’t know who would end upwinning.

So it was a time of great uncertainty. But we

drew up a ‘wish list’ of who we ideally wantedas our future backers. IK was top of the list.They had made a good impression on us. Theyunderstood where we wanted to go with thecompany. They were people we felt good with.

Our relationship, particularly during theearly years, was one of intensive co-operation.IK was always there and we really valued theirinput, particularly when making acquisitionsand disposals.

IK was particularly supportive duringNobia’s restructuring. You need investors whoare long-term, committed, and yet prepared toconsider and support an element of risk. For example, we had a windows business which was loss-making. Rather than give up on it, IKencouraged us to actively manage the situation.So we merged it with a similar business, madeit good, and were eventually able to sell it onfor a profit.

This is a good illustration of how privateequity works to create stronger, more efficient,businesses. This should perhaps be appreciatedmore fully in Sweden and Europe where people can often be too focused on the immediate, short-term situation.”

“You need investors who are long-term, committed, and yetprepared to consider and support an element of risk.”

THE NOBIA TRANSFORMATION is a good illustration of how private equity works to createstronger and more efficient businesses, saysFredrik Cappelen, Chief Executive of Nobia.


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Building firm foundations

HARBOURVEST PARTNERS, the global privateequity (PE) ‘fund-of-funds’, and Varma MutualPension Insurance Company, Finland’s biggestinstitutional investor, are both well-established,highly successful PE fund investors. Withoutinvestors like these, private equity firms wouldnot have a leg to stand on.

As a dedicated private equity investor, all ofHarbourVest Partners’ $17 billion of discretionarymanaged capital goes into unquoted equity.With some €20 billion under management,Varma channels 1.5 per cent of its money intothe unquoted sector. “This allocation may

grow – PE is a useful diversification whichcomplements more traditional investing. But itdoes take time and specialist skills to build asuccessful PE portfolio,” says Mikko Koivusalo,who heads Varma’s alternative investmentsteam.

Varma puts about one-third of its PE capitalinto funds focused on the Nordic region, and itis specifically interested in supporting its homecountry, Finland. The balance is invested primarily in the rest of Europe and the US.Varma has less than 20 per cent of its alternativeassets allocation set aside for venture capital asit is heavily oriented towards managementbuyouts.

HarbourVest Partners’ aim is to ensure that its portfolio is diversified over time andappropriately in terms of geography, industryand the development stage of the underlying

companies. It then sets about selecting thoseGeneral Partners (GPs) with the potential togenerate superior rates of return.

Selecting funds

When judging which GPs are likely to achievethe best returns, HarbourVest Partners lookswell beyond the current economic environment.The firm reviews the performance of prior investments, the experience of the individualprofessionals and the organisation’s structure, incombination with the fund’s investment focusand strategy as well as the terms and conditions

of the partnership. “Ingood times, everyone’sperformance improves,”says George Anson,Managing Director ofHarbourVest Partners.“We are looking to

identify the likely value that will be added to abusiness – through buy and build, deleveraging,turnarounds and so on – over five to sevenyears,” he explains.

In its quest for the best funds, Varma focuses primarily on historic performance andinvestment discipline, as well as the GPs themselves and how they run the business.

“GPs must have the right experience andresources to generate the returns. And this isoften as much about managing the businessand the exit route as it is about making the original investment,” says Koivusalo. “If a GP’strack record is variable, we look to see which ofits investments have been difficult and decidewhether or not they have learnt lessons from it,” he says.

Finally, but high up on the importance list,HarbourVest Partners and Varma evaluate how

the structure and terms of the fund align theinterests of the manager with those of the fundinvestors.

Side-stepping the ‘style drift’

With the emergence of a ‘super-league’ of PEfirms setting out to raise capital pools of €2 billion-plus, fund size is an important issue forHarbourVest Partners.

“We assess the extent to which the GP’sskills and experience support the strategy of thenew offering. We also make judgements as tohow the strategy will be impacted by the size ofthe new fund and how it compares with thesize of the firm’s previous fund,” says Anson.

HarbourVest Partners wants to be sure thatthe fund fits with the opportunity. It will notinvest in a GP that it believes is out to raise toomuch money. “With ever larger funds there canbe huge ‘style drift’. The GP may be going outof its area of core competence and returnscould suffer. We like to see firms focused onwhat they are really good at,” Anson says.

Relationship counts

While looking askance at funds which successi-vely size-up, one of Harbour Vest Partners’ owncharacteristics is its stature, typically makingindividual fund commitments of up to $80 million. “But we are big for a reason,” Ansonsays. “Each investment we make has to bematerial - large enough to make a difference.We do not take an indexed approach. We liketo be one of the five largest investors in eachfund we invest in. We can then sit on the advisory committees and really influence thosefunds,” he continues.

“And because we limit the number of ourGP relationships, we can really commit to

“PE firms are now more inclined to listen to what we have to say and we do have more influence in terms of the charges, conditions and characteristics of individual funds.”

What goes on in the mind of a private equity fund investor? George Anson, Managing Director of HarbourVest

Partners, and Mikko Koivusalo, Head of Alternatives at Varma Mutual Pension Insurance Company, talk to

IK News about their private equity investment strategies and commitment to the asset class.

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those funds,” Anson maintains. “Another corephilosophy is that once we have decided to gointo a fund for the first time, it is usually at leasta two-fund decision. For the vast majority of theGPs in which we invest we will also be aroundfor their next fund,” he says.

With the pillars of its investment operationsbeing profitability and security, Varma is alsoregarded as a committed investor with a long-term view. “We like to have a close relationshipwith the GPs and understand their investmentpolicies well,” says Koivusalo. Varma, likeHarbourVest Partners, also concentrates its PE activities into relatively few funds and willusually go into successor funds.

Industry’s growth and maturity

Over the last ten years, as the European PEindustry has gained in confidence and credibilityand PE firms and their funds have grown andmatured, the industry has become far moreinstitutionalised - and the fundraising climate isfar more competitive. The balance of power hasshifted away from the PE firms themselves andtowards the institutions on which they rely forcapital.

“PE firms are now more inclined to listen towhat we have to say and we do have more influence both in terms of the charges, conditions and characteristics of individualfunds,” says Anson.

Being a PE fund investor is, therefore, farmore hands-on than one might imagine. “Welike to have regular and close discussions withour GPs and to really know what they aredoing,” Koivusalo says.

Anson adds: “We meet formally with ourGPs at least two or three times a year and look closely at the underlying performance of theportfolio companies and have discussions abouthow best to maximise value and achieve theoptimum exit. But there is a line we cannot anddo not cross in terms of our involvement withtheir portfolio companies”.

When it comes to monitoring performance,PE funds are difficult to benchmark, although

the industry has become more transparent inrecent years. But Anson believes the media hasa lot to answer for in terms of the PE image.“This ‘veil of secrecy’ idea has been over-blown.This is not how the industry operates. We generally get great information back from ourGPs,” he says.

But is there a danger that PE could becomea victim of its own success? “PE is a constrainedasset class. There is not enough “product” togo around. So if there were an extreme increasein the amount of money pension funds were to allocate to PE, then there might be moremoney than investment opportunities and

returns would suffer,” Anson notes. However, Anson believes that currently

there is no obvious equity overhang. “The market was over-heating in 1999/2000 but nowit is a normalised, balanced investment environment,” he says.

Secondaries and direct investments

In addition to committing capital to new fundsbeing raised by PE partnerships, both Varmaand HarbourVest Partners take secondaryinterests in existing funds and make direct investments into companies. HarbourVestPartners puts about 70 per cent of its capitalinto new funds, 15 per cent into secondariesand 15 per cent into direct investments.

To get comfortable with the pricing,HarbourVest Partners tends to take secondary

interests in funds in which itis already an investor andwhere it knows the GP andthe portfolio companies well.Similarly, Varma purchasedthree secondary stakes lastyear, all of which were in

US funds in which it was already invested. In addition to its private equity fund

investing, Varma is also keen on co-investmentopportunities through its GPs. Varma alsomakes equity and mezzanine-type investmentsdirectly into Finnish companies. “We are leveraging relationships and by going direct wecan cut out the GP’s fee structure. But wemostly seek to do this in our home market,”says Koivusalo.

Anson describes the co-investing, or takingof direct stakes, as ‘complementary capital’which does not compete with the mainstreamPE product.

Backing independents

George Anson became acquainted with IK back in the early 1990’s, but HarbourVestPartners did not invest until IK’s second fund in 1994, once IK had gained its independencethrough its own buyout. “Part of our core philosophy is to back independents so this putIK squarely on our radar screen,” says Anson.“It was a risk, but the landscape was lookingpretty interesting,” he continues.

“IK was one of the early adopters of a trulyadded-value strategy. One of its differentiators isthat it is far more akin to an industrial holdingcompany than a traditional PE firm. It is veryinvolved, cooperative and supportive of its investee companies,” he says. “We also liked thefirm’s regional responsibility, the leadershipstyle of its chief executive, Björn Savén, and thefirm’s organisational structure”.

Varma was also an investor in IK’s 1994 fund.“This was our first ever PE investment, andamong our best. It was a relatively large commitment, but it got Varma’s PE portfolio offto a flying start and has been very successful,”Koivusalo says. Both HarbourVest Partners andVarma have invested in IK’s second, third,fourth and most recently its fifth fund, IK2003.

Looking ahead, both players see theEuropean buyout market as attractive and exciting, but at the same time very competitive.“However, if organisations are strong, skilfuland have the right resources, they will still beable to achieve good long-term investmentreturns,” observes Koivusalo. “And becausefirms like IK are constantly adapting, even ifthe market is crowded, they will still manage to find tremendous opportunities,” Anson concludes.

PRIVATE EQUITY FROM THE PERSPECTIVE OF TWO FUND INVESTORS:George Anson, (44) Managing Director, HarbourVest Partners, left, was born in Canada, educated in the US,and is now a UK citizen. He has been in the private equity business for over 20 years, having spent sevenyears managing investments in European PE funds for Pantheon Ventures before joining Hancock VenturePartners in London in 1990. HarbourVest Partners was founded in the US in 1997 to assume the business ofHancock Venture Partners and is wholly-owned by members of its investment team. Mikko Koivusalo, (43) Head of Alternatives, Varma Mutual Pension Insurance Company, rigth, is Finnish andjoined Varma Mutual Pension Insurance Company in 1997. He previously worked in the banking industry andis based in Helsinki.

“GPs must have the right experience and resources to generate the returns. This is often asmuch about managing the business and the exitroute as about making the original investment.”


ik news 13

Ready for take-off

AFTER YEARS OF restructuring, streamlining andoperational improvement, Perstorp is well onthe way to becoming the highly focused specialtychemicals group Industri Kapital and Perstorpmanagement originally set out to create. Salesand margins are rising, and the product portfoliois focused on segments with great growth prospects. Perstorp is getting ready to fly.

In the second quarter this year, Perstorp’stwo business units, Specialty Chemicals andMaterials Technology, both showed stable development. The group is poised to meet itslong-term financial targets, 8 to 10 per centsales growth and 20 percent operating margin (EBITDA).

”Years of restructuring, streamlining andoperational improvements are starting to pay off.Today we are the world leader in the segmentswe have chosen to focus on”, says LennartHolm, CEO.

The Perstorp of today is a very different creature from the listed widespread chemicals conglomerate of the late 1990s. Then, Perstorphad eight business units and was involved ineverything from plastic containers to advancedbiochemistry. The transformation has beenprofound. Today, two business units remain:Specialty Chemicals and Materials Technology.

The group, which is head-quartered inPerstorp, Sweden, has some 2,000 employees, manufacturing facilities in eight countries inEurope, North America and Asia, and a salesorganisation that spans countries all over theworld. Sales in 2003 totalled approximately€630 million (SEK 5.7 bn).

The Specialty Chemicals division manufactures and markets polyols, carboxylicacids, plasticizers and alcohols. It also sells formalin manufacturing facilities and catalysts.

The Materials Technology division focuseson composite materials for advanced applicationsparticularly in the automotive, aerospace, andconstruction industries.

An emerging specialty chemicals group

Perstorp’s transformation was initiated in themid-1990s. In 2000 the group was midwaythrough the overhaul, but had lost tempo.Conflicting ideas among the main shareholdershampered the speed of change.

Recognising the potential in Perstorp’s core businesses, Industri Kapital made a public-to-private offer for the company on the StockholmExchange. After some controversy, mainly regarding the floor-manufacturing subsidiaryPergo, a second offer was accepted by a majorityof the shareholders in the spring of 2001.

6 months

SEK million 2001 2002 2003 2004Sales 7068 5998 5741 3270

Operating profit before depr./amort. (EBITDA) 845 1121 922 563

Operating margin (EBITDA), % 12.0 18.7 16.1 17.2

Operating profit (EBIT) 221 536 343 269

Operating margin (EBIT), % 3.1 8.9 6.0 8.2

Cash flow from continuing operations - 770 754 322

Debt/equity ratio 1.55 1.42 1.34 1.28

HIGH-QUALITY SOLUTIONS: Perstorp products enhance a vast amount of end products that are important in the everyday lives of people throughout the world.

FOCUS: CHEMICALS

After three years of continuous and focused change, Perstorp’s transformation is profound. The company

used to have eight business units. Today only two remain: Specialty Chemicals and Materials Technology.

Strong operating performance


On track to profound transformation

14 ik news

Industri Kapital’s first step after the buyout wasto appoint Lennart Holm as CEO. Lennartholds a degree in Chemical Engineering fromChalmers University of Technology and has amanagerial background from the chemicals andpaper industries.

The second step was to integrate the Dyneasubsidiary Neste Oxo into Perstorp. A sizeablespecialty chemicals group emerged, with proforma sales of SEK 7.1 billion. But profitabilitywas far from acceptable. The operating margin(EBIT) in 2001 was 3.1 percent.

“Right after the takeover Industri Kapitalwas deeply involved. A steering committee wasset up with Industri Kapital and Perstorp people,where we defined targets, allocated resourcesand initiated a change process. Some 200change projects were initiated. We held meetings every other week and were in contactalmost every day. As we picked up speed,Industri Kapital’s role became more traditional”,Holm recalls.

Three main challenges

The year after, in 2002, a series of structuralchanges followed. The business areas IndustrialResins and Construction Chemicals weredivested, as were the holdings in PerstorpClariant. On the investment side, PerstorpMoldable Composites acquired the corresponding activities from the RodgersCorporation in USA.

With a viable structure in place, LennartHolm and his team have spent most of theirenergy ensuring that Perstorp meets its threechallenges; developing the product portfolio inconcert with customers, achieving operationalexcellence and making the Perstorp corporateculture truly competitive.

As a consequence of a major cost-cuttingproject during the first half of 2004 the totalnumber of employees was reduced by approximately 8 per cent. In parallel, a simplification of the legal structure was initiated, combined with a new and function-oriented organisation.

“The new organisation is well under way ofbecoming a success. It allows us to focus andutilize our resources in a much more efficientand flexible way, increasing time spent on value

creation for our customers”, says Holm. Last year was sluggish for the chemicals

industry. The combination of rising raw material prices, rising energy prices, negativecurrency effects and weak demand hurt growth and margins.

This year Perstorp has picked up speed.Operating margins (EBITDA) in the first halfrose sharply to 17.2 percent. Sales were up 8percent to SEK 3.3 bn. The cash flow from continuous operations was up 28 percent during the first half. This excluding non-recurring costs connected to downsizing of the organisation.

Sales in Specialty Chemicals amounted toSEK 2.7 bn in the first half, a top-line growth of11 percent. The operating margin (EBITDA) of20 percent was up by almost two percentagepoints from the first half last year. The businessunit was able to compensate for rising oil pricesthrough price increases.

In Materials Technology sales totalled SEK

2001 • Industri Kapital acquires

Perstorp through Sydsvenska

Kemi

• Neste Oxo is acquired by

Sydsvenska Kemi and integrated

into Perstorp’s operations

• Approximately 200 change

projects initiated

• New business processes

organisation launched

2002• Industrial Resins, Construction

Chemicals and Holdings in

Perstorp Clariant divested

• Moldable Composites

operations acquired from

the Rodgers Corporation

2003• Five orders for formalin plants

and four capacity-expansion

orders were received from

customers in Europe, China

and South America.

• Establishment of joint ventures

in South Korea and Japan

enhanced positions in specialty

chemicals markets in Asia

2004• Rationalization of Swedish

operations

• Functional organisation

introduced

• Growth oriented projects

initiated including a SEK 250

million investment in two new

acid plants in Perstorp and

Stenungsund, Sweden

547 m in the first half, down 4 percent from2003. The operating margin (EBITDA) was 12percent. The more traditional products stillshow weak margins. However, the market acceptance of several advanced high-marginproducts is increasing. The managementexpects a strong growth in sales and margins asthe general business climate improves.

“The financial goal for the group set by theboard is to achieve organic growth of 8–10 percent annually over a business cycle. The target for the operating margin (EBITDA) is 20percent or better. These are challenging but realistic targets, but they can only be achievedif Perstorp continues to expand its marketingnetwork and, to a certain extent, its manu-facturing capabilities outside Western Europeand North America. Our presence in China,Japan and South Korea is strategically veryimportant,” says Holm.

After three years of continuous and focusedchange, Perstorp is in great shape for flying.

FOCUS: CHEMICALS

UNDER CEO LENNART HOLM, Perstorp has undergone a major overhaul, concentrating on the potential inthe core business.


ik news 15

INDUSTRI KAPITAL IS A major investor in specialty chemicals in the Nordic region. Withfocused and well-positioned product portfoliosand steadily rising sales and margins, IK’s portfolio companies, Perstorp and Dynea, aregetting ready to participate in changing theindustry’s structure.

“Most chemical companies were built onproduction logic. Companies expanded by turning bi-products from chemical processesinto new products. The result was large conglomerates with small or non-existent synergies between the parts. Many of thesestructures have had to be dismantled andrebuilt on sound business logic. Perstorp andDynea have been reshaped, and will play veryimportant parts in such new structures”, saysMichael Rosenlew, Chief Executive RegionEast and Partner at IK.

In the new structures he envisages, threerequirements need to be fulfilled.

“Companies need to have critical mass, product diversity, and closeness to customers. It is only with all these three requirements inplace that a business logic can be made towork”, says Rosenlew.

Critical mass means having the size requiredto enjoy competitive economies of scale in all parts of the value chain. All the way frompurchasing to marketing, size matters.

Product diversity helps to counter-balancefluctuations in prices, both for raw materialsand in the outlet markets. Highly specializedchemical companies often experience extremevariations in cash flow and profitability, makingthem financially vulnerable. From a financialperspective, a good mix of products meanshealthy risk management.

Chemical groups with sound product diversity typically also have a stronger R&Dthan one-product companies. They can mixcompetences from different product lines tocome up with new innovative solutions to meetclient needs.

A seldom acknowledged benefit is that awider range of products and processes providesan important tool for change.

“Much of the structural changes in theindustry happen through asset swaps – companiesswapping production units with each other. If

you want to take part in the restructuring of thechemicals industry, you need to havesomething to bargain with”, says MichaelRosenlew.

Closeness to the customers is equally important. Management must be able to quickly adapt to changing user preferences.This can be achieved by integrating forward in the value chain.

“But forward integration and bypassing of

intermediates should only be considered if critical mass can be achieved. This is often difficult, since specialty chemicals customersare dispersed all over the world. Local presencein small markets doesn’t always make sense.Developing co-operation with retailers andother intermediaries is often a better alternative.The important thing is that you know what thecustomers demand”, Rosenlew continues.

IK made its first investment in the specialised

Formula for growth

“Companies need to have critical mass, product diversity, and closeness to customers. It is only with all these three requirements in place that a business logic can be made to work.”

FOCUS: CHEMICALS

Industri Kapital is reshaping the specialty chemicals industry in the Nordic region. Michael Rosenlew,

the IK partner responsible for the investments, shares his vision: ”Companies need to have critical

mass, product diversity and closeness to customers.”G

ET

TY

IM

AG

ES


process industry in 1996 through the acquisitionof Metsä Specialty Chemicals (MSC, laterrenamed Noviant) from the paper group MetsäSerla, now M Real.

Noviant produces, markets and develops themost widely-used cellulose ether, carboxymethylcellulose (CMC). When IK acquired the company, CMC was used mainly for paper coatings and detergents. However, the management of Noviant saw the opportunitiesin, and convinced IK of, CMC’s many otherpotential application areas. Together IK and the management pioneered new commercialapplications for CMC, and today CMC is usedin more than 200 applications, in everythingfrom washing detergents to ice cream and

pharmaceuticals. IK divested Noviant in 2001after substantial value had been created.

“We learnt a lot from that investment and itinspired us to look further into the industry. We started to analyze the major players in thespecialty chemicals sector, and found that theopportunity was there to create a leadingNordic chemicals group based on the threerequirements”, says Rosenlew.

When Fortum, the Finnish energy group,put its subsidiary Neste Chemicals up for salein 1999, IK seized the opportunity to acquirethe company. The Norwegian chemicals andcommercial explosives group Dyno Industrieswas acquired in August 2000 through a bid onthe Oslo stock exchange. Dyno’s chemical division was merged with Neste Chemicals toform Dynea, while the explosives business wasspun off to form Dyno Nobel.

In 2001 Perstorp was acquired from theStockholm Exchange through Sydsvenska

Kemi, a company controlled by the IK2000Fund. In connection with that acquisition,Sydsvenska Kemi acquired Neste Oxo fromNeste Chemicals in order to combine it withPerstorp. The combination of Perstorp andNeste Oxo was an industrially logical transaction as was Dynea’s subsequent acquisition of Perstorp’s Industrial Resins division, an acquisition which took placeduring spring 2002. These transactions werestrategically important both for Perstorp andDynea and significant synergies could be realised for the two companies.

In 2001 IK also bid for the partly state ownedFinnish pulp and paper chemicals supplierKemira. But the bid fell through for political

reasons. The deal relied ongaining approval from theFinnish parliament and despite significant efforts toshow the economic andindustrial benefits of theplanned combination in theNordic specialty chemicalsindustry involving Kemira,Dynea and Sydsvenska

Kemi , it was not possible to find sufficient support for the transaction in the FinnishParliament.

In the last three years Perstorp and Dynea,with sales approximately of €630 million and €1 billion respectively in 2003, have undergoneradical changes under IK’s supervision. In both companies the operating performance has been improved and focus on high value addedproducts in targeted customer segments hasincreased.

“From IK’s perspective, the issue of whetheror not to merge the two groups is not top-of-mind. Our purpose is to create value throughactive ownership. There is still a lot of value tobe made by helping Dynea and Perstorp toimprove their operations. When this process is ready, we will find the right ownership structures for them – structures that have critical mass, product diversity and closeness to customers”, concludes Michael Rosenlew.

“Much of the structural changes in the industryhappen through asset swaps – companies swapping production units with each other. If you want to take part in the restructuring of the chemicals industry, you need to havesomething to bargain with.”

NEW FORMULAS: The chemical industry is undergoing major changes. “Many old business structures have had to be rebuilt with a more sound businesslogic,” says Michael Rosenlew, IK partner and Chief Executive East.

16 ik news


ik news 17

PORTFOLIO COMPANY NEWS

Perstorp will invest SEK 250million (€28 million) in two new acid plants, in order toincrease capacity for the production of acids at thecompany’s plants in Perstorpand Stenungsund.

The market for carboxyl acids

is expected to grow rapidly in

the coming years and the

investment decision has been

made to enable Perstorp to

meet the increasing demand.

Formic acid is used in a number

of products, as an additive in

silage and feed and as a tanning

agent in the leather industry.

2-ethyl hexane acid is used

as an additive in safety glass

and coolants, among other

applications. The expansion will

be implemented in stages, with

the goal of having the newly built

plants ready for operation at the

end of 2005.

“The investments will

strengthen our portfolio of acid

products, which means that we

will be able to retain our market-

leading position as a producer of

2-ethyl hexane and also to find

new application areas for the

product,” said Inge Pettersson,

Executive Vice President within

the Perstorp Group.

Perstorp invests SEK 250 million in new acid plants

Management changes

Dynea will build a world-scaleformaldehyde and resins plantin Hatyai, Southern Thailand.

The plant will supply the fast

growing wood panel industries in

the region. "This investment fits

well with our growth plans and

is in line with our goal to be the

principal panel board resin

producer in Asia Pacific. By

Dynea expands production capacity in Asia

Martin Bertinchamp has been

appointed new CEO of Gardena.

Mr. Bertinchamp joined Gardena

from the electric power-tools

manufacturer Metabo, where he

was the CEO.

Ruud van Henten has been

appointed new CEO of

Continental Bakeries. Mr. van

Henten most recently worked for

Findus. Previous work experience

includes positions within United

Biscuits and Kraft Jacobs

Suchard.

locating as close to our customers

as possible, we focus on

developing tailor-made solutions

together with our customers, the

panel board manufacturers in

Southern Thailand", said Øivind

Isaksen, Senior Vice President of

Dynea's Panel Board Resins in

Asia Pacific.

The Hatyai plant is expected

to go on line at the end of 2005.

“Dynea's strategy for global

growth includes strengthening

our presence in Asia. This new

investment in Thailand is another

proof of Dynea's commitment to

meet the needs of our fast

growing customer industries in

the Asian markets", said Roger

Carlstedt, President and CEO

of Dynea.

In November, Industri Kapitalannounced the acquisition of Idex, a French energy and environment servicescompany. Idex was acquiredfrom the founding family and a consortium of financial investors for an enterprisevalue of approximately €200million.

Idex’s core activity is the technical

maintenance and management

of energy. The company employs

approximately 3,000 people and

expects sales of €400 million in

2004. Idex offers global solutions

to its clients including the

management of collective

heating and cooling networks

(public and private) as well as

the technical maintenance of

buildings and third-party

management of utilities. Idex’s

clients include local authorities,

residential complexes and

industrial corporations.

Commenting on the acquisition

Christopher Masek, Head of the

French team at IK, said: “This

acquisition is IK’s fifth investment

in France since 2000 and

constitutes our first French buy-

out of a family-owned company.

IK’s experience in local technical

services as well as management

of long-term contracts will allow

us to support the development

of the group. We will work with

the management team, led by

Alain Planchot, to identify and

implement profit improvement

opportunities together with

strategic acquisitions”.

Industri Kapital acquires Idex

TRANSACTIONS


18 ik news

Europe”, stated Tuomo Rönkkö

when the transaction was

announced. “We will utilise the

cumulative know-how from

combining electricity and

telecommunication operations

and will continue to introduce

best practices in the industry.

With innovative and competitive

service offerings, we will be part

of shaping the industry and its

future”.

The new group will be in a

good position to grow further

through acquisitions. “By

merging the two companies we

will see industrial advantages

that will help the business to

develop. At the same time, we

have created a great platform for

further add-on acquisitions in the

network services business in

Northern Europe”, commented

Christian Salamon, leading the

Telefos team at IK.

The next step is now to

integrate the two companies,

a process which will start

immediately.

Swedia is one of three

businesses remaining within the

Telefos Group, out of the seven

businesses originally acquired in

2001. Telefos is controlled by the

Industri Kapital 2000 Fund, with

TeliaSonera as minority owner.

TRANSACTIONS

In October, IK, through Telefos,signed an agreement to acquire Finnish Eltel Networksfrom CapMan.

Eltel will be combined with IK’s

Swedish portfolio company

Swedia Networks. The new

group will have annual sales of

approximately €600 million and

some 4,500 employees. The

acquisition will be completed

after relevant competition

authorities have approved the

transaction, which is expected to

occur during December.

Eltel is specialised in design,

construction and maintenance

of both electrical and

telecommunication networks,

whereas Swedia specialises in

the corresponding services for

telecommunication networks

only. Eltel has very strong market

positions in Finland and Norway

while Swedia is particularly

strong in Sweden. Thus the two

companies complement each

other very well with regard to both

service offering and geographic

coverage.

By combining Eltel and Swedia,

Industri Kapital creates the clear

number one independent service

provider for both electricity and

telecommunication networks in

Northern Europe.

The combined company, which

will be named Eltel Networks, will

be well diversified in terms of

geography, customers as well as

industries, and will be very well

positioned to grow its main-

tenance business further and

to meet the increasing demand

of combined electricity and

telecommunication projects.

“The combination of Eltel and

Swedia follows a clear industrial

logic. We will give our full support

to the strategic goals of the new

combined group,” said Michael

Rosenlew of Industri Kapital, in

a comment to the acquisition.

Tuomo Rönkkö, current CEO

of Eltel Networks, has been

appointed CEO of the new

group. “The new structure will

strengthen the operations and

growth opportunities of Eltel and

Swedia considerably, and the

merger will further enhance our

joint position in Northern

Industri Kapital sells Labeyrie to SÍF

Industri Kapital has signed anagreement regarding the saleof Labeyrie to SÍF of Icelandfor an enterprise value of €333million.

The envisaged transaction, the

largest consumer products

acquisition in Icelandic history,

creates a new and powerful

group of food production

companies with a combined

turnover of approximately €1

billion and a workforce of 3,900

people in 11 countries.

Labeyrie was acquired by the

Industri Kapital 2000 Fund in

March 2002 through a public-

to-private on the Paris stock

exchange. Under IK’s ownership,

the group has significantly

increased its sales both organically

and via the acquisitions of Blini

(2003) and Farne (2004).

“Under an outstanding

management team, Labeyrie has

demonstrated its ability to

consistently outperform its

objectives, in particular seeing its

sales nearly double over a two

year period,” says Christopher

Masek, Head of IK’s French team

in a comment. “We are delighted

to have identified a potential

strategic partner for the Group

which will allow us to further

strengthen Labeyrie’s positions

under its management team.”

ANNOUNCING THE ELTEL TRANSACTION IN HELSINKI. From left: Tuomo Raasio of Capman, Michael Rosenlew ofIndustri Kapital, Tuomo Rönkkö of Eltel Networks and Orvo Siimestö of CapMan.

Industri Kapital creates a leading infranet company in Northern Europe


ik news 19

TRANSACTIONS

Christopher FägerskiöldSwedish. Associate, Swedish

team. Based in Stockholm.

Linda HällstenSwedish. Assistant.

Based in Stockholm.

Samir KamalSwedish. Partner and Head of

Swedish team. Based in

Stockholm.

Tove LangletSwedish. Manager Operations &

Business Control. Based in

Stockholm.

Andrew TownendBritish. Fund Portfolio Analyst.

Based in London.

Jeff WestcottBritish. IT Administrator.

Based in London.

PERSONNEL

www.industrikapital.comwww.alfalaval.com

www.arcasystems.com

www.ceva.com

www.citylink.se

www.consolis.com

www.cpscolor.com

www.dynea.com

www.dynonobel.com

www.elektrokoppar.se

www.eltelnetworks.com

www.enermet.com

www.europris.no

www.fgroup.dk

www.fortex.nl

www.gardena.com

www.harbourvest.com

www.haust.nl

www.intrum.com

www.labeyrie.com

www.laho.fr

www.macgregor-group.com

www.oriflame.com

www.perstorp.com

www.superfos.dk

www.telefos.se

www.varma.fi

www.vsmgroup.com

www.welzorg.nl

WEBLINKS

9 DecemberInvestor Meeting, London.

Industrial Advisory Board

Meeting, London.

During DecemberAnnual Update distributed to

investors.

30 September 2004 Reports,

including Valuations distributed

to investors.

11 January 2005US Investor Meeting,

New York City.

CALENDAR

In October, Industri Kapitalmade its fourth investment inNorway with the acquisition ofthe wholesale company TerjeHøili AS and the franchiserights to the hard discountchains Europris and Max 20.

The three companies will be

integrated into the new parent

company Ekstrem Lavpris AS.

On a pro forma basis, the group

will have combined sales of

approximately NOK 1.4 billion

(€170 million) and some 360

employees.

IK acquired the companies

from Terje Høili and his family, as

well as from the founders of

Europris. The sellers will retain a

20 per cent stake in the new

company, while IK and the

management team will own the

remaining 80 per cent.

The wholesale business Terje

Høili is based in Fredrikstad,

Norway. The company imports

and distributes a wide range of

hard discount products such as

groceries, textiles and other

non-food products, and had

sales of approx. NOK 1.1 billion

in 2003. In addition to supplying

goods for Europris and Max 20,

Terje Høili is a supplier to the

Norwegian food retailer Rema.

The company has existed for

30 years, and has experienced

significant growth in both

revenue and margins.

Europris is the leading hard

discount retail chain in Norway,

with sales of NOK 2.2 billion in

2003. The stores operate through

a franchise concept. Europris

stores sell a combination of

grocery and non-food products

in a wide range of categories.

There are currently 135 stores

throughout Norway located in

city centres, towns and suburbs,

with an average size of approx.

1,000 m2. Europris has

experienced significant growth

over the last years, both on a

like-for-like basis and through

roll-out of stores. The franchise

company is headquartered in

Sandnes, Norway.

Max 20 currently has a total of

58 stores in Norway, located

mainly in shopping centres. The

stores are majority owned by the

franchise company, with the

operator as a minority investor,

Max 20 stores are significantly

smaller than Europris stores

(approx. 250 m2), and the focus

is on both groceries and non-

food products. Revenues in 2003

were NOK 140 million (based on

33 stores at year end 2003).

The hard discount market in

Norway possesses significant

growth opportunities due to

increased price awareness

amongst Norwegian consumers.

IK will support the current strategy

of continuing an aggressive

roll-out of stores in both Europris

and Max 20, and the target is to

reach 200 Europris stores and

100 Max 20 stores in Norway

over the next five years.

Furthermore, there is significant

scope for earnings improvement

through further store upgrades

and improvements of the stores,

as well as more focus on

sourcing through the in-house

wholesale business. In addition

to growing in the Norwegian

home market, it is possible

to export the concepts to

neighbouring countries.

The acquisition of Ekstrem

Lavpris AS highlights IK's

ability to source attractive deal

opportunities in one of its core

markets, as well as the ability to

execute complex transactions

with private sellers.

In addition to Ekstrem Lavpris,

IK owns Dyno Nobel ASA in

Norway. Realised Norwegian

investments include Kongsberg

Automotive (sold to FSN Capital)

and Liva Bil (listed on the Oslo

Stock Exchange).

Industri Kapital invests in Norwegian hard discount retail


IK News is published three times a year by Industri Kapital Limited, Brettenham House, 5 Lancaster Place, London WC2E 7EN, England. © 2004 Industri Kapital Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic,

mechanical, photocopying, recording or otherwise, without the prior permission of Industri Kapital Limited. Editor: Anne Holm Rannaleet. Assistant editor: Maria Nilsson. Texts: Joanna Gant.Cover photo: Tobias Fischer. Binders from Bookbinders Design. Production: Åkesson & Curry AB, Sveavägen 62, SE-111 34 Stockholm, www.akessoncurry.com.

www.industrikapital.com


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