GP Profile: Priveq Investment

Established in 1983 as insurance company Skandia's private equity arm, Priveq Investment span out to become an independent firm in 1998. The firm is headquartered in Stockholm and has a team of 16 professionals, including 11 partners, led by Nilsson, who has worked at the firm for 22 years.

Priveq is a growth capital investor focused on Swedish companies with turnovers of SEK 100m-1bn. It typically deploys equity tickets of €10-30m and pursues both organic growth and add-ons to grow companies. "Investing in smaller companies with more realistic valuations and then creating value with add-ons, that has been the pattern for Priveq in recent years," Louise Nilsson, partner and CEO of the firm, told Unquote.

The GP raised SEK 2.5bn for its sixth fund, Priveq Investment VI, amid the coronavirus pandemic. Nilsson says: "Our first meeting with investors was on 17 March. But then the lockdown was announced. We said to ourselves, should we wait for a bit? But then we thought we might run out of capital, so we had to raise a new fund."

The new fund is only slightly bigger than its SEK 2.3bn predecessor Priveq Investment V, but Nilsson says this was deliberate: "We'd like to remain in the segment and not increase the size of the fund very much, so that we can continue doing what we're doing."

The fund saw commitments from 20 new and existing LPs based in Sweden and overseas, consisting of public and private pension funds, insurance companies, charitable foundations, endowments, public institutions, family offices and funds-of-funds.

Approximately 26% of the capital comes from Nordic investors, including Skandia Liv and the Fourth AP Fund, while the remainder came from the rest of Europe and the US.

The new fund will follow the same strategy as its predecessors, and will be used to make around 15 platform investments and additional add-ons. The GP's aim for the fund, as with its previous vehicles, will be to return 3x invested capital, and an IRR of 25%. Nilsson says that so far Priveq has been able to meet these goals.

Finding the right investment
The fund's predecessor will potentially be used to make a final platform investment after the summer. The vehicle is currently 75% deployed and would be 85% deployed after the new deal.

But Nilsson says she is not in a rush: "We have a nice pipeline of deals right now. But some of the companies we're evaluating could be very affected, so I don't think it's a good idea to be finalising deals just yet. It's better to postpone the opportunity until we know where everything is going, and we can see the bottom, and when we can see that a company has managed to take control of the situation." But Nilsson says this also depends on the sector. "Some sectors, you can start the negotiations earlier."

In May this year, Priveq acquired a 55% stake in Swedish language services and media tech company Plint. Nilsson says: "If this had been a normal time, I'd have been in lots of physical meetings, meeting investors and potential prospects all over the place. That deal wouldn't have been possible at a normal time. But now that we couldn't travel, we could move from one meeting to another in a minute."

But Plint might well end up being the only deal this year for the GP. "We have put deals off, and some of the opportunities we were once very, very interested in doing, now we will not do. In other cases, we're seeing how businesses will be affected and how they will recover. It's not a good idea to enter a company where you must immediately cut costs. We don't want to do that, it's not a situation we like so we'd rather wait. We prefer to enter a business and make a positive change."

Resilience is key
Even before the Covid-19 outbreak, the GP focused on resilience for both the firm as well as its portfolio companies. Priveq is conservative when it comes to leverage, Nilsson says: "We have experienced multiple crises and we know that when you invest in small companies, there is high operational risk, and we don't want to combine that risk with the added risk of leverage."

Nilsson cites the recruitment method of Priveq as having created a small but closely knit team. The GP hires just one or two members every two or three years. Additionally, the GP has applied a subscription model at many of its portfolio companies to create a resilient revenue stream.

As the outbreak approached, like many other GPs, Priveq prioritised liquidity and put some ongoing deals on hold. Nilsson says: "When we saw we had a crisis coming, we took measures in our portfolio, especially to deal with the cash situation, as we all know cash is king at such times. Secondly, we've been hoping for the best but preparing for the worst and postponing some deals that we'd been working on prior to Covid-19."

The GP is nonetheless keeping an eye out for opportunities to be found at this time. Nilsson says: "It's a good time for our portfolio companies to recruit talent, do add-on deals that weren't possible previously and to look into opportunities that arise." Additionally, she says, companies have been overpriced for the past five years and it has finally become possible to close deals at a fairer price. 

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