Workshop Private Equity - Rannaleet

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Workshop Private Equity - Rannaleet

  1. 1. Private Equity – a catalysts for change? EC Restructuring Forum, Brussels, July 2010 Anne Holm Rannaleet © IK Investment Partners
  2. 2. Confidential 2 Contents Section 1 Brief introduction to IK Section 2 How can PE drive industrial change? Section 3 Corporate Governance in a Private Equity setting Section 4 Discussion © IK Investment Partners
  3. 3. Confidential 3 Section 1 Brief introduction to IK © IK Investment Partners
  4. 4. Confidential 4 Introduction to IK Investment Partners IK - A leading European private equity firm • Founded in 1989 • €5.7 billion raised in six funds Finland Norway Sweden • 69 investments Stockholm Denmark • 51 exits1) London Hamburg • Aggregated sales of portfolio Benelux Jersey Luxem- Germany, Paris bourg Austria, Switzerland and companies approximately €8 billion Central France Eastern Europe • 30+ investment professionals of 9 nationalities IK’s mission is to deliver above average Investment teams returns to its investors by creating long-term Investment advisory offices value in acquired businesses Fund administration office 1) Including partial exits © IK Investment Partners
  5. 5. Investment strategy and process Confidential 5 Introduction to IK Investment Partners Creating regional and pan-European market leaders Further international expansion Develop on European scale - Buy and build strategy Acquire national Internationalise standards champion Broaden management team © IK Investment Partners
  6. 6. Confidential 6 Introduction to IK Investment Partners The IK portfolio © IK Investment Partners
  7. 7. Confidential 7 Section 2 How can PE drive industrial change? The IK way © IK Investment Partners
  8. 8. Confidential 8 Active Ownership – a catalyst for change - the IK way The IK way – an operating approach to building companies Corporate Governance Industry Strategic focus restructuring Capital Expansion Operational excellence Strong Corporate Governance constitutes one of the cornerstones of IK’s approach to value creation © IK Investment Partners
  9. 9. Confidential 9 Corporate Governance within IK Change is effected in different ways for different situations Themes Measures Examples Refocus Business line restructuring Benchmarking Operational excellence Transfer of best practices Industrial restructuring Consolidation through mergers/acquisitions Maintenance Dedication to service aspects After-sales Market growth Expansion Product expansion © IK Investment Partners
  10. 10. Confidential 10 Value creation Corporate governance Actions Operational Board of Directors – Appropriate board composition – Frequent board meetings – Strategic issues always board decisions Continuous evaluation of management capabilities and requirements Close partnership between IK and portfolio company management – Frequent informal contacts – Entrepreneurial management culture – Incentive schemes to align interests Stimulate fast and professional decision making process © IK Investment Partners
  11. 11. Confidential 11 Value creation Strategic focus Actions Identify core business(es) immediately Find homes for non-core assets and focus on building the core business Identify key strategic directions – Clear goals – Set deadlines Tailor the organisation to fit strategy Building a leading kitchen company through industry consolidation Set strategic road-map for value creation © IK Investment Partners
  12. 12. Confidential 12 Value creation Operational excellence Actions Initiate transfer of best practices through benchmarking Set measurable performance targets Increase organisation’s focus on capital efficiency Implement systems for continuous performance improvement Create best-in-class company © IK Investment Partners
  13. 13. Confidential 13 Value creation Expansion Actions Enhance R&D and marketing efforts to: – Target new customer segments/ applications – Develop new products Invest in production capacity Expand after-sales and service Pursue geographical expansion – Organic growth – Acquisitions Invest in growth © IK Investment Partners
  14. 14. IK value creation Confidential 14 The IK approach: Proven hands-on investment strategy Confidential 14 Equity MEUR 100% 9 000 +107% -19% 8 000 13% -1% 7,575 7 000 6 000 5 000 4 000 2,769 3 000 2 000 1 000 0 Equity Earnings Multiple Debt Reduction Other Exit Investment Growth Arbitrage Valuation Note: Based on weighted numbers as of 30 September 2009 © IK Investment Partners © IK Investment Partners
  15. 15. Confidential 15 The IK approach Different industries….. Different geographies…… Different situations….. Different cycles….. Is there a common denominator? © IK Investment Partners
  16. 16. Confidential 16 Section 3 Corporate Governance in a Private Equity setting © IK Investment Partners
  17. 17. Confidential 17 Corporate governance in a Private Equity setting Key Success factors in Private Equity Sense of Urgency Strong and Alignement of active owners interest © IK Investment Partners
  18. 18. Confidential 18 Corporate governance in a Private Equity setting Does the ownership structure affect success? Momentum Starka och Intresse- Aktiva ägare gemenskap Private Equity Public companies Owner Owners (IK Fund) Board Board Management Management Which are the differences? © IK Investment Partners
  19. 19. Confidential 19 Corporate governance in a Private Equity setting Does the ownership structure affect success ? (cont.) Momentum Starka och Intresse- aktiva ägare gemenskapp Private Equity Public companies Board is the owner’s prolonged arm Often need to compromise different owners’ strategic agendas Smaller boards Can be more challenging and time Informal communication and decision consuming to find mutual consent making facilitated Quarterly earnings focus Value creation strategies are more easily agreed and pursued Largely institutional ownership CEO rarely Chairman Risk of longer term lethargy PE firms can exercise a stronger and more active influence on the board and management than in public companies © IK Investment Partners
  20. 20. Confidential 20 Corporate Governance in a Private equity setting Sense of Urgency in Private Equity Sense of Urgency Strong and Alignement Well-defined time horizon: exit is anticipated within 3-7 years active owners of interest Detailed value creation plan prepared and agreed at the outset; needs to be executed and future growth platform put in place to ensure successful exit The IRR-measure, which itself is return and time driven, makes timing of a successful exit paramount. Purchaser needs visibility on future value potential Acquisition financing comes with a detailed amortisation plan which needs to be adhered to in order to avoid default on financial covenants Strong and clear Sense of Urgency throughout system © IK Investment Partners
  21. 21. Confidential 21 Private Equity vs Public Equity Alignment of Interest in Private Equity Momentum Starka och Intresse- aktiva ägare gemenskap The IK fund is the majority owner, but management and external board members co- invest in equity - Investing on same commercial terms as IK - Option like programme to boost upside PE firms share risks with their investors and are rewarded by the IRR delivered to the fund. Incentive programmes for management are predominantely also based on the IRR at exit Common goal is clear to everyone from the start and also measurable (IRR) High degree of common goal and alignment of interest © IK Investment Partners
  22. 22. Confidential 22 Board work in a Private Equity setting Board work as a channel for value creation Corporate governance An active and competent board is a prerequisite for a successful investment Industry Strategic focus restructuring ”The Investment case” presented to new board members is a platform for value creation and thereby for the board work Expansion Operational excellence – Strategic agenda – Operational improvements – Financial goals Detailed and effective framework for improved board work (”Board Guidelines”) Division of responsibilities – owners vs. operators To ensure a quick, structured and flexible decision making process © IK Investment Partners
  23. 23. Confidential 23 Corporate Governance within IK Management of the portfolio company The company management team is responsible for day-to- day operations IK is involved in strategic decisions at board level Frequent informal contacts between IK and management IK expects management to invest in the Portfolio Company Portfolio company CEO member of the board of directors where legally possible © IK Investment Partners
  24. 24. Confidential 24 Corporate Governance within IK Matters always to be dealt with by the portfolio company board The purchase or sale of any real estate, business, shares or other securities Changes of business focus and significant organizational changes Major investments or divestments Employment or discharge of top management Important EHS matters © IK Investment Partners
  25. 25. Confidential 25 Corporate Governance within IK Matters always to be dealt with by the portfolio company board (cont) Significant law suits Changes in credit arrangements Publication of important information Board of Director’s fees and auditor’s fees Proposals on election of external advisors © IK Investment Partners
  26. 26. Confidential 26 Corporate Governance within IK To sum up Active ownership with clear agenda and alignment of interests Control of investments & divestment process Clear division of responsibilities Leverage the know-how acquired and networks PE model provides good setting for driving industrial change © IK Investment Partners

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