SVCA Conference: Nordic industry on the defensive

Nordic buyout activity surged in 2010 as the region enjoyed one of the strongest economic recoveries in Europe. unquote" recorded 63 Nordic buyouts in 2010, almost double the 34 recorded in 2009. Notably, the number of buyouts as a share of total European buyouts increased to 16.5%, having previously hovered around the 9-12% mark, signifying the market's continuing attractiveness. However, the industry has recently received criticism as an increasing number of investments have been made in politically and publicly sensitive sectors such as healthcare and education, and there remain concerns over a Swedish tax agency investigation into the industry.

"We must show and be proud of what we do," says Marie Reinius, CEO of the SVCA, who believes the recent criticism the industry has faced is unfounded. Thomas von Koch, senior partner at EQT, says it is in the inherent nature of private equity to take risks, and that with these risks there will always be a possibility that criticism arises. "With a publicly listed company, the last thing management wants to do is ‘rock the boat'." He goes on to say that because a GP will only hold a company for approximately five years, they need to quickly put measures in place to extract the most value.

Fund performance in the region, indicates that the industry is an important source of returns for investors. Figures presented at the conference showed that average fund returns on 1989-2001 vintages were far higher in the Nordic region compared to Western Europe and the US. As a result, the size of Nordic buyout funds has grown in recent years, while returns have remained above average. "Sustained high returns has been shown to be strongly correlated with the ability to implement operational improvement," says Harald Mix, partner at Altor, suggesting that private equity is having a positive operational impact on companies in the Nordic region.

As the size of funds and competition in the industry has grown however, there is a risk that returns will fall. "GPs need to be careful not to chase too many opportunities in an attempt to become larger," says Mix and adds, "It is important that you only concentrate on your areas of competence." Mix therefore stresses that quality is better than quantity.

While the buyout industry is faring well in Sweden and the rest of the Nordic region, venture is having a more difficult time. Venture returns have historically been lower relative to other European countries and the US. Recent restructuring phases in the industry have meant that the number of venture investors has fallen. Hans Otterling, general partner at Northzone Ventures, believes that it is the success of the Nordic buyout industry that has contributed to the reduced number of venture players: "The venture industry competes for the same LPs as buyout investors, and their success has reduced the number of venture investors that are able to successfully raise funds." Reduced competition in the venture space is however likely to yield strong exits in the future.

The outlook for Nordic buyout funds remains optimistic and although the performance of the venture industry has been disappointing, there are signs that point to an improving situation.

The Nordic unquote" Private Equity Congress will be held on 31 May. For more information and to book your place, click here.

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• Topics
• Nordics
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• SVCA