Deal in Focus: Nordic Capital doubled Lindorff EV before merger

A little over two years after Nordic Capital acquired Swedish debt collection agency Lindorff in a secondary buyout from Altor and Investor, the investment company of Sweden's Wallenberg family, the GP has merged the business with Intrum Justitia, a Stockholm-listed competitor.

Lindorff, which was the third-largest Nordic SBO when Nordic Capital acquired it, has seen its enterprise value double during Nordic Capital's ownership – from around SEK 20bn in 2014 to SEK 40.5bn today. Following the merger, the GP will be the largest single shareholder in the new company through its Nordic Capital Fund VIII vehicle, with a 45.5% stake.

Previous owner Altor, which retained a minority stake of a maximum €132.3m after Nordic Capital's buyout, has a minor instrument that will allow the GP to retain a minority stake in the new entity, an Altor spokesperson tells unquote". Investor – which retained up to €182.7m – has exited the business, a source close to the deal says.

Nordic Capital wants to see through the full integration of synergies and that will take some time, but we see significant opportunities for value creation in the stock in the future" – Kristoffer Melinder, NC Advisory

The EV growth of Lindorff is reflected in the company's financial results under Nordic Capital's ownership. According to a statement, the company generated a net turnover of €640m with EBITDA of around €290m in the most recent financial year, up respectively from around €450m and €260m in 2013.

Nordic Capital's efforts in growing Lindorff have involved close to €1.5bn in investments by the company since 2014, managing partner Kristoffer Melinder of Nordic Capital adviser NC Advisory tells unquote". "Nordic Capital has supported large investments in Lindorff's debt collection and purchasing businesses, which means the company has grown its debt portfolio a lot, while improving the growth of the overall business and its third-party collection operations, which is now a substantial part of the entity."

Melinder says Lindorff and Nordic Capital have focused on sales and third-party collection, supported by the growth acceleration from investing in more debt portfolios, further supplemented by carve-outs of entire debt collection units of European banks and M&A.

"Nordic Capital has actively supported the business in raising debt in capital markets, as well as equity financing through joint ventures with other equity providers, in order to drive growth," says Melinder.

No exit
Despite the merger providing an easy opportunity for Nordic Capital to realise value, Melinder says the deal does not mark an exit for the GP and that the combined business will remain listed after the merger. "Nordic Capital wants to see through the full integration of synergies and that will take some time, but we see significant opportunities for value creation in the stock in the future. Right now, there are no plans to sell stock in the short term."

He notes the complementary nature of the two companies and the growth potential in combining the two companies, such as geographical expansion opportunities and an expected SEK 800m in efficiency savings. Following the announcement of the merger, the earnings per share of Lindorff/Intrum Justitia is expected to grow by as much as 75%.

Similarly, new financing could also be a source of cost reductions for Lindorff and Intrum. Nordic Capital's initial buyout of Lindorff was financed with a €1.45bn high-yield bond – the largest of its kind ever marketed by a Nordic company when it was issued in 2014. The merger will be supported by bridge financing provided by JP Morgan, Morgan Stanley and Goldman Sachs, according to Melinder.

While no announcement has been made about Lindorff's existing debt instrument, Melinder says a refinancing of the merged Intrum and Lindorff company is on the table at some point in the future, with substantially lower interest costs expected as a result. "The combined company will find an optimal financing for that business and Intrum has its financing in place. Over time, we will find an optimal refinancing solution."

Melinder says the merger with Intrum had been an option since acquiring Lindorff in August 2014: "We knew a combination with Intrum could be an option when Nordic Capital acquired Lindorff, though we couldn't be open about it at the time. It's a perfect match."

Conversations with Intrum's board and management had been ongoing over the course of Nordic Capital's investment in Lindorff, he says, with both parties seeing strong logic in a merger, though formal talks only happened recently. "The deal was agreed in a very short time period, around five-six weeks – so it's been a compressed timeline for the two teams," Melinder says.

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