Polaris managing partner Kühl on current fundraising

In early June, unquote" revealed that Polaris hit the DKK 3bn target for its Polaris Equity IV fund and is on track to hold a second close before possibly raising enough commitments to reach the vehicle's DKK 3.5bn hard-cap.

Polaris is the only private equity firm to hold a close on a Danish fund this year, having held a first close in January, and Polaris Equity IV may turn out to be the only 2015-vintage vehicle from a major GP in Denmark.

Fellow Danish private equity firms Axcel and Odin Equity Partners were likely candidates to have raised funds this year. Axcel, which has raised a fund every five years since 1995, was expected by some to launch its fifth this year.

However, a new vehicle was put on hold as the GP's search for a successor to founder Christian Frigast proved more difficult than first anticipated. Now that Frigast's replacement, Christian Schmidt-Jacobsen, has been recruited, the new fund will be launched in 2016; and LPs will decide if Axcel's world-beating Pandora investment outweighs its less successful exits of Junckers, Noa Noa and LGT Logistics.

Likewise, Odin's managing partner Jacob Bergenholtz says his firm will raise a fund by the end of 2016. Odin had yet to begin contacting investors at the end of Q1 this year, however, instead focusing on exiting its current holdings.

Questions have been raised about the GP's performance by industry insiders and, as such, both Odin and Axcel's fundraising will be watched with great interest by the Danish private equity community.

Help factors
Although Polaris's managing partner Jan Johan Kühl does not want to comment on the fundraising efforts or track records of his competitors, he suggests a few factors that may have helped Polaris and placement agent Acanthus on the path to raising DKK 3.5bn.

"We have a very clear strategy about what we do in the market. A very important component in that is we communicate very clearly that we are staying in the market segment we are in and know well," Kühl says.

Polaris has refrained from moving into larger ticket deals and has stuck to investing only Danish and Swedish lower mid-market companies.

"We think from a returns point of view, but more than anything from a valuation point of view, the lower mid-market requires a special set of skills that you have to have as an investment professional but that you also need as an organisation to support those businesses," Kühl says.

"We don't think our model will work as well on substantially larger companies, or on much smaller companies either. It's very tuned to our segment, so we're very firm on that."

While some Nordic GPs have expanded their remit to include debt, infrastructure and pan-European – and in EQT's case, US – funds, many LPs prefer funds to stay true to a tried-and-tested-strategy.

At the unquote" Nordic Private Equity Forum leaders' debate in May, Argentum CEO Joachim Høegh-Krohn said there was some concern about GPs branching out and moving into asset manager territory, while Axcel founder Frigast underlined the importance of sticking to your firm's strategy.

Polaris has undoubtedly also benefited from not having issues concerning succession planning or team stability, which raises questions for any private equity firm with leaders in their 60s. Kühl replaced founder Viggo Nedergaard Jensen in 2007 and, at 47, Kühl and Polaris will not have to think about succession until at least the end of Polaris IV's lifespan.

Finally, Kühl points to his firm's returns. The recent sale of Danish animal feed maker Hamlet Protein to Altor and Goldman Sachs saw Polaris reap a 4x exit multiple, which adds to a history of solid returns, according to the managing partner.

"Most investors ask what you have really delivered," he says. "We have completed 17 exits, including Hamlet, returning three times money across them."

Rising valuations
As interest rates across Europe remain depressed, public markets have soared and private equity entry multiples are also on the rise across the continent, raising concerns among many investors.

The Nordics are no different, although Kühl suggests it is very deal-specific. He points to large-cap deals as those being priced the most aggressively, due to a history of closer correlation between assets in that segment and the stock markets.

"I think the fact the companies in that segment [more than DKK 1bn] have a real alternative in publicly listing; that private equity players in that end of the market have attracted a lot of capital; and that those targeted companies are of a quality where they attract both international and pan-European funds, has probably put a bit of upward pressure on prices," he says.

Kühl notes minor upward pressure in Polaris' mid- and lower mid-market segment, though much more on a deal-by-deal basis where "classic, good growth cases" are priced slightly higher.

"I think our investors have appreciated the fact we have been disciplined about valuing assets and do not sway too far in terms of our valuations," says Kühl. "Nearly all of us have been through a phase where we have made mistakes and perhaps, especially in our market segment, it has become clear that if you overpay for an asset there is a long way home."

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Send to  

• Topics
• Nordics
• Fundraising
• GPs
• Polaris Private Equity
• Denmark
• Sweden
• Top story