Deal in Focus: IK joins Nordic IT sector gold rush with TeleComputing deal

Mikkel Stern-Peltz
26 January 2016

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With the acquisition of Norwegian IT services and outsourcing company TeleComputing, IK Investment Partners joins the growing ranks of private equity firms investing in the Nordic business IT sector. Mikkel Stern-Peltz reports

Asker-based TeleComputing is the latest Nordic IT business to come under private equity ownership, after IK acquired the company from existing backer Ferd Capital.

The IT and enterprise software sector has been a popular play for investors in the Nordic region, with both local and international GPs joining the fray.

Ferd said the sale of TeleComputing had generated a windfall well in excess of NOK 1bn from its investment, which represented "a particularly high IRR" for the Norwegian family office. IK drew on its €1.4bn eighth fund for the deal, with leverage applied through an all-senior debt package provided by a single Nordic bank.

The Midas touch
"TeleComputing is a company we've followed over several years and have been impressed with the development it has been through," says IK partner Thomas Klitbo. "It was an interesting asset for us given the position the company has in an exciting growth market for IT outsourcing."

Indications of a pending sale emerged in the spring of last year and IK was subsequently in close contact with Fondsfinans, which was tasked with running the process, Klitbo says.

According to Klitbo, TeleComputing was a strong case for IK: "This was definitely a case we had been keeping an eye on for a while, since the company has both a good size and a great business model, but also a strong growth trajectory and ways for us to support and accelerate value creation.

"We believe there is a lot of growth to be found in IT outsourcing for SMEs in the Nordic region, which we see as a large growth market because the number of users is increasing and outsourcing penetration is spreading. This is not only as a result of the shift to cloud computing, but also due to IT getting more complex, while at the same time becoming more and more business critical."

The Nordic enterprise software and IT services sector has been crowded by investors in the past few years, with local GPs including Axcel and Procuritas investing in the space alongside big international firms such as KKR, Marlin and Advent.

Golden opportunity
Last year, Mikael Männik, director of M&A at KKR, Cinven and HgCapital-owned Norwegian IT company Visma, told unquote" there are still plenty of assets to acquire, but competition for those assets is increasing – mainly as a result of heightened private equity activity attention.

Despite the increasing competition for assets, Klitbo does not see the sector as being oversaturated: "The sector is fundamentally a growth sector, and the IT market as a whole is growing roughly in step with GDP. If you find the right niches, such as SME outsourcing, which TeleComputing is in, there is a clear tendency of GDP-plus growth. At the same time, it is a hugely fragmented market.

"There are a lot of different customer needs and an incredible amount of providers, so it's really about having a good understanding of what specific positions companies in the sector occupy, and what the potential is in that position," Klitbo says.

IK's strategy to realise TeleComputing's potential will focus on continuing the growth curve the company has been on, complemented by development through specific operational improvements in Norway and Sweden, as well as focusing efforts in the SME segment that TeleComputing targets and specific verticals. "Last but not least, we definitely see a clear opportunity to consolidate further in this market," Klitbo says.

When it comes time for IK to exit, Klitbo is not ruling any options out: "All routes remain open for a company such as TeleComputing. I think an interesting case could easily be made for a sponsor, for an IPO, or for a trade buyer at the end of our journey," he says.

People
IK Investment Partners – Thomas Klitbo (partner).
Ferd Capital – Peter Sunde (investment director); John Giverholt (CEO).
TeleComputing – Sven Tore Kaasa (CEO).

Advisers
Vendor – Fondsfinans (Corporate finance); Advokatfirmaet CLP (Legal).