Deal in Focus: Segulah builds on Stockholm property sector with Zengun

In its first deal of 2016, Segulah tapped its fifth buyout fund – a vehicle targeting SEK 5.6bn with an expected final close soon – to acquire a 60% stake in Stockholm-based builder Zengun.

The management buyout saw the GP buy a majority stake in the company from founders Ulf Jonsson and Tobias Örnevik, who retained a 40% shareholding in the newco, continuing in their roles at the company.

"Our fund terms mandate that we be majority investors, but in practice this is a true partnership," says Segulah managing partner Henrik Lif. "We are highly dependent on the founding team. They wanted to retain as large a stake as possible, but felt it was time to bring in a professional owner to support development over the next few years," he says.

The leverage – an all-senior package provided by Nordea – was below average buyout debt levels, according to Lif: "Zengun is dependent on a few larger contracts and we did not want to add further financial risk through excessive leverage. The return profile is good enough even with lower leverage."

The deal was an exclusive process from start to finish, taking around four months from the introduction until announcement. Contact between Zengun and Segulah was arranged through a former colleague of Lif's who had met the company's founders at a party, where they had mentioned bringing in an outside investor.

Stockholm-centric
Founded by a team of former employees at Swedish construction giant Skanska, Zengun has focused exclusively on the Stockholm property market since its inception in 2009.

The company runs both commercial and residential property development projects in the Swedish capital, with subcontractors carrying out the construction. With a staff of around 85, Zengun expects to generate around SEK 1bn in revenue this financial year.

Segulah plans to support the growth of Zengun within Stockholm's construction market and expects to see the company benefit from having recently been allowed to submit tenders for public projects.

Stockholm's commercial and residential property markets have seen extremely strong growth in recent years. Sweden's capital city has become one of the most expensive cities per square meter in which to buy property, driven by low interest rates, population influx and limited amounts of space in which to build.

I don't see any sign of a significant downturn in Stockholm for the next three to five years. One of Zengun's strengths is actually its focus on Stockholm" – Henrik Lif, Segulah

Lif says the size of the city's commercial construction market is around SEK 55bn a year and as such there is space to grow Zengun's current turnover of approximately SEK 1bn, which he believes can be substantially increased within Segulah's ownership period.

Strong founbations
While the company's exclusive focus on a single city's market could be cause for concern on the face of things, Lif says the Stockholm-centric approach is a positive boon for the company: "I don't see any sign of a significant downturn in Stockholm for the next three to five years. One of Zengun's strengths is actually its focus on Stockholm. It's very important to be part of these projects from an early stage, which you need a strong network to achieve. Zengun has that network in Stockholm, but not necessarily outside the capital."

The capital has seen a hefty population influx in recent years – a trend that is projected to continue for the foreseeable future – and the need for residential and commercial property is unlikely to be solved in the near future. The archipelago-city not only faces a shortage of physical space to build, but is also trying to catch up to a historic construction deficit that has led to demand greatly outstripping supply.

Lif concludes: "Stockholm's property market is big enough to sustain the company for years to come."

Further reading

• Buyouts

Segulah acquires Stockholm-focused builder Zengun

• 29 Feb 2016

• Buyouts

Deal in focus: Polaris completes first software buyout with Configit deal

• 12 Feb 2016

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