PC NEWS 3 INSIDE IK 14 IKARE UPDATE 14 VIEWPOINT 16
PLANNING FOR THE FUTURE
07IK’S GERMAN TEAM
INVESTING IN GERMANY
10RONAN LEBRAUT
CEO IN FOCUS
16VIEWPOINT
OPERATIONAL APPROACH TO
DRIVE RETURNS
A NEws L E T T E R F R Om Ik INvEsTmENT PARTNERs Is s UE 2 7 s U m m E R 2 0 1 0news
The merger of Minimax and Viking Group
2 – IK NEWS 1/10
IK NEWS ISSUE 27
weblinks to portfolio companies www.attendo.se www.axtone.pl www.dynea.com www.etanco.fr www.europris.no www.flabeg.com www.idex-groupe.com www.kwintet.com www.magotteaux.be www.minimax.de www.moventas.com www.pasteur-cerba.com www.polytan.de www.schenckprocess.com www.sia-homefashion.com www.superfos.dk www.lahikauppa.fi www.vistra.com www.welzorg.com
CONTENT
NOTEBOOK
07
CHRISTOPHER MASEK How to promote mid-market interests.
MEET IK’S TEAM IN HAMBURGmid-market experts see new investment opportunities.
04MINIMAX – VIKING A confirmed leader in fire protection and life safety service systems.
23-24 September Industrial Advisory Board meeting, Stockholm
9 DecemberInvestor meeting, London
10 DecemberIndustrial Advisory Board meeting, London
During December30 September 2010 Reports’ distributed to investors
CALENDAR
10RONAN LEBRAUT CEO In Focus on prospects for business in 2010.
PC NEWS 3 INSIDE IK 14 IKARE UPDATE 14 VIEWPOINT 16
PLANNING FOR THE FUTURE
07IK’S GERMAN TEAM
INVESTING IN GERMANY
10RONAN LEBRAUT
CEO IN FOCUS
16VIEWPOINT
OPERATIONAL APPROACH TO
DRIVE RETURNS
A NEWS L E T T E R F R OM IK INVESTMENT PARTNERS IS S UE 2 7 S U M M E R 2 0 1 0news
The merger of Minimax and Viking Group
14IKARE Progress in districts.
WELCOME to this latest issue of Ik News which has been refreshed with several new features. we, the German team, are delighted to launch a series of presentations by Ik’s investment teams and to showcase our most recent transaction, the merger of the Us-based fire protection and life safety systems business viking Group with our portfolio company minimax. we also discuss the German PE market as it continues to recover from the economic downturn.
Introducing some of our portfolio company managers, this issue sees Ro-nan Lebraut, CEO of building materials company Etanco, in the Ik News ‘hot-seat’ with valuable insights into the challenges Etanco faced during the recession and the encouraging signs ahead.
Returning to some familiar topics, this edition of Ik News includes an update on our sleeping sickness project in Uganda – a highly rewarding investment of which everyone at Ik is very proud. Closer to home, Anne Holm Rannaleet provides an EU regulatory round-up; Chris masek reveals the thinking behind the EvCA’s new mid-market platform; and our Executive Chairman Björn savén shares his views on the skills needed to drive returns.
On a final note, we have recently moved offices in Hamburg and if you are passing through please don’t hesitate to pay us a visit.
EDITORIAL
“ Xxxxxxx” EDITOR CHARLOTTE
LAVESON GIRARD
Editor: Camilla Telander, [email protected]
Editorial director: Charlotte Laveson, [email protected]
Texts: Joanna Gant, Charlotte Laveson, Anne Holm Rannaleet, Camilla Telander
Art direction: 25AHwww.25ah.se
www.ikinvest.com© 2010 IK Investment Partners Ldt. 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 per mission of IK investment Partners. IK News is published three times a year by IK investment Partners,
Brettenham House, Lancaster Place, London WC2E 7EN, UK.
news
THE HAMBURG OFFICE
12
safe sled seat
PORTFOLIO COMPANY NEWS
IK NEWS 1/10 – 3
Welzorg supports Tornak ExpeditionWELzORG, the Dutch market leader in the rental, distribution and maintenance of mobility aids, supported the 2010 Tornak Expedition through the northern part of Scandinavia. The Tornak Foundation organises activities for children with chronicle handicaps or milder forms of disability. Welzorg developed a complete and safe custom seat to place on sleds so the children could take part in the expedition in complete safety and comfort.
John de Laat and Gerry van Roosmalen from the Tornak Expedition said; “With the support of Welzorg, the children got the safe and controlled use of the sleds. We were very pleased to have Welzorg as a new partner in our expedition and we hope to see further development of the equipment.”
Welzorg is controlled by the IK2000 Fund. Visit www.welzorg.nl for more information.
convenient, clean and cost-effective
SCHENCK PROCESS, a global market leader in the measuring and process technologies sector, has combined Bluetooth technology with its innovative ‘ mechatronic’ equipment and EasyServe service programme to enable its weighfeeders to be operated wirelessly. Using a wireless module, SP’s weighfeeders can now be installed, configured, monitored and maintained digitally from distances of up to 100 metres. Because cables are no longer required, the weighing and feeding process is now far more convenient, clean and cost-effective, particularly when the equipment is difficult to access. In addition, operators are able to work in a more comfortable environment, at a safe distance from the raw materials being processed.
Schenck is controlled by the IK2007 Fund. Visit www.schenckprocess.com for more information.
Wireless weighfeeders the way forward
cfia innovation awards 2010
SUPERFOS has once again been awarded for its innovative packaging solutions. This time for the thin and excellent click-on screw lid SuperLock. Besides the product’s perfect re-closure and re-use, the jury highlighted all the advantages of plastic while giving the visual impression and feel of glass. SuperLock was also commended of its unique barrier protection feature which in combination with a membrane seal ensures an almost non-existing oxygen transmission. Which, in combination with a membrane seal, ensures an almost completely air-tight solution. This means the product offers a shelf life of up to 24 months.
CFIA Innovation Award ceremony - one of the most important French events dedicated to the food and beverage industry - took place in Rennes in March this year.
Superfos is controlled by the IK1997 Fund. Visit www.superfos.dk for more information.
Trophy to SuperLock
eXPansion
THE TRUST AND corporate services company Vistra has now opened an office in Bulgaria. The location offers an outstanding strategic position as a bridge between Europe and Asia. Vistra’s Bulgarian office will initially offer local incorporation assistance as well as related corporate services and will expand its local services in the near future.
Vistra has also recently started to build a presence in the Middle East, with a representative/sales office in Dubai. All the other Emirates, the GCC and the wider Middle East region will be covered from the Dubai office, whose services will be extended in the near future.
Vistra Group is controlled by the IK2007 Fund. Visit www.vistra.com for more information.
Vistra opens new offices
NOTEWORTHY
Bulgaria
Dubai
4 – IK NEWS 1/10
THE MERGER OF Minimax and Viking Group has created a world leader in the international fire protection industry in a deal underpinned
by solid strategic rationale and substantial synergies.
MERGE MINIMAX – VIKING
IK NEWS 1/10 – 5
trategic fit and industrial logic were the driving forces behind the recent merger of minimax, an international leader in the provision of complete fire protection services, and viking Group, the Us-based manufacturer and distributor of fire protection and life safety systems. The deal has created a truly global leader in the fire protection and life safety industries with an annual turnover of more than €1 billion and some 6,000 employees.
“The strategic rationale behind this deal is enormous,” explains minimax chief executive klaus Hofmann, who now heads the combined group. “minimax and viking are a perfect match in terms of their product portfolios, service and distribution skills and geographic footprint. Now they can leverage their combined strengths and extended capabilities to take advantage of opportunities across the globe.
“There are so many complementary aspects to this combination and minimax is an ideal partner,” agrees viking chairman Tom Groos, who now chairs the minimax-viking advisory board. “minimax enables viking to offer an expanded line of non-water based products and to service more markets outside North America, for example, while viking provides a unique platform from which minimax can launch its special hazard products into the Us.”
A perfect fit minimax has a broad product portfolio with a particular focus on sophisticated fire protection solutions for industrial and commercial applications and a strong position in gas, powder and foam systems and technical competence. But it lacked manufacturing and purchasing scale and suffered from low leverage in the North American market in particular as well as limited access to other geographic regions.
viking, meanwhile, has legendary expertise in the production and distribution of high-quality water sprinklers and sprinkler systems but no presence in the special hazard segments.
“viking and minimax’s business models enhance each other and afford great potential synergies in terms of products and services. The two companies’ also have their own regional expertise and this can be used as a basis for cross-selling,” explains Ik managing partner Detlef Dinsel.
“viking is essentially a manufacturer and distributor with no installation capacity,” he continues. “The combined group now has complete value chain coverage from development and R&D, through manufacturing, distribution, sourcing and value-added services, product management, installation and after-care services,” he maintains.
s
“Minimax and Viking are a perfect match in terms of their product portfolios, service and distribution skills and geographic footprint.
Now they can leverage their combined strengths and extended capabilities to take advantage of opportunities across the globe.”
Balanced global footprintGeographically the merger gives minimax a more balanced glo-bal footprint with better access to the North American market, in particular, and stronger coverage in Asia and Europe. some 40 per cent of sales at minimax-viking are now in Europe, 40 per cent in North America and 20 per cent in Asia.
“This merger will also enable us to achieve synergies driven by cross-selling opportunities and to further execute our consolidation strategy in order to increase sales and operating profits,” Hofmann observes.
“In terms of the business model, minimax-viking is now a focused global fire suppression equipment producer, installer and service provider. It combines strong product, service and distribution skills and is in a global leading market position with a particularly strong presence in the most important and largest markets, namely the Us and western Europe,” Dinsel says.
Maximising MinimaxAhead of the merger, in 2008 viking generated annual sales of more than $450 million and employed around 800 people worldwide. minimax had a turnover of some €788 million a year and around 5,200 employees worldwide.
minimax, which has its headquarters in Bad Oldesloe, near Hamburg, in Germany, was first backed by Ik in a tertiary buyout from Investcorp in 2006. At that time it was generating revenues of some €443 million and had an EBITDA of €48 million.
minimax was also then the world’s third largest supplier of integrated fire protection systems and services, a leading European full service provider of fire protection systems and services and the clear market leader in Germany where its red mobile fire protection vans are a familiar sight. The company also had technological leadership with strong product development capabilities and a clear focus on industrial and special hazard situations.
“minimax is a great brand and our aim, from the outset, was to grow the company significantly and develop it into a truly global player,” says Dinsel. “we are very pleased with minimax’s development so far. The busines has become much stronger, with good sales and EBITDA growth, by extending its service offering, increasing its geographic reach and delivering increa-sing growth in special customer segments such as infrastructure and energy,” he says.
with Ik’s support minimax has been
KLAUS HOFMANN
MERGE MINIMAX – VIKING
Anders Petersson, deputy director in Ik’s Hamburg office. “The company had a challenging time in 2009 but, thankfully, that year is now behind it and trading is far more stable.”
with the financial markets also in turmoil, Ik was faced with debt financing difficulties. “But while waiting for the markets to stabilise we continued to investigate potential funding solutions and cary out in-depth due diligence to ensure that we understood the business and its markets even more thoroughly,” Petersson continues.
viking’s family shareholders agreed to accept shares in the enlarged group as part of their consideration - such was their confidence in the outlook for the combined company. Ik was also ultimately able to arrange sufficient financing with additional equity funding coming from Ik Funds as well as existing and new equity co-investors. The transaction was also strongly supported by the minimax bank debt syndicate, which also provided new debt financing. The acquisition agreement was finally signed on 17 November 2009 with completion before the year-end.
Integration and synergiesFuelled by recovery in its core markets, organic growth opportunities and the maximisation of synergies, the outlook for minimax-viking is buoyant. “As a combined entity, minimax-viking has become the genu-ine global leader in a highly attractive segment of the security industry. It has a unique platform for further growth and is the only independent global provider in the fire protection industry,” says Dinsel.
Globally, the fire protection market is worth about €30 billion annually. Driven primarily by new regulations, insurance requirements, health and safety standards and construction/GDP development, it is expanding by between four and six per cent each year.
“we have invested in a company we know extremely well which operates in an industry we also know very well. we fully believe in the company and its sectors and the emphasis is now on successfully integrating minimax and viking and focusing on realising the syner-gies,” says Dinsel. “we need to make sure we execute this integration seamlessly, make all the right decisions when we introduce minimax products to the Us market and continue to explore new opportunities for growth,” he concludes.
“The combined group now has complete value chain coverage from development and R&D, through manufacturing, distribution, sourcing and value-added services, product management, installation and services.”
“We had screened the market for a manufacturer and distributor of fire suppression products for about two years and found that in all critical aspects Viking was far ahead of its competitors.”
DEAL HUNTING RETURNS AS THE DUST STARTS TO SETTLE
able to accelerate the speed of its organic growth and expand through bolt-on acquisitions such as that of the French fire protection company AAs in 2007, Lehavot in 2008 and Heimlich in 2009. minimax also made a major strategic move in 2007 with the acquisition of Consolida-ted Fire Protection (CFP), a leading Us fire protection company with a turnover, back then, of $200 million.
How the Viking deal was doneminimax’s merger with viking was in the pipeline for a relatively long time, as the acquisition process began in earnest in mid-2008. “we had screened the market for a manufacturer and distributor of fire suppression products for about two years and found that in all critical aspects viking was far ahead of its competitors,” says Hofmann.
viking was in the fourth generation of private family ownership. But although the largest family shareholders were closely involved with the business they were not running it on a day-to-day basis and were beginning to think about their strategic options.
Hofmann went to viking’s board and presented his case for a merger with minimax, highlighting why the two business were such a good fit. “After some discussion we reached a strong, mutual agreement on why this deal would make so much sense. There is a compelling cultural fit as well as a business fit and this generated a strong conviction and commitment to the deal from both sides,” says Hofmann.
Unfortunately, by Autumn 2008 the deal team found themselves confronted by an extremely difficult operating environment.
“minimax benefits from the stability and growth prospects of its core market not
least because it attracts significant recurring business from service and refurbishment revenues. It therefore has a less volatile business model. viking, with more operational leverage, is more exposed and was hit relatively hard by the downturn,” says
TOGETHER MINIMAX AND VIKING GROUP have become the global leader in a highly attractive segment of the security industry and the only independent global provider in the fire protection market with a unique platform for further growth.
DETLEF DINSEL
ith an enviable reputation within Germany’s business and financial community, a portfolio of promising investments, a track-record of successful realisations and an experienced deal-making team, Ik is well-placed to capitalise on the investment opportunities
beginning to emerge from the country’s economic recovery.“Forward earnings visibility has improved significantly in recent
months, stability has returned and a pipeline of potential deals is beginning to form once more,” says Ik managing partner Detlef Dinsel.
Alongside the traditional, privately-owned mittelstand, Germany’s major corporates are also likely to be a reliable source of dealflow as they embark on post-recession restructuring and streamlining programmes and seek to shed non-core assets.
“Germany has many large industrial groups which are well- positioned internationally with strong products and skills. These will continue to generate good investment opportunities as will smaller, family-run concerns which are becoming increasingly interested in PE possibilities,” says deputy director Anders Petersson. “In all cases we are looking for companies that are leaders in their respective fields with good brands, top technologies, solid management and strong
development potential,” he explains.Petersson believes that the latter half of 2010 and beginning of 2011
could well be a good time to invest. “From a process point of view and also from a timing perspective this is likely to present a good ‘window of opportunity’ since we are at, or near, the bottom of the cycle and the business cycle is much less uncertain than it was,” he notes.
Associate director Nils Lüssem believes that as corporate profitability stabilises and banks’ appetite for supporting management buyouts returns, it is just a matter of time before Germany’s PE market returns to a healthy level of sustainable activity. “The trend is definitely ‘up’ with the sale of quality assets and proprietary situations emerging once more,” he says.
“During 2009 everyone was essentially operating in uncharted territory and no one quite knew what was happening. Now, however, the market is returning steadily and, with debt financing improving, we can confidently anticipate a reasonably strong bounce-back within the next 12 months,” agrees Dinsel.
Enduring performancewith deal-hunting back on the agenda, what is particularly gratifying for Ik’s four-strong investment team in Germany is the way its portfolio
w
TEAM PRESENTATION:
GERMANY
DEAL HUNTING RETURNS AS THE DUST STARTS TO SETTLE
IK IS SET to capitalise on Germany’s return to growth having successfully steered its portfolio through the economic and
financial challenges over the last 18 months.
IK NEWS 1/10 – 7
FROM LEFT: Anders Petersson - deputy director, Nils Pohlmann - associate, Josephine Ahlers - assistant, Detlef Dinsel - managing partner, Nils Lüssem - associate direcor
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8 – IK NEWS 1/10
companies - namely the sport and recreational surfaces company sport Group; the fire protection business minimax; the measuring and process technologies company schenck Process; and Flabeg, the component supplier to the renewable energy and automotive industries - were able to weather last year’s challenging financial and economic climate.
“Although we are not completely out of the woods yet, our portfolio companies performed admirably last year given the difficult market conditions and may well emerge even stronger from the recession, having really been tested in terms of their financial management, operational efficiency and strategic plans,” says Dinsel.
“None of our companies experienced debt covenant problems or needed debt restructuring measures during the downturn,” continues Petersson. “All of them proved they were soundly structured with strong management teams who reacted early, quickly and appropriately to the situation,” he says.
Ik had a rapid rate of investment in the three years leading up to mid-2008 but, as Lüssem explains, by the end of 2008 Ik had switched
from deal-making to focus almost exclusively on portfolio management. “we completely supported our portfolio companies, were as alert to the developing situation as we could be, and worked extremely hard to make sure nothing was going wrong,” he says. “Now the worst of the recession is hopefully over, we have reverted to value-creation-mode.”
Associate Nils Pohlmann observes that, from the portfolio perspective, the last 18 months have been extremely interesting but challenging. “we stayed close to management throughout and really concentrated our efforts on portfolio issues,” he says.
Another highlight for the team last year was the successful completion of a major strategic deal for minimax which merged with the Us fire protection company viking despite the prevailing ‘credit crunch’ (see page 4). The merger has created a world leader in the international fire protection industry with revenues of €1 billion-plus and some 6,000 employees worldwide.
Market comes of ageGermany’s PE market has developed steadily in the 13 years since Ik opened its dedicated office in Hamburg. “At that time we had identified a clear need for an on-the-ground presence in Germany and recognised
Minimax-Viking – confirmed global leader
SPORT GROUP, a leading European provider of outdoor sport and recreational surface systems, was acquired by IK in May 2006. Based in Burgheim, Sport Group has over 750 employees and sales of €301 million.
Sport Group’s all-weather performance
INVESTMENTS
SCHENCK, a global leader in measuring and process technologies, was acquired by IK in October 2007. Headquartered in Darmstadt, Schenck has over 2,000 employees, activities in more than 40 countries and sales of €408 million.
Schenck Process captures new markets
Flabeg’s sunny scope
that an operation like this cannot be run on a fly-in basis,” says Dinsel. “It is important to be here continuously to forge communication links with advisers, vendors and management teams and strong contacts into the wider financial and business world.
Ik also has an extensive network of relationships with former portfolio company chief executives and industry sector experts, part of Ik’s Industrial Advisory Board, whom it can call upon for additional industrial insights and transactional advice whenever necessary.
The firm’s strategic move in Germany has paid off with two profitable exits already secured – that of the garden products company Gardena and the specialist engineering company Dywidag-International systems (DsI) - and the promise of more to come as Ik’s current portfolio continues to develop and mature.
Gardena, one of the leading gardening equipment companies in Europe, was acquired by Ik in 2002. It was sold to sweden’s Husqvarna for €730 million in 2007 having significantly strengthened its market position in Germany and across Europe. “In just five years we were able to put
Gardena back on the growth and profit track, reshaping it from being an inward-looking family-owned company with a 5% EBIT into a much higher margin, pan-European business with an EBIT of 11%,” says Dinsel.
DsI, meanwhile, is one of Ik’s most successful investments yet. Freed from the constraints of an insolvent parent in 2005, DsI
grew rapidly, notably through a hectic run of add-on acquisitions. It com-pleted 14 deals in ten countries in just two years and became a global mar-ket leader with revenues of €700 million. Following this highly successful ‘buy-and-build’ programme, Ik sold the business to a financial sponsor in 2007, reaping a return of more than ten times its original investment and a triple digit IRR.
“DsI is a deal that really came together. we made a series of strategic moves and, by any standards, the transformation process was extremely swift,” observes Petersson. “we helped the company refocus and roll-out an extensive international growth and development programme during a period of intense, but highly satisfying, activity.”
“Both DsI and Gardena were significantly improved under our ownership and, as good examples of genuine value creation, helped to reinforce our presence in the local market,” he adds.
Adding value Each of Ik’s current portfolio companies in Germany is following a proven value creation strategy which often includes add-on acquisitions, organic growth and international expansion.
sport Group, acquired by Ik in 2006, now has a strong market
8 – IK NEWS 1/10
“Both DSI and Gardena were significantly improved under our ownership and, as good examples of genuine value creation, helped to reinforce our presence in the local market.”
TEAM PRESENTATION:
GERMANY
MINIMAX, the fire protection company, was acquired in June 2006 and was recently merged with the US-based fire protection and life safety systems Viking Group (see page 4). Headquartered in Bad Oldesloe, the newly combined group has an annual turnover of €1 billion-plus and some 6,000 employees.
IK ACqUIRED Flabeg, a leading component supplier to the renewable energy and automotive industries, in May 2008. Headquartered in Nurem-burg the company has sales of some €182 million in and a global production footprint across Europe, the Americas and Asia.
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IK NEWS 1/10 – 9
Head of IK’s investment committee, German team and Eastern Europe and a member of IK executive committee. He joined IK in 1996 having previously been a manager for Bain & Company in Munich and managing director of the Schmidlin division of the engineering equipment company Hilti in Liechtenstein.
Detlef Dinsel, managing partner
Joined IK in 2002 from the investment banking division of JP Morgan in London.
Anders Petersson, deputy director
Nils Lüssem, associate director
Joined IK in 2007 having worked in the investment banking di-vision of Merrill Lynch in Frankfurt and London.
Worked in the investment banking division of JP Morgan Cazenove in Frankfurt before joining IK in 2006.
Nils Pohlmann,associate
Worked at TT-Line GmbH & Co. KG before joining IK in 2009.
Josephine Ahlers,assistant
NEW ADDRESS
IK’S GERMAN TEAM
IK NEWS 1/10 – 9
position in Europe, North America and Asia, having pursued a buy-and-build growth strategy. minimax, ac-quired by Ik in 2006 and having recently merged with viking, is now the global leader in its sector. schenck Process, acquired by Ik in 2007, is pursuing add-on acquisitions and organic growth to fuel expansion and capture new markets worldwide, while Flabeg, acquired by Ik in 2008, is well positioned to capture the very strong growth in the concentrated solar power renewa-ble energy technology.
when Nils Pohlmann joined the Ik team four years ago his first deal was the buyout of schenck Process. “we had unfortunately lost out on another transaction which was frustrating but with schenck everything fell into place, and we were able to take the deal over the finish line,” he says. Pohlmann also worked on add-on acquisitions for sport Group and on the buyout of Flabeg. Having previously been on the other side of the table as a banker, all these deals were an invaluable learning experience and a fantastic introduction to the PE world,” he says.
Nils Lüssem has also been struck by the fast-pace of strategic activity at Ik and the satisfaction of being part of a small team. “You have to learn quickly and expect to be fully involved on several projects simultaneously,” he says.
In addition to originating and transacting add-on acquisitions for its own portfolio companies, Ik’s German team is also constantly sourcing and screening deals for the firm’s portfolio companies based in other countries.
Next stop: Austria and Switzerland? since the opening of its Hamburg office in 1997, Ik has become a well-established mid-market PE firm in Germany with a strong track-record. “Because we are fully entrenched and very ‘relevant’ to the market, we see the vast majority of transactions, are among the three or four mid-market houses that have completed the most deals in recent years, and have consequently built value in our portfolio,” explains Dinsel.
Dinsel notes that there is now a clear division between the large, mid-cap and small funds in Germany which did not exist in the mid-1990s. “The mid-cap segment is quite competitive but, certainly until 2008, there were enough opportunities to go round. Although target pricing was full, the market was not over- heating,” he maintains. “Germany, along with the rest of Europe, had a rough ride during 2009 but is now well along the road to recovery and beginning to reclaim its natural buoyancy.”
In addition to the opportunities in Germany itself, Ik is looking to expand its investment reach into switzerland and Austria. “These are interesting markets with similar cultures to Germany and which have a relatively undeveloped good perspective for Ik. Although Germany will remain our core market, these other German-speaking countries add an additional dimension to our investment strategy,” says Dinsel. “we may also look to add another person to our team although we do like having a small group since it gives us a high degree of control, flexibility and the ability to react quickly.”
“Ours is a small, stable, cohesive and complementary team that has worked together closely over the past few years. we have completed some successful deals and, as market conditions continue to improve, we look forward to continuing that success,” Dinsel says.
As of January 2010, Ik’s Hamburg office is located at new premises in Bornhold Haus, Neuer wall 80, Hamburg. Our phone numbers and other contact information remain the same.
WE MOVED OUR HAMBURG OFFICE
IK Investment Partners GmbHNeuer Wall 8020354 HamburgGermany
T: +49 (0)40 369 885-0F: +49 (0)40 369 885-30www.ikinvest.com
10 – IK NEWS 1/10
XXXX XXXXIN FOCUS RONAN LEBRAUT
10 – IK NEWS 1/10
HAVING BEEN EXPOSED to the family business from an early age, when Ronan Lebraut took over the reins at Etanco in 2003 he was well-prepared
for the challenges ahead.
HARD wORkIs THE kEY TO sUCCEss
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IK NEWS 1/10 – 11
ow did you end up working for the family business?my first real ‘work experience’ began when I was nine and my father would take me with him to his factory to assemble screws and washers by hand. After that I worked at Etanco whenever I could. It enabled my father to teach me not only that hard
work is a key to success, but also to always respect the production line workers. when I eventually took over running the company this proved to be very good advice and helped me gain the respect of the workforce.
I became CEO of Etanco in 2003, aged 25, shortly after the death of my father. The year before I’d graduated from IsC Paris with a masters Degree in Business. Prior to that, most of my business experience was gained abroad – in the Us, Australia, mexico, Uk and spain - as a trainee in a variety of companies.When was the business founded? Etanco was founded in 1952 by my grandfather. He set up the company in his garage, working there during the weekends. my grandfather was a real industrialist, he loved factories and, at that time, was making relatively simple, cheap products. when my father, Richard, joined the business in 1976, he was more sales oriented and decided that rather than simply having the best product it was more important to have all the products customers wanted. working on this principle Etanco’s sales grew rapidly.
However when I arrived in 2003, Etanco was not very profitable and the first two years were difficult. I had tax and family succession issues to deal with while, at the same time, managing a company where
I didn’t really know the market, its products or customers. But all the effort has been worthwhile – Etanco now has a €136 million turnover, EBITDA of 20 per cent and employs around 700 people.What are the fundamentals of your business?Our business model is interesting because, as well as being an industrial company, Etanco is also sales and service oriented. For the non- residential market we manufacture, design and sell 80,000 fastener systems in 1,000 colours but we are still able to deliver most of them in less than two days, anywhere in France.
For us, the customer is king. Customers may need to keep pace with new regulations, designs and building materials and it is only by understanding their needs that we maintain a high level of innovation.Before IK you had never worked with a private equity company, what are your experiences so far?I was initially in contact with many PE companies, but having met with Ik partners Christopher masek and Dan soudry, I had a feeling I would be able to work easily with them - I could trust them and they had a clear business-oriented strategy. my instincts were right because, so far, working with Ik has been great.
How did the economic crisis affect your business last year?we were impacted at different levels. First, some of our smaller customers quickly got into trouble because banks would no longer give them credit. second, the building market is heavily influenced by business confidence. when people can’t see clearly ahead, or get scared, they stop investing in new buildings. In addition, the price of raw materials has increased. we’ve therefore had to take each day as it comes and be very reactive to both the problems and opportunities created by the crisis. Fortunately, we began working on some new markets a few years ago and these still have great potential. And, even with the crisis, we have managed to maintain a good level of sales and even increase our EBITDA.What was the biggest challenge in recent years? The toughest challenge recently has been to demonstrate that a family business can survive the death of its CEO even if nobody was prepared for it. From the very beginning it was about keeping the company and its employees together, team building and, of course, making good profits. very quickly I understood that ‘turnover is vanity, profits are sanity.’ And, you know, we haven’t done too badly. In 2003, Etanco had the lowest EBITDA ratio in the market. Today it is twice that of our
nearest competitor and improving all the time.What are the biggest challenges Etanco currently faces? The biggest challenge for us right now is the high price of raw materials and the fact that customers are increasingly demanding in
terms of both service and price. However, because we work with a lot of small companies, it is also our responsibility to help them with payment terms and pricing, particularly if they are facing difficulties. This is a good way to promote customer loyalty which will pay dividends in the years ahead.What are your short-term priorities and long-term goals?In the short-term, my priority is to make sure Etanco emerges from the downturn in reasonably good shape, so not therefore every euro spent must be fully utilised. But it is also crucial to build the company’s future. making economies can often be easy but cutting costs while still investing in for the future is not. In the medium-term, building up the business is my main priority.Who has inspired you or been a role model during your business career?my first boss, an American, taught me that “money talks, bullshit walks” ie making money is easy but being a good businessman is far more difficult. Also Richard Baena, chairman of the supervisory board of Etanco, has been by my side everyday over the past five years and, from him, I have also learned a great deal.
H
“Etanco was founded in 1952 by my grandfather. He set up the company in his garage, working there during the weekends.”
LEADER IN THE design, manufacture and distribution of building fastener and fixing systems in France. The group is also present in Italy with its Friulsider brand and in Eastern Europe. The former family business based outside Paris employs approximately 700 people and generates a turnover of €136 million. The Group has a full range of 80,000 products grouped under four main categories: Waterproofing, Roofing, Safety and Facades. This allows it to offer products adapted to specific market requirements particularly in terms of environmental and European regulatory constraints.
Visit www.etanco.fr for more information.
IK NEWS 1/10 – 11
Who: CEO of EtancoWhere: Outside Paris, FranceDoing what: Fastener and fixing systemsWhy in focus: First in line in a series of IK CEO presentations
RONAN LEBRAUTETANCO
12 – IK NEWS 1/10
EVCA CHRISTPOHER MASEK
hat are your main responsibilities as the first Chairman of the EVCA’s Mid-Market Platform Council (MMPC)?my primary role is to represent mid-market’s specific interests at EvCA Board level and to
provide direction and action for the mid-market by leveraging the EvCA’s resources and those of a professional team on the platform council.The EVCA’s Board of Directors is now drawn from different platforms – venture capital, mid-market and large buyout – rather than, individual geographic areas, as was previously the case. Why was this restructuring necessary and what are the main benefits?The EvCA’s new platform-based governance structure, which was put in place in 2009, is designed to give members a more active role. A major benefit of practical platforms is that ‘like-minded’ parties can now discuss matters and take concrete actions which are genuinely useful for specific segments of the industry. Previously, this task was primarily led by employed professionals and, with members not involved on a day-to-day basis, themes ranging from micro-venture capital projects to large buyouts were often combined. such a broad range of interests led to a very different agenda. Under the new format the mid-market, as the EvCA’s largest contributor, has its own budget and tailored priorities.What are the MMPC’s priorities likely to be over the next 12 months? The mmPC has been subdivided into four ‘task forces’ to focus on European lobbying around the Alternative Investment Fund management Directive (AIFmD); communications; research, data and investor relations; and events/training.
The council meets on a quarterly basis while the task forces convene on a near monthly basis. As this is the first time such an organisation has been put in place, our first objective was to assess what resources were already on hand. Task forces then started to explore different priorities tailored to mid-market needs before deciding, collectively, on concrete actions and their implementation. The platform has been very responsive and we are nearing the point of decision on concrete actions.
In the data collection task force we have tried to identify key missing data that will help promote the PE message. This includes areas such as the number of people employed through investments, levels of capital
expenditure (to convey the fact that we are not ‘short-termist asset strippers’) and how broad the management and employee investment base is. Another priority is to speak with one voice not only on the AIFmD issue but also when promoting the industry in Europe and abroad. In this respect, thought is being put into the rebranding of our platform since ‘mid-market buyout’ does not reflect the actual added-value our industry provides.How important to the MMPC’s success is the fact that its members tend to be industry practitioners and how can practitioners contribute to the EVCA’s work generally? I think it is fundamental that members of the platform are active PE practitioners. These people alone can address the issues faced by the industry on a daily basis whether on regulation, leverage, training requirements or promotion. The shift to more practitioner involvement is yielding immediate benefits particularly on the European lobbying front. This shift is also highlighting another problem which the EvCA
and national venture capital associations are facing, namely dwindling revenue streams due to the financial challenges faced by the industry.
An increasing number of practitioners are
expressing their concern over the duplication of costs and efforts at both a European and national level on matters such as data collection, while being called upon to pay fees for multiple associations. This model has been perpetuated by permanent association structures without considering rational economic benefit. Practitioners who pay the fees for these structures are pushing to regroup their efforts and costs and make them more efficient.
That said, a permanent infrastructure is essential for two key reasons: practitioners also have a ‘day job’ which means that they cannot devote too much time to associations, and permanent professionals provide support and balanced views on issues. In this respect EvCA chairman Javier Echarri and, more importantly, Philippe Defreyn the permanent head of the EvCA for the mid-market platform, provide much needed impetus to the daily management of affairs.IK partner Helena Stjernholm has been on the board of the Swedish Venture Capital Association (SVCA), former IK partner Gustav Öhman is Chairman elect of the SVCA board and former IK partner Anne Holm Rannaleet represents mid-market buyouts in the EVCA’s Public Affairs Executive (PAE).
w
IK’S CHRISTOPHER MASEK talks to IK News about his role as Chairman of the European Private Equity and Venture Capital Association’s recently-formed Mid-Market Platform Council and
explains its key plans, priorities and procedures.
NEW PLATFORM TO PROMOTE MID-MARKET
INTERESTS
“I think it is fundamental that members of the platform are active PE practitioners. These people alone can address
the issues faced by the industry on a daily basis.”
Why does IK have such a high degree of involvement with the EVCA and national associations and take such an active interest? Ik has long understood the importance of trade associations in lobbying for the support of our industry. Through our national and European footprint it is natural that we should have such representation at both levels. Involvement since inception has made Ik a key partner and an influential voice within the industry and with European governments and administrations. This is based on the belief that our influence will benefit the way we conduct business with our portfolio companies in the years ahead.The EVCA has responded to the controversial AIFM Directive by stating that EU regulation could destroy a key source of finance for innovation. What are your thoughts and what are the next steps likely to be?The first positive underlying message is that the industry now expresses itself using one voice on a truly sensitive matter. Anne Holm Rannaleet and the other PAE members should largely be thanked for this. Unfortunately, our indu-stry has been targeted by European parliamentarians indiscriminately, for the wrong reasons, and with potentially dramatic effects.
The issue ranges from a minimum requirement of transparency to actual regulation of leverage and timing of exits. The latter, although remote, would truly jeopardise our ability to carry out business. At the present stage, the focus has shifted from ‘transparency’ which, on the whole, is already being promoted (as in the case of the walker Guidelines) to ‘foreign investment’ which is a complex issue covering who can conduct business in the EU and how this can be funded.
The industry’s engagement has allowed us to defer and clarify many of the contentious issues. However, much remains to be done as there continue to be a large number of misinformed people and those pursuing their own personal agendas in places of influence who aim to make a statement about perceived financial excesses and economic woes and are using private equity as an easy scapegoat.What is the outlook for mid-market buyouts and which section of the market is likely to be most active during 2010?In addition to increased regulation, the challenges facing mid-market buyouts are the limited availability of financing, absence of liquidity and too few quality assets in crowded markets. As a result, there are lower commitments to the asset class. Throughout this period, Ik has successfully maintained a healthy discipline by remaining focused on supporting its portfolio companies and only investing in transactions where there is true belief in quality returns through a carefully
THE EUROPEAN PRIVATE Equity and Venture Capital Association (EVCA) is a member-based, non-profit trade association. Based in Brussels, the EVCA was established in 1983 and now has over 1,200 members.
Following a revision of its governance structure last year, the EVCA now has four Platform Councils: venture capital; mid-market buyouts; large buyouts (European PE Roundtable); and Limited Partners.
These Councils enable the EVCA to represent the interests of the European PE and VC industry most effectively to regulators and standard setters; develop professional standards; conduct industry research; organise professional development and forums; and facilitate interaction between EVCA members and other industry participants (such as institutional investors, entrepreneurs, policymakers and academics). Ultimately, the EVCA’s goal is to create a more favourable environment for PE investment and entrepreneurship throughout Europe.
modelled investment thesis.This year Ik has seen a clear increase in deal flow across its target
markets. The concern remains prices as well as the continued shortage of debt funding. The improvement in financing terms for quality assets combined with gradual economic recovery will, of course, be crucial. Unfortunately, this is not a foregone conclusion and ‘selectivity’ and ‘focus’ will continue to guide our actions.Are mid-market trends uniform across Europe or are there striking regional and national differences? If so, how are these variations accommodated by the MMPC?One of the most notable trends experienced in the mid-market sector has been how financing institutions have reacted to the economic
environment over the past two years. Banks have, for instance, taken different approaches to covenant breaches and defaults. The Uk and scandinavian banks often adopt a more ‘hands-on’ approach while many continental banks - in France and Germany in particular – will tend to avoid direct confrontation. Another characteristic of this period
has been a certain degree of ‘nationalism’ with many banks, having received state support, only prepared to sponsor local businesses.
with the gradual opening up of banks’ balance sheets, it appears that mid-market enterprises will benefit most through carefully constructed financing syndicates using local banks (with some foreign funding) on conservative terms. The larger international syndicates backed by CDOs and CLOs will continue to be the exception. This means banks will continue to find mid-market segment more attractive than to larger buyouts, at least in the short-term.
“IK has long understood the importance of trade associations in lobbying for the support of our industry. Through our national and European footprint it is natural that we should have such
representation at both levels.”
THE EVCA – WORKING TO CREATE A BETTER INVESTMENT ENVIRONMENT
14 – IK NEWS 1/10
INSIDE IK
IKARE/SOS UPDATE
he start of 2010 saw a new outbreak of human cases in these two districts with a total of 28 patients admitted to Lwala hospital receiving
treatment, including a large number of children and young people.
The ministry of Health which, in late 2009, formally seconded Dr. Abbas kakembo to the sOs team, was quick to react and sent a group of stakeholders to the area. After visiting the patients and the Lwala hospital facilities, a meeting was held in one of the hospital halls. After a d iscussion which lasted for over three hours, an important breakthrough was achieved as a resolution was adop-ted and also read out stating that “The stakeholders seated here at Lwala today the 15th of January 2010 resolve to support the sOs approach to the control of sleeping sickness and we request the ministry of Health, the ministry of Agriculture, Animal Industries and Fisheries and makerere University to deploy the students to treat and spray the cattle immediately.”
The Local Council district Chairman for kaberamaido district supported the resolution and encouraged all the other local leaders to encourage all people in the community to bring their cattle for treatment and spraying. The Chairman further suggested that the district councils of Dokolo and kaberamaido should hold a joint meeting to discuss the best way to work with the sOs team to promote the control activities going forward. A first ever.
The meeting was also broadcast by local
radio, sending a strong signal to the affected communities that their leaders were meeting to discuss sleeping sickness in the area.
Only a week later, after having been briefed and trained on the different aspects of intervention, the makerere students arrived to start mass treatment activities. A total of 41 students, 13 female and 28 male, participated in
the exercise under the supervision of 14 members of staff from the Faculty of veterinary medicine. This re-treatment was financed by the Uk DFID, which has joined forces with the original sOs part-ners to support a roll out of the sOs activities in additional districts. DFID and sOs partners have also been invited to support an institutionalisation of sOs model through the further development of the makerere University InTracs
(In-field training and Community service) programme, now renamed mINTRACs.
3,014 cattle owners brought their cattle for treatment enabling some 58,294 cattle to be treated, a marked increase by 15,000 cattle compared to the last re-treatment undertaken in these districts.
DIsTRICT LEADERs COmmIT TO sOs
Whereas the 3 V Vet activities continue to show good results in the fight against the spread of sleeping sickness in the districts of Lira, Apac and Dokolo
in northern Uganda it has been more challenging to tackle the situation in Kaberamaido and Dokolo, where uptake and support among local leaders
has been much slower to gain traction.
T“After a discussion which lasted for over three hours, an important breakthrough was achieved as a resolution was adopted...”
3 V Vets activities gain momentum
AFTER A SLUGGISH February/March, activity levels and sales at the 3 V Vets outlets again increased during April. This has partially been aided by the empowerment seminars held in early April, with identified spray persons in each of the five districts. These are the people that for more than a year now have been actively engaged and working together with the 3 V Vets to spray cattle and other animals for farmers on a regular basis and on commercial terms. More than 75 spray persons were gathered for the two half-day work-shops held to educate on sleeping sickness and its prevention, including products know-how and strategic approaches. By better empowering the spray persons with skills and product know-how and creating a franchise of specialists who will receive backing and training on an ongoing basis, the aim is to increase the number of cattle sprayed per month to 1,000 per person. This will allow for a minimum of 75,000 cattle to be sprayed on a regular basis per month which basically doubles the numbers being regularly sprayed today.
To further enhance the identification of the spray people and their link to the SOS “franchise”, each of these specialists was given a “SOS profile wear kit” of overalls, boots, masks and gloves. These offer enhanced visibility and protection, as they are engaged in volume spraying. The kits were well received.
The seminars went extremely well and received a dramatic increase in activities was reported from a majority of parishes during the following weeks. A roll-out of 3 V Vet activities into neighbouring districts is expected to start at the same time or before the actual mass-treatment activities in the districts.
INITIAL STAGES of setting up the businesses and starting to receive farmers buying the products from the shops.
IK NEWS 1/10 – 15
MIXED
GREETINGS/HARVARD
fter a bleak period in the wider economy, it is encouraging to see the school focusing more and more of its resources on helping to
address the issues currently weighing down on the Us and the world. On the healthcare side, professors michael Porter, Clayton Christensen, Regina Herzlinger, Richard Bohmer and others are actively trying to refocus the debate on the real issues and the available solutions. Based on the work I have had the privilege to conduct with two of these professors, michael Porter and Clayton Christensen, I am increasingly confident that, if defined correctly, the challenges can be overcome.
The economic crisis has had a clear impact on the course selections of second year students. Courses such as ‘Creating the modern Financial system’ and ‘Creating value through Corporate Restructuring’ are many times oversubscribed. The questions asked are also increasingly fundamental in nature. For instance, new ways are being developed to address the maturity mismatch (long-term assets coupled with short-term liabilities) present in essentially all financial institutions are being developed. The driving force is the realisation that the maturity mismatch is a key problem for the financial services industry. The over $600 billion Lehman Brothers bankruptcy (the big-gest bankruptcy in the world to date) is no exception.
In the midst of all these serious topics the mBA social culture lives on. Last weekend a large proportion of the students descended on steamboat in Colorado. Tonight, the Celtics game against the Cleveland Cavaliers is on the agenda. I’d better hurry…
Cheers,rasmus molander
GREETINGs FROm HARvARD BUsINEss sCHOOL!
A
“The economic crisis has had a clear impact on the course selections of second year students. Courses such as ‘Creating the Modern Financial System’ and ‘Creating Value through Corporate Restructuring’ are many times oversubscribed.”
q&A/REGULATIONS UPDATE
s it speeds along the tracks, the cargo load of regulation seems to get heavier and heavier. Not only are we as an industry faced with a threat of “over regulation” by the AIFmD, but we also have to keep a close eye on where the solvency II proposal is heading. This will
affect allocations to private equity by insurance companies and potentially also by pension funds, depending on how they are structured. As things stand; the proposal could impose setting aside liquid reserves of up to 50% of every penny invested. This will of course imply a dramatic reduction of allocations to private equity. In some countries insurance companies and private pension funds count for 40-50% of the capital raised by PE and vC funds.
meanwhile the JURI committee of the European Parliament has voted on the articles of the AIFmD that are related to company law and fed them into the ECON committee which voted in favour of the Gauzés compromise proposal on may 17th. The day after, the Council also voted in favour of the spanish Presidency’s proposal noting the need however to come back to the third country issues. This is also supported by commissionaire Barnier. The trilogues will now kick off in full force with a view to delivering a new common proposal before finally voting in July.
In many respects, the European regulatory environment can be positive for our industry as it will give us more public credibility and improve people’s understanding of our working model. Professionalism within our firms can be expected to improve too, again manifesting the transformation of what was some 30 years ago a cottage industry but which is today a recognised ownership and value creation model. But, if policy makers overreact and go beyond the original scope of the Directive, as manifested in some of the proposals which hit right at European investors, emerging economies and com-panies under PE ownership, the negative consequences will not only be felt by the European private equity industry. Ultimately the burden of over regulation will be carried by European investors, pensioners, insurance holders and smEs, which are their real engines of economic growth and job creation.
anne holm rannaleet
Facing threat of “over regulation”
A
IMPORTANT DATES
Mar. Apr. May Jun. Jul. Aug. Sep.
17 March2nd Debate of ECON
amendments
10 or 17 May TBCECON Commitee
vote
14-17 JuneEP plenary
6-9 Sept.EP plenary
26-29 April TBCJURI Commitee
vote
5-8 JulyEP plenary
16 MarchECOFIN Council
18 MayECOFIN Council
9 JuneECOFIN Council
6 & 23 JulyECOFIN Council
Oct.
19 Oct.ECOFIN Council
AprilOngoing Informal
Trilogues negotiations starts
6 MayUK General
Election
31 May Formal
Trilogue start
1 JulyStart of Belgian
Presidency
16 – IK NEWS 1/10
he fundraising market for private equity has seen a significant slow down in the past 24 months and it is likely that conditions will remain difficult for the rest of 2010
and possibly into next year.The investor community has been constrained
in its ability to make commitments to private equity, primarily due to over-allocation strategies and lack of liquidity, as well as some risk reduction. Commitments are being made but on a more selective and restrictive basis, which only contributes to the continued difficult market.
However, there have been some success stories where firms have dealt constructively with the issues presented in their portfolio, and have continued to deliver good results. These firms have mostly been active in the mid-market space, where investors still have an appetite to commit capital.
We certainly believe that there is a value proposition in our part of the market. we typically try to develop the firms we buy in two ways. First, we help them grow and internationalise by executing cross boarder add-on acquisitions. second, we are very involved in implementing efficiency measures, such as the establishment of new sourcing platforms. In our segment of the market, there is genuine need for such skills and seensful implementation can drive profitability forward to levels not previously enjoyed.
we have consistently deployed this strategy over the past twenty years throughout Northern Europe and this can be clearly seen by looking at how we create value - it all comes down to earnings improvement.
The types of transactions we get involved in can be complex, allowing us to implement our value creation strategy and actually work with companies in a hands-on way, as opposed to relying on significant market growth and favourable financing markets.
A typical Ik transaction will take a local or regional champion and, through add-on investments in our geographies, transform the company into a European or global player. Our operational tool box plays a fundamental role in our ability to achieve returns. The recent
transforming merger of our German portfolio company minimax with the American company viking is an example of how we, together with management, can further internationalise our portfolio companies. Following the merger the combined group will have sales of over €1 billion and a more balanced global reach. Additional value will be achieved through significant synergies and through cross selling of products.
we will continue our strong focus on operational improvement programmes and cross border expansion. A key differentiating factor is that we primarily compete with local and regional players whereas we have a pan-regional footprint. Accordingly our key competitors will not be able to execute on the same strategy as we can. This is well recognised by the management teams across our geographies, as well as our investors.
Another area where the mid-market has held up favourably compared to the larger segment is in its ability to secure financing. The banks have remained cautiously open for business throughout the downturn. There has been some decision making unpredictability and reduced bite sizes, but it has been possible to put together some club deals.
However one of the key difficulties has been the lack of quality assets coming to market. This has lead to high prices for these assets. we believe it is important to remain disciplined in such conditions, and to pick investments in sectors which are perhaps less fashionable, and potentially more cyclical. An example of this would be our 2009 acquisition of vistra, a trust and fiduciary services provider, which we bought for around 8.5 times EBITDA, significantly below peak multiples.
Looking forward, the fundraising market will probably show a gradual recovery, especially as investors begin to receive distributions, when exit activity returns. The key for success will remain firms’ ability to demonstrate that value creation has been operational and hands on, as opposed to financial and cosmetic. Investors appreciate that, with a tough economic climate set to continue for some years, the operational skill set will be fundamental in driving returns.
björn savén, executive chairman and founder, ik
“A typical IK transaction will take a local or regional champion and, through add-on investments in our geographies, transform the company into a European or global player.”
vIEwPOINT
BJÖRN SAVÉN: “We will continue our strong focus on operational improvement programmes and cross border expansion.”
T
