CapMan seeks event-driven opportunities with Special Situations fund

CapMan's debut Special Situations fund was launched in June 2020 and held a EUR 53m first close in June 2021. A fundraising target has not been disclosed, but the vehicle is expected to close in autumn 2022, Uusitalo said.

“We started actively investigating the market and having discussion with investors in fall 2020,” he told Unquote. “We wanted a good first investment for the fund, given that it is a new strategy for us, as well as a new strategy in Finland, and a first-time fund. In March 2021, we did the first deal with our financing from our anchor investors.”

The fund’s first deal was children’s indoor play centres operator HopLop Group. In December 2021, the fund made its second deal, acquiring a majority stake in marina, breakwaters and commercial floating structures specialist Marinetek.

Finnish state-backed private equity and venture capital investor Tesi is the fund’s anchor investor and the fund is also backed by Finnish pension funds, unions, foundations and family offices, Uusitalo said. “We are approaching certain European LPs, although we are happy with our Finnish LPs and can reach our target with Finland-based money,” he added. “We are hoping that other funds will join the strategy in future and it is important to build on this for the next fund.”

The fund makes equity and debt investments with EUR 10m-EUR 25m available per company and an expected average holding period of three to four years. It will typically target Finland-based companies with revenues of EUR 20m-EUR 300m. The vehicle expects to make six to eight deals in total at a pace of two to three per year.

The fund’s debt investments will see the GP adopt control positions, according to Uusitalo. “We expect to be the most senior financier in the balance sheet when we invest,” he said. “Typically, the senior lenders want to exit the situation and we want to acquire the distressed debt; usually the shareholders don’t have the capacity or incentive to put in more equity, which often enables us to take control of the equity as well. We want to avoid mezzanine or junior debt, although there might be situations where existing lenders remain in the structure and we only take in the equity.”

Downside protection
CapMan already manages strategies across private equity buyouts and growth, real estate and infrastructure. However, its Special Situations strategy sees the GP launch a new, differentiated strategy in the Finnish market, Uusitalo said. “There are no other special situations investors with a strategy like ours in Finland,” Uusitalo said. “We offer downside protection and take advantage of debt opportunities. The Finnish market is too small for bigger global players, and the few Nordic and German firms who do operate in Finland don’t know the market and the people involved like we do, meaning that it is easier to find trust in the market.”

Asked why other Finnish investors have not adopted a similar strategy until now, Uusitalo highlighted several dynamics at play in the country, noting that this comes down to trends that the GP has identified that support the strategy. “We had a great recession in Finland in the 1990s that saw a lot of big companies going bankrupt. The Finnish banking sector built capacity to take over these businesses and turn them around, and this is how the market continued until the GFC.”

The post-GFC response has shaped the current market, Uusitalo added. “After the GFC, many businesses were grown by increasing the debt on their balance sheet, due to low interest rates and the availability of leverage: corporate debt levels are above the GDP of the whole of Finland. But as we speak, the zero interest rate environment is disappearing, and this will definitely have an impact.”

Changing banking regulations are also likely to drive opportunities for the strategy. “There are a lot of companies that just need to restructure their balance sheet as they don’t have cashflows to cover their interest rates,” Uusitalo said. “At the same time, regulation and capital requirements for the banks has been tightening, so it is quite expensive for banks to have non-performing loans in their balance sheets.”

The strategy is also motivated in part by the benefits that the strategy could bring to Finnish society in CapMan’s view, Uusitalo said. “We want to be a partner with investment community, helping banks and financial institutions as well as business owners and management teams where the companies are in trouble, which brings attractive opportunities to LPs and contributes to society by bringing a second chance to these troubled companies.”

Sourcing opportunities
Asked how the GP has sourced its deal, Uusitalo highlighted the role of the Special Situations team’s relationships with Finnish banks. “Both of our investments so far have been done with a Nordic bank – banks are very important counterparties for us and they are involved in around 90% of the situations that we look at,” he said. “But we also have a wide network from our team and our advisers, and we speak to all the necessary professional advisers working on distressed cases. We absolutely open to inbound opportunities – if there is a bank involved, typically they appoint advisers who could approach us.”

Although the Special Situations strategy has so far made its two investments in the leisure and maritime sectors, Uusitalo told Unquote that the fund expects to focus on specific events, rather than specific sectors. “Our strategy is more event-driven than sector-driven. The underlying industry needs to be healthy, and we can get involved in situations where an industry transformation is happening, but if there are structural risks, such as political risk, it is impossible.” However, he added that the fund does not intend to back early-stage companies and that it aims to avoid potential technology risk.

As the portfolio of the strategy grows, CapMan intends to expand its Special Situations team, which currently comprises partners Antti Uusitalo, Tuomas Rinne and Jari Vikiö, and senior investment manager Ari Kyöstilä.

Uusitalo joined the firm in 2020 from his role at EY as partner and head of corporate finance in Finland. Prior to this, he was a partner at Summa Equity. Rinne also joined in 2020, having spent 20 years with Boston Consulting Group; Vikiö joined CapMan in 2020 with 24 years’ experience at Finnish law firm Borenius. Kyöstilä is the team’s most recent hire to date; he joined the firm in 2021 from EY.

“We are absolutely looking to expand the team and we are recruiting new people as we speak,” Uusitalo said. “We have a healthy pipeline of new opportunities and need to make selective recruitments to the team. We have an interesting strategy for people who have worked in PE or other professional services firms.”

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