GP Profile: Nordic Capital

"People call it 'fortress Nordic' as the community is very tightly knit and it all comes down to trust," says Nordic Capital partner Mark Bulmer. "Three quarters of business deals are done by Nordic-headquartered sponsors because people like to know that, if something goes wrong, the guy in charge is just down the road."  

Indeed, since the sponsor began life as Nordic Capital in 1989 as a small family business, the lion's share of its 90 portfolio companies have been in the Nordic countries. Only 15 have been headquartered outside the region.

Over the years, the sponsor has grown from two to 115 employees across eight offices and has invested €11bn's of equity in a total of 250 corporate acquisitions.  

The sponsor is currently on the fundraising trail for Fund IX with a target touted in the vicinity of its previous fund, as previously reported by unquote". At its board meeting held on 31 May, the Minnesota State Board of Investment approved a recommendation for a commitment of up to $150m (or 20% of the final fund size, whichever is less) to Nordic Capital's ninth fund. According to unquote" data, Minnesota State Board of Investment is already invested in Fund VIII to the tune of $179m.

Nordic Capital declined to comment on current fundraising.

The sponsor's previous vehicle – Fund VIII – closed on its hard-cap of €3.5bn in late 2013 and is currently deployed across 13 portfolio companies. According to unquote" research, the fund was deployed at approximately 57% as of December last year, based on a figure received from an LP in the fund. According to further LP-sourced data, its total value to paid-in ratio stood at 1.1x as of September last year.

Click here to view a full profile of Nordic Capital Fund VIII, including a comprehensive list of LPs and their individual commitments, on unquote" data

Co-investment strategy
In terms of co-investment, Bulmer admits that the sponsor has not previously been a trailblazer, but is now making up for lost time. The tipping point was Fund VII, says Bulmer: "We thought we could create more value for our LPs via co-investments rather than teaming up to create value for other sponsors."

Nordic Capital now has a full-time professional dedicated to its co-investment strategy and has a co-investment ratio of 40%, compared to the industry standard of roughly 25%. A total of 35% of Fund VIII LPs have co-invested alongside Nordic Capital.

"It is good for both parties as it helps build up the relationship and it helps our investors to really get to know Nordic Capital's DNA. We want to give all our LPs a chance to co-invest, even those at the €3-4m end of the spectrum," says Bulmer.

Shadow portfolio
"When it comes to origination, we tend to source deals ourselves. Nordic Capital benefits from a deeply rooted local presence to proactively build relationships and our investment advisory team typically tracks around 300 opportunities each year," says Bulmer. "As a result, Nordic Capital is strongly placed to find attractive investment opportunities where there is little competitor overlap and the relationship hopefully gives us the edge," he says, adding that 85% of Nordic Capital's investments are sourced directly and are made outside competitive processes.

A total of 31 companies have received investment from Nordic Capital together with the previous owners, of which eight are families or founders.

Nordic Capital's remit spans from corporate divestments and public-to-private transactions to secondary buyouts.

A notable platform play made by the GP in recent years is payment solutions and services group Bambora. The asset is in Fund VIII's current portfolio and was born out of a string of payment companies – Euroline, KeyCorp, Samport, MPS, DK Online and ePay, all acquired by Nordic Capital Fund VIII between May 2014 and April 2015. The business has now incorporated 13 acquisitions and expanded into new markets, including Norway, Denmark, Finland, US, Switzerland and Australia.

In terms of geographic focus, the private equity house is also active outside the Nordic region, investing selectively in European businesses from its core sectors and in global healthcare, where it has made significant investments over the years.    

Since the beginning of 2017, the sponsor has acquired Danish bakery and food service chain Lagekagehuset and exited Convatec, Capio, Munters and Tokmanni.

Kristoffer Melinder is managing partner of NC Advisory

Lessons learned
Having worked in the industry for more than 25 years, 15 of which at Nordic Capital, Bulmer is adamant that there is still appetite to invest in private equity mainly because the returns on offer are still the most attractive around. 

"People are still investing. This generation is saving for pensions as interest rates are so low. They want to put their money to work rather than have it sit in a bank," he says.

LPs are more savvy though, he says, admitting that there is more tussle for their money: "[LPs] are not going to give money to just anyone – many are reducing the number of GPs they have exposure to as they can’t keep up the relationships with all of them."

In terms of where the markets are at, though many people are drawing comparisons between now and 2007-2008, with the swathes of money to invest, lofty leverage and high price tags, Bulmer says things are actually quite different. 

"Financial structures were very different back then with sometimes only a 20% equity cheque and the balance made up by highly leveraged debt. People would pro-forma earnings but there were still covenants so when the markets crashed, lots of companies went into the hands of banks,” he explains. "Now there are very different capital structures with equity cheques of 40-50%, and though leverage is creeping up, docs are either cov-lite or cov-loose. Companies are not being kept awake by the thought of having to pass their covenants and the chance of a company falling into the hands of the banks is much lower now."

With the debt markets so buoyant, Bulmer says it is a good market to be a borrower – but with so much debt being offered, asset prices are also higher so it is not necessarily always favourable. 

"[High prices] are actually one of the hardest things about the market right now. Nordic Capital has been cautious to keep funds to a good size, and smaller than our opportunity set, and therefore not forced to invest and pay the high prices if we don't feel it is right to recommend it to the fund for investment," says Bulmer.

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