Point of no return

01 April 2009

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What determines the future of a portfolio company? GPs with spotless track records are falling into trouble, and the operational expertise and hands-on approach once heralded and admired are no longer sufficient. It seems the industry, as everyone else, is in the hands of the "world economy." For example, Nordic Capital-backed Plastal Holding, which filed for bankruptcy last month, cited the 40% drop in market volumes in the automobile industry as the main reason for their insolvency

So what are GPs to do? Sit back and wait for this whole crisis to blow over? Seize the opportunity and acquire companies at lower valuations? This was everyone's prediction at the onset of the crisis; however the vast majority of these bargain deals are yet to be executed. As one adviser told me earlier this year: "The first half of 2009 will either be a giant party, or utterly quiet." So far, the party hats are nowhere to be seen.

That is not to suggest, however, that private equity professionals are hibernating. It seems the downturn has inspired a new creativity; finding other sources for deal origination, deal structuring and financing. One interesting example is HitecVision's recent transaction in which portfolio company Technor AS, a supplier of fire prevention equipment, was acquired by sector rival Simtronics ASA. The total deal value of NOK 186.9m was partly paid in cash, financed through a share issue by the buyer, and partly in shares, leaving HitecVision as the principal shareholders of listed Simtronics. and with a partial exit of Technor.

At time of going press, Segulah had announced the merger of portfolio company Nordform, a corporate spin-off which the buyout house acquired from Skanska in 2005, with S:t Erik, a subsidiary of construction company Peab, with the aim of creating a pan-Nordic supplier of concrete products to infrastructure. As the advice from a late a US mutual fund pioneer goes: "Invest at the point of maximum pessimism." According to market sentiment, it seems the timing for that is just right.

Yours sincerely,

Rikke Lilla Eckhoff

Editor, Nordic unquote"

Tel: +44 20 7484 9824

rikke.lilla-eckhoff@incisivemedia.com.