Monterro 4 holds EUR 700m final close

Rede Partners and Andulf Advokat advised on the fundraise.

Monterro 3 held a final close in January 2019 on SEK 2.5bn (approximately EUR 247m) and is now around 70% deployed. The vehicle made eight platform investments.

"The fundraise was almost completely online, with only two or three in-person meetings – but if someone had told me you could do this a couple of years ago, I would not have believed you," Monterro managing partner Thomas Bill told Unquote. "We launched in March 2021, since we were anticipating that we would reach end of the investment period for Fund 3 at the end of the summer."

In spite of Monterro 4's significantly larger volume, the GP does not expect to deviate from its established investment strategy, according to Bill. "Our strategy will not change at all: we focus on Nordic B2B software businesses, but we have more or less doubled our team over the past year, and we will be increasing our investment period slightly," he told Unquote.

The quick deployment of Monterro 3 and a strong deal pipeline also played a role in influencing the larger fund size, Bill said. "For Fund 3, we expected around 3.5 years between the final close and closing the investment period, but we had 2.5. So this time we want a longer period of time to focus on investments and not fundraising. Our pipeline has never been this good – we would have had to fundraise again almost immediately if we had made Fund 4 the same size as Fund 3."

The coronavirus pandemic has driven activity and opportunities in Monterro's sector of focus, Bill noted. "We are several years ahead of where we would have been without the pandemic in terms of digital transformation," he told Unquote. "Consumers and businesses are more reliant on software, and this is something that we can capitalise on: we see a need for stronger and better products among customers, and we see demand for add-ons to build stronger and better companies."

Following the fundraise, the GP is looking ahead to exits and future platform deals in the next year. "We are expecting a couple of exits from the first and second funds in the coming 12 months, which could be anything from selling to a financial sponsor to an IPO," Bill told Unquote. "We will also make more add-ons for Fund 3 and new platforms from Fund 4."

Investors
"We have been on a journey from having no institutional investors in our funds to having them at our core, but we are still the biggest investor in the fund with a 20% commitment," Bill told Unquote. "The transformation we have had in the LP base over the last few funds is that more than 50% of the capital is now from the US, including endowments, foundations and family offices. Many of the university endowments have brilliant connections that are useful to us as a software investor."

LPs in Monterro's previous vehicles include fund-of-funds manager Clearsight Investments, according to Unquote Data.

Investments
Monterro focuses on Nordic-headquartered B2B software business. The GP takes majority stakes, providing opportunities for management and employee reinvestment, and equity incentives.

Monterro 4 will make 12-14 investments with the same average equity ticket of EUR 20m (with flexibility of around EUR 10m-50m). Although its targets are Nordic, the firm seeks add-ons globally.

"The core of our strategy is to have a very operational approach, since this is the background of our core team," Bill told Unquote. "We bring a toolbox of experience and methods to entrepreneurs to grow their software businesses, taking them from local regional leasers to global leaders."

While Monterro does make add-ons for its companies, seeking targets globally, its operational approach is the first stage in value creation, according to Bill. "In the early years, most operational cashflow is invested in the business. We rarely take leverage – we want operational improvement and organic growth, then we make add-ons on top. But it is not so much about multiple expansion, it's more about increasing the product offering and selling more product with the customer base."

The GP generally sources its deals via bilateral processes. "Structured processes are rare for us – it does happen, but we want to have a long-term relationship with management and entrepreneurs, and a structured process can make this tricky," Bill said. "On average, we spend many years with these teams before making an investment, and our average deal is a bilateral deal."

Monterro accepts that it may occasionally have to pay high multiples in the competitive B2B software sector, but the GP aims to take a long-term view. "Since we usually make primary deals where we talk directly to the entrepreneurs and owners, it's about the value that we can create long term," Bill told Unquote. "We pay market prices, but the focus is really on what will happen later. Multiples have gone up, but there is still a pretty big spread – it depends on the size of the business, how far they are in their development, and the quality of the revenues."

Since the start of 2021, Monterro has invested in Bliksund, Umbraco and Moment, all of which are Monterro 3 platform investments. The GP has also made two exits: it sold Monterro 1 portfolio company Palette in an SBO to Altor in June 2021, followed by the sale of e-learning and survey platform Grade to Viking Investments in July.

People
Monterro – Thomas Bill (managing partner).

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