Deal in Focus: Livonia makes maiden deal with Ha Serv

Baltic-focused private equity firm Livonia Partners acquired Estonian sauna and thermal wood products manufacturer Ha Serv in February, in the GP’s first ever deal.

The transaction saw Livonia commit an equity ticket within its €3-15m mandate for a 90% stake in the company, with management retaining 10%. Livonia drew down capital from its maiden fund Livonia Partners Fund I, which held a first close on €70m in August 2015 and is targeting €85m with an expected final close this year.

Livonia's acquisition was "conservatively" leveraged, according to founding partner Kaido Veske, who stated that this was in line with Livonia's strategy. The financing is an all-senior package provided by Danske Bank.

Tartu-headquartered Ha Serv was already a client of Danske Bank and Veske said the bank was so keen to keep the business that they met terms requested by Livonia, though the GP had looked at other providers as well.

Bottoms up
The deal was the result of an eight-month process, with Veske saying that the team had been doing bottom-up research on several specific industries. Ha Serv came up in the review of the wood products and forestry industry – a major sector in the Baltic region – which turned up three or four potential cases. An introduction to Ha Serv's management was made through a mutual connection at business school Insead.

"The company was 90% owned by an entrepreneur who had already been out of the business for five years, while the management team owned 10%," says Veske.

Ha Serv's founder had stepped back from day-to-day management of the business five years prior to Livonia's approach and put the existing management in place. According to Veske, the founder had intended to sell the company since withdrawing from operations and was very aware of the environment of potential buyers in the region, including private equity.

"There were two sets of negotiations: first with the majority shareholder, which we accomplished over the summer," he says. "Then we started negotiating with the small shareholders as well. As the company had been doing well since the new management team took over, they had significant leverage and we wanted to keep them on board."

First time's a charm
Coming around six months after the fund's first close, Livonia's first acquisition had been a while in the making.

Veske says the process's length was partly due to the manner in which it was sourced, but is convinced Ha Serv was worth it. "Sometimes opportunities are brought from bankers with a deadline and in a neat package. The ones you source yourself take a much longer time, but we are very convinced these opportunities are the best. Doors that you knock on are typically more promising than deals where people come knocking on yours."

Livonia's team was very focused on getting its first deal right rather than completing it within the first year of the fund, says Veske: "There was perhaps some nervousness about whether the deal was the right one. People care about first impressions: the deal has to fit the strategy and you have to have a good plan for it. When you start raising your next fund, these are the companies that at least have to be performing well and speaking the loudest in your favour."

Before settling on Ha Serv, the GP had been considering an estimated 8-10 cases a month, focusing on two or three deals at any given time. "You try to kill the bad deals as quickly as possible," Veske says. "Otherwise they linger."

Under Livonia's ownership, Ha Serv will focus on its current three main product lines: wooden sauna components, ready-made saunas and thermal wood products. The company currently sells its products to 240 customers in 25 countries and intends to continue to grow its product lines and increase sales to existing customers.

Veske said the GP has no plans for a buy-and-build strategy in the immediate future for the company, which is currently generating revenues in excess of €20m.

With Livonia's maiden deal completed, a second one might not be too far down the pipeline. "We're really busy right now," says Veske. "So I wouldn't be surprised if we do another deal before summer, maybe two by the end of the year."

People
Livonia Partners – Kaido Veske (founder, partner).
Ha Serv – Marko Kevvai (CEO)

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