Lack of Nordic exits a sign of weak portfolios, says Altor's Mix

The Danish Venture Capital Association (DVCA) held its annual Nordic Private Equity Summit in Copenhagen on Tuesday, at EY's Danish offices, at which Altor partner Harald Mix was discussing the market for exits in the Nordic countries on a panel with Axcel founder Christian Frigast, Segulah founder Gabriel Urwitz, Herkules Capital's Sverre Flåskjer and EQT partner Mads Ditlevsen.

"Exit markets are almost perfect," Mix said. "The only thing to stop you from tapping the market is having bought at the wrong time in the last cycle. If we are seeing a lack of exit opportunities, it is probably a reflection of a lack of quality in some portfolios. It's very difficult to see better conditions for exits than what we have today."

The comments referred in part to DVCA's review of Nordic private equity activity in the past 12 months, which showed the market had seen more acquisitions than exits. unquote" data supports the assertion, showing 96 buyouts made and 83 exits completed – not including partial sales.

Mix also expressed surprise at the high number of acquisitions in the Nordic market, asking: "Given today's market environment, is it smart to invest so heavily?"

A positive view of the exit market was also taken by EQT's Mads Ditlevsen, who said it was currently very strong and that the IPO window was open for GPs looking to float their assets. He also noted that the conditions for exiting successfully had changed in recent years, with non-PE investors now demanding a strong track record, strong business story, and proof that real and positive change had been achieved at the company during a GP's tenure.

Axcel founder and exiting managing partner Christian Frigast noted his firm's recent IPO of Nordic Waterproofing in Stockholm as a good example of the IPO window being open. He suggested the company would have fetched a multiple of 8x EBITDA in a trade sale and perhaps only 7x EBITDA in an SBO, as opposed to the multiple of around 10x the public market priced it at.

Mid-market convergence
The panel also discussed whether too much capital had flowed into the market, pushing up entry multiples. The fundraising record in the Nordic private equity space in the past few years has seen strong demand from both local and international investors, and a few GPs – including Axcel – will be going on the road in 2016-2017.

While an initial glance at fundraising figures would suggest a substantial inflow into Nordic funds in recent years, a closer inspection reveals a more nuanced picture. "There is a balance of inflows and outflows," said Segulah founder Urwitz. "Not all funds based in the Nordic countries are investing in the Nordics."

Contemplating the state of the Nordic mid-market, Urwitz said Nordic returns were converging from a broader band to very similar returns in the mid-market. Mix agreed, saying the space has become very challenging to excel in; he also added that the combination of capital in the market and lower returns in the alternatives space has resulted in return requirements dropping substantially, to around 15% gross IRR and slightly below 10% net as the average for Nordic private equity.

The result, he said, was a separation of the private equity market into very large buyout firms and "alpha players"; returns in the large- and mid-cap space could converge towards index-like returns for many investors as risk appetite and returns diminish, with only a select few firms outperforming the average.

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• Topics
• Nordics
• Exits
• Industry
• Axcel
• EQT
• Segulah