The merger of Minimax and Viking Group - IK Investment Partners

BJÖRN SAVÉN: “We will continue our strong focus
on operational improvement programmes and cross
border expansion.”
The fundraising market for private
equity has seen a significant slow
down in the past 24 months and
it is likely that conditions will
remain difficult for the rest of 2010
and possibly into next year.
The investor community has been constrained
in its ability to make commitments to private
equity, primarily due to over-allocation
strategies and lack of liquidity, as well as some
risk reduction. Commitments are being made
but on a more selective and restrictive basis,
which only contributes to the continued
difficult market.
However, there have been some success
stories where firms have dealt constructively
with the issues presented in their portfolio, and
have continued to deliver good results. These
firms have mostly been active in the mid-market
space, where investors still have an appetite to
commit capital.
We certainly believe that there is a value
proposition in our part of the market. We
typically try to develop the firms we buy
in two ways. First, we help them grow and
internationalise by executing cross boarder
add-on acquisitions. Second, we are very
involved in implementing efficiency measures,
such as the establishment of new sourcing
platforms. In our segment of the market, there
is genuine need for such skills and seensful
implementation can drive profitability forward
to levels not previously enjoyed.
We have consistently deployed this strategy
over the past twenty years throughout Northern
Europe and this can be clearly seen by looking
at how we create value - it all comes down to
earnings improvement.
The types of transactions we get involved
in can be complex, allowing us to implement
our value creation strategy and actually work
with companies in a hands-on way, as opposed
to relying on significant market growth and
favourable financing markets.
A typical IK transaction will take a local
or regional champion and, through add-on
investments in our geographies, transform the
company into a European or global player. Our
operational tool box plays a fundamental role
in our ability to achieve returns. The recent
transforming merger of our German portfolio
company Minimax with the American company
Viking is an example of how we, together with
management, can further internationalise our
portfolio companies. Following the merger the
combined group will have sales of over €1 billion
and a more balanced global reach. Additional
value will be achieved through significant
synergies and through cross selling of products.
We will continue our strong focus on
operational improvement programmes and cross
border expansion. A key differentiating factor is
that we primarily compete with local and regional
players whereas we have a pan-regional footprint.
Accordingly our key competitors will not be able
to execute on the same strategy as we can. This is
well recognised by the management teams across
our geographies, as well as our investors.
Another area where the mid-market has held
up favourably compared to the larger segment
is in its ability to secure financing. The banks
have remained cautiously open for business
throughout the downturn. There has been some
decision making unpredictability and reduced
bite sizes, but it has been possible to put together
some club deals.
However one of the key difficulties has been
the lack of quality assets coming to market.
This has lead to high prices for these assets. We
believe it is important to remain disciplined
in such conditions, and to pick investments
in sectors which are perhaps less fashionable,
and potentially more cyclical. An example of
this would be our 2009 acquisition of Vistra,
a trust and fiduciary services provider, which
we bought for around 8.5 times EBITDA,
significantly below peak multiples.
Looking forward, the fundraising market will
probably show a gradual recovery, especially as
investors begin to receive distributions, when
exit activity returns. The key for success will
remain firms’ ability to demonstrate that value
creation has been operational and hands on, as
opposed to financial and cosmetic. Investors
appreciate that, with a tough economic climate
set to continue for some years, the operational
skill set will be fundamental in driving returns.
björn savén, executive chairman
and founder, ik
VIEWPOINT
“A typical IK
transaction will
take a local or
regional champion
and, through addon
investments in
our geographies,
transform the
company into
a European or
global player.”
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