Nordic Capital: Clear strategy vital for success

unquote": What stages are Nordic Capital's Fund VII and Fund VIII at?

Klas Tikkanen: Fund VII is approaching the end of its investment period and has one more platform investment left to make. Further investments will be add-ons to existing portfolio companies. Fund VIII has already completed its first platform investment, the Danish logistics company Unifeeder, and the pipeline includes many interesting proprietary projects.

What's the secret behind Nordic Capital's success?

KT: Nordic Capital has a very clear strategy of sticking to its area of expertise. Within European healthcare – one of the core focus areas – Nordic Capital has well-defined guidelines for what to focus on and is disciplined in the execution, for example going after consumables rather than capex-sensitive and intellectual property-intensive companies.

Within the other main focus area, the Nordic market, Nordic Capital has deployed substantial resources on the ground to find and cultivate proprietary situations. Nordic Capital has advisory offices in all Nordic countries, with experienced teams and a very good network and relationships.

Another key success factor is the ability to deliver deal certainty. Pre-Lehman, there were transaction processes where there could be up to 15 bidders, where all of them had access to finance and could complete the deal. Now there are many situations where Nordic Capital is the only participant.

Out of the total pipeline during the last five years, 70% have been proprietary without Nordic competition. That number shows that the strategy works.

Also, Nordic Capital Funds have access to Nordic banks' capital, access to finance, a local presence and long term relationships. Access to debt facilities, very little competition and fantastic deal pipelines make Nordic Capital successful.

What's your outlook for 2013?

KT: I think 2013 will be a good year. The Q1 trading uplift is not as strong in 2013 as it was in Q1 2012, but it's still up. And our valuations are up.

I expect Nordic Capital will do the same number of deals or more in 2013 as in 2012, at realistic valuations. The valuation of our past six deals are at the lowest level we have seen during the past 20 years.

What's your view on the private equity market in the Nordics at the moment?

KT: Private equity fills an important function: it takes anonymous institutional money and provides more active ownership. Private equity gives capital a face and a committed owner within companies.

Skatteverket [the Swedish tax authority] is the main problem right now. If the conflict [over carried interest taxation] continues, private equity professionals may start to move abroad or leave the business.

When private equity professionals (as private investors) are risking their own money, co-investing alongside institutional money, the asymmetrical profit sharing model is essential. The 67% or 89% tax rate Skatteverket is pushing for essentially kills this model for local players.

Skatteverket ought to cease the process and realise that it lacks legal ground. Any decision to change the carry taxation should pass through parliament. The industry might be willing to pay more than 25%, but the tax has to be internationally competitive and reflect the need to have an asymmetric return profile for private individuals taking substantial investment risk.

Join unquote" for the annual Nordic Private Equity Forum on 15 May in Stockholm where sessions titled ‘Returns: The Reality vs. Expectations' and ‘Determining the exit strategies' are featuring. For more agenda information and details about attending click here

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