A cautious approach
The Nordic venture capital and private equity market has undergone significant change over the past year. There remains an increasing pool of capital in this region, that continues to be driven by domestic players. However, as technology stocks have plummeted over the last couple of months, sending the cost of capital soaring, investors in the region have become prudent, with investments reaching a peak in late spring and the pace slowing down in the latter half of the year. Sweden and Finland are the largest and more mature markets of the region, with prominent positions in the telecommunications markets, while Denmark and Norway, as embryonic markets, are showing the most potential for growth.
An upward trend
Private equity funding remains strong in the Nordic region and the number of investments in Nordic TMT companies posted impressive growth of 50% in the second half of 2000. However, average investment size fell by over 30% for the same peiod, according to the Broadview Nordic IT Report.
Sweden is at the forefront of venture capital development in the region. Corporate venturers have been stepping up their activity and last year also saw an explosion in the number of incubators competing with early-stage venture capital players.
According to the European Venture Capital Association, for the first six months of 2000, euro606 million was invested in 238 companies. There was a relatively high level of activity in the replacement capital and buyout arenas, representing almost 64% of the total amount invested, compared to the European average of 46%. The share of high tech investment at 39.5% is also slightly higher than the European average at 32%.
Divestments stood at euro259 million from 52 companies. Trade sales were the most prominent exit route, accounting for 76.5% of exits by value, followed by the sale of quoted equity with 21.2% of the total amount divested.
Focusing on the increasing number of start-ups in the region, Swedish-based Atle Förestagkapital has restructured wholly-owned company TUAB (Teknologiparkernas Utveckling AB) in order to intensify its early stage investments in IT and technology. The new company, Atle Ventures has launched with a fund of SEK200, specialising in start-up opportunities in the Scandinavian market, concentrating in particular on Sweden.
Also targeting start-ups, Venture Partners, the Swedish and Norwegian venture capital firm, is changing its name to Northzone. The name change is to reflect the firm’s sphere of geographic interest within Europe and to avoid confusion with the Swiss venture capital firm that is also called Venture Partners and is investing in similar types of early stage high technology companies.
The business-to-business e-commerce venture eLabsEurope at the end of last year announced its expansion into the Nordic region with the opening of a new office in Nyköping, near Stockholm. Scandinavia represents an important market for the company with approximately euro1 billion spent annually on laboratory supplies and equipment in the region.
Focus on Finland
The Finnish market has been growing at a steady rate and is showing great potential, with an increasing amount of money being invested in start-ups, according to the Finnish Venture Capital Association. In 1999, a mere 7% of total investment was in start-ups, while for the first six months of 2000, over 20% was committed to early stage investments. Figures from the EVCA record total investment for the first six months of 2000 at euro234.8 million. Of this total, expansion and buyouts accounted for the lion’s share of investment with euro86.3 million and euro85 million respectively. Of the 200 companies that were invested in, over half were high tech, accounting for euro87.9 million of total investments. Total divestments reached euro47.7 million from 62 companies.
Last year, 3i entered the Finnish market with its acquisition of SFK Finance, renamed 3i Finland. The deal fits in with 3i’s strategic objective of looking for further strategic opportunities in the Nordic/Scandinavian region. SFK specialises on growth firms in three technology sectors; information technology, telecommunications, software and electronics; and systems and equipment for the forest and environmental industry. The acquisition cost $10.3 million in a leveraged buyout transaction from the management.
Swedish investment consultancy Wassum has also announced that it is to open a Finnish office in Helsinki in June, headed by Kjell Sundström, formerly of SEB and ABB. The branch will focus on manager monitoring and investment strategy planning.
Finnish venture capital firm, Biofund Management is to open an office in Copenhagen, Denmark this year. BioFund manages two funds with total capital of euro100 million and invests in companies that develop new pharmaceuticals, diagnostics and environmental protection systems. The company is in the process of setting up a new fund, which will significantly increase the pool of capital available for investment. Chairman Kalevi Kurkijärvi said “Biofund operates mainly in Europe, but our expertise in management of the Nordic investment market is our special strength. By opening a branch office in Copenhagen, we want to deepen our presence and impact in this market area, in which our investments are growing rapidly. The Copenhagen-Malmö axis forms the Medicon Valley area, which has developed into one of the most important know-how centers in the life sciences.”Poised for growth
Although Denmark and Norway are not as far advanced as the rest of the region, there is significant potential for future growth. Capital is flowing into the Danish market at a fast rate and this is predicted to continue for some time. Key investment areas in Denmark are biotech, medicotech, wireless communications, IP and optical communication, application software and material sciences. Investment for the first six months of 2000 reached euro189 million in 70 companies. The majority of this total was accounted for by expansion activity with euro135.8 million in 28 companies. Investments in high tech reached euro53.9 million in 32 companies, while divestments stood at euro156.9 million from 26 companies, significantly larger than Finnish divestments.
While Norway is not as well established as its neighbours in terms of activity, industry experts remark that it is an exciting time to be investing in this developing market. Total investment reached euro99.9 million in 68 companies, with over half of this total (euro47.7 million in 46 companies) representing high tech investments. Total divestments of euro90.8 million from 14 companies were reported. IPOs took the majority of this total with euro38.1 million from 2 companies and trade sales followed with euro 24.8 million in 7 companies.
In Iceland, the least-developed venture capital market in the Nordic region, some euro20.2 million was invested in 53 companies, with the majority targeting start-up investments (euro1.8 million in 26 companies). Investments in high tech reached euro9.4 million in 22 companies and divestments amounted to 2.1 million from 10 companies.
The last few months of 2000, saw a handful of fund launches and closings in the region. Stockholm-based Nordic Capital successfully closed its fourth fund, Nordic Capital IV with SEK 7billion in commitment for investments in medium-sized Nordic companies. With its most recent fund, Nordic Capital is expanding its investor base, breaking away from its predominantly Nordic roots. However, the Nordic countries still account for the lion’s share of investments committing 49 per cent to the fund.
With a view to reinforcing its Nordic presence, this year, the company set up offices in Denmark and Finland. Two new partners were appointed, specialising in healthcare and IT sectors. Toni Weitzberg, former head of Pharmacia and Upjohn Europe is responsible for investments in the health care sector, while Ulf Ivarsson, former vice president of Investment AB Bure will focus on developments and investments within the IT area. Anders Hultin, former head of Nordic Corporate Fiannace at Carnegie has also recently joined the firm as a partner.
Danske Private Equity, a subsidiary of Danske Bank also announced the final closing of its fund-of funds, Danske Private Equity Partners (Danske PEP) on euro555 million. The fund has more than doubled its target amount of euro270 million and aims to provide expansion capital for IT, Internet and telecoms companies in the Nordic region. In terms of investors, the fund has drawn commitments from institutional and corporate sources within and beyond the Nordic region.
Finnish investment company, Menire has committed euro1.687 million to the new Macceleration I Ky fund, that launched in October. Menire will be investing with Endero Group Oyj and Endero’s current owners. With its investment, Menire Oyj is part of a syndicate which has committed a total of euro3 million to the fund, whose target is around euro5 million. The fund is concentrating on a very interesting sphere in the Scandinavian market, investing in start-up and seed stage companies targeting mainly wireless, financial value added services.
Also focusing on companies in the Scandinavian wireless market, Argo Global Capital and Northstream have launched a $50 million venture, Argnor Wireless Ventures, with a view to “bridging a gap in the seemingly crowded Scandinavian market”. The fund will provide development capital and strategic support to promising new Scandinavian companies with innovative services or products for wireless data communication and third generation mobile networks.
Last year, the number of buyouts in the Nordic countries reached 42, slightly lower than the 66 deals for the same period in the previous year, according to Thomson Financial Securities Data. Excluding 31 of the deals whose sums were undisclosed, total transaction value last year was $1,344.68 million. Among the buyouts boosting this figure was Industri Kapital’s acquisition of a controlling stake in Alfa Laval, the process and engineering group. Hailed as the Nordic region’s largest buyout to date, Industri Kapital bought its 51% stake from family-controlled giant Tetra Laval, which retains a 49% holding.
Other significant buyouts last year included UBS Capital LLC acquiring a 98.6% interest in Norsk Lotteridrift, Oslo-listed supplier of gambling machines, via a tender offer to acquire the entire ordinary share capital for a total value of $108.8 million. Decorative Surfaces Holding AB, a company set up by DLJ Merchant Banking Inc and CVC European, acquired Perstorp Surface Materials AB for $170.85 million. The agreement did not include Perstorp Laminatproduktion AB. In June, Aura Group AB, a new company led by management and backed by Bridgepoint Capital acquired Auralight AB, manufacturer and wholesaler of long-life fluorescent tubes, from Duralite International Inc of the US for $23.3 million in a leveraged buyout transaction. Under the terms of the deal, AG would also acquire Aura Industrier AB and Duralite Europe AB.