CapMan to return to market for new growth fund in 2024

Wahida Ahmed
16 November 2022

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Finnish sponsor CapMan is preparing to hit the road to raise a new growth vehicle in 16 months, when it expects to have finished deploying its CapMan Growth Fund II, partner Heikki Juntti told Unquote.

The GP will seek to attract new investors to CapMan Growth Fund III, which will target approximately EUR 100m-EUR 150m, a significant increase from its predecessor, which closed on EUR 97m in November 2020.

The sponsor is still discussing whether it will open the fund for international LPs. "We want to invest outside of Finland, so having Nordic and international LPs will bolster those plans," said Juntti.

LPs in CapMan's growth strategies have been Finnish institutions, entrepreneurs and family offices. Its previous growth funds did not use placement agents, he noted.

According to Unquote Data, CapMan Growth Fund II has 40 LPs of which 30 are Finnish entrepreneurs. Investors in the fund include Ilkka Paananen, Mikko Kodisoja, Aaro Cantell, Jarkko Veijalainen, Georg Ehrnrooth and other Finnish entrepreneurs. CapMan's own investment commitment in Fund II was just over EUR 10m.

CapMan Group has EUR 4.8bn AUM, spanning several funds and investment strategies. The firm recently announced plans to double assets under management to EUR 10bn over the next five years.

Investments
Like its predecessors, Growth Fund III's strategy gives entrepreneurs different options such as taking on growth capital without giving up a majority stake, flexibility to rearrange the equity, or sell off a stake and retain the majority. "We come on board to support the next growth phase," said Juntti.

According to him, with leverage and bank financing being scarce, a direct equity investor like CapMan Growth can be an attractive proposition. "Public markets are in turmoil now, and the window for IPO is closed so we are a great option to provide liquidity to a company that would have taken the IPO route."

Growth Fund III will target well-established, profitable growth companies across the Nordics including Finland and Sweden. It may also invest in international companies, but the topic is still being discussed, Juntti said. Although sector agnostic, the sponsor has typically invested in technology, tech-enabled services, other services sectors, and traditional healthcare assets, he added.

The new fund will provide equity cheques of EUR 5m-EUR 20m, targeting businesses with revenues between EUR 5m-EUR 100m. Software companies may have lower revenue figures while services firms could be larger, said Juntti.

Its growth plans for portfolio companies typically involve internationalisation and organic growth, he said, adding further that M&A is not its main strategy.

Previous funds
CapMan Growth Fund II, which has a portfolio of seven businesses, is over 50% deployed, Juntti said. It plans make another two-three deals by the end of next year, when it is expected to be fully deployed

CapMan Growth Equity Fund, which closed in December 2017 on its EUR 86m hard cap, has made 11 investments with five exits to date and 29% net IRR, Juntti said.

The CapMan Growth strategy typically holds its portfolio companies for a period of three-five years. "A lot of our investments have turned around quickly but we can also be long-term owners," he said. "We have held companies for almost a decade."

The sponsor is on track to deliver exits with return multiples of 3x-5x, Juntti said. In June, it sold Picosun, a Finnish manufacturer of atomic layer deposition, to California-based semiconductor manufacturer Applied Materials generating a 4x money multiple; while Finland-based cloud services consulting business Fluido was sold to technology company Infosys, generating a 4x return in September 2018.