11. PE-backed exits: A boost in secondary transactions
Following a declining trend in recent years, the number of PE-backed exits increased sharply in 2021. Compared to 2020, there was a 98 % growth in buyout exits. Especially secondary transactions saw an increase. After postponing exit in 2020 due to uncertainty and the pandemic, many exits were completed in 2021.
Following a downward trend in the number of exits in the buyout segment for a couple of years, down to an all-time low in 2020 (63 exits), the number of exits increased massively in 2021. Buyout funds completed 125 exits, which translates to a 98 % increase from 2020, and a 51 % increase compared to the average in the previous five years. Many fund managers had postponed the exit process.
"When the pandemic hit in 2020, many PE funds did not achieve attractive pricing for companies and postponed exits. This contributed to the increase in exits in 2021. In addition, last year was a strong financial year across many axes and in all industries, characterised by a post-pandemic boost as restrictions were eased", says Joachim Høegh-Krohn, CEO at Argentum.
Pest control and weather services
Among the most significant transactions, we find two EQT companies, Anticimex and StormGeo. The former, a Sweden-based pest control company, was sold from EQT VI to its sister fund EQT Future. In practice, EQT extended its investment by divesting to a fund with a longer time horizon. The company was valued at €5.9 bn.
"Anticimex is still in a relatively early phase of its development. Our goal is to revolutionise the pest control industry on a global scale by making it more preventive and sustainable, and not just about pest management. The company has invested large amounts in digital solutions and sensors to figure out when a pest attack is starting – and when it might occur in the future. They have reduced their carbon footprint by removing toxins, and by using surveillance rather than personal inspections", Magnus Tornling, Partner at EQT says.
EQT also sold the Norwegian weather service StormGeo to Alfa Laval in a transaction valued at €364 million.
"StormGeo allows companies to protect their own personnel and infrastructure. Their weather service saves resources and minimises standstills. The company had a clear ESG focus from an early point and reported on emissions saved for customers. Since EQT's investment in 2014, we doubled EBITDA and the customer base. Alfa Naval will be fantastic new owners for the company", Tornling says.
Other significant exits
In addition to the companies mentioned above, the list of significant divestments during the year include:
- Nordic Capital sold Itiviti, a Swedish company that offers SaaS solutions to financial institutions, to the American fintech company Broadridge for €2.1 bn.
- CVC Capital Partners (UK) sold AR Packaging to US-based Graphic Packaging in a trade sale valued at €1.5 bn. Lund-based AR Packaging is Europe's second-largest packaging producer.
- Brunswick acquired Norway-based Navico in a transaction valued at €860 million. Among the vendors were Altor and Goldman Sachs Asset Management (US). Navico is a global company within marine electronics and sensors.
- In June, the Copenhagen-based IT consulting company ProData Consult was sold from Polaris to Axcel, both Danish funds. The deal valued the company at approximately €269 million.
- Visolit, which delivers IT solutions such as cloud services to the corporate market, was sold to Advania in August. At the same time, IK. Investment Partners (SE) exited the Norwegian company following three years of ownership.
- The Danish premium gaming gear producer SteelSeries was acquired from Axcel by GN Store Nord in October. The deal valued the company at €1.1 bn.
- In November, PAI Partners exited Atos Medical in a trade sale to Coloplast in a deal that values the Swedish company at €2.2 bn.
- Etraveli was acquired by Booking Holdings from CVC Capital in November. In the deal, the Swedish company which provides online travel services was valued at €1.6 bn.
Two strategies stand out: As usual, trade sale (45 %) and secondary exit (34 %) were the most common exit strategies in the Nordic buyout segment in 2021.
Strongest growth within secondary exits
When looking at the exit strategy, trade sales and secondary exits amounted to 79 % of all exits. In terms of numbers, never have more secondary exits or trade sales been done in one year since Argentum's tracking of the market started in 2007.
The growth was strongest within secondary exits, up 6 % from the average level in the last five years. There are several positives of buying companies that has experienced PE ownership, according to Norvestor partner Marika af Enehjelm:
"In those cases, we know that the company management has a value creation mindset and are ambitious. It means that the basic structures and key personnel are mostly in place, which will save us time; we can quickly get up to full speed of developing the company further and into new geographies", she says. In 2021, Norvestor acquired Pinja from MB Funds.
"The private equity firms we buy from have typically focused on building a national presence for the company. Our focus is to internationalise it, accelerate growth, and increase their recurring revenues. We want to make the business model even more valuable and finetune their offering", she adds.
The exit market going forward
At the time of publishing, the Ukraine war, market instabilities, and rising interest rates are expected to affect both the investment and exit appetite.
"I believe that the exit activity will be moderate going forward. Fewer PE-backed companies will go to the public markets than in 2021. What is great about our asset class is that there are many ways of divesting a company, with the primary exit routes begin trade sale and secondary exits. As we saw in 2021, many funds are also prolonging the ownership by selling companies to one of its newer funds to continue the development," says Joachim Høegh-Krohn, CEO at Argentum.
"Private equity is an especially stable asset class. Compared to the stock exchanges, it is more than a financial market; industry development and value creation is just as important. This makes our industry less sensitive to pricing," he adds.