workshop private equity - rannaleet

© IK Investment Partners

Private Equity – a catalysts for change?

EC Restructuring Forum, Brussels, July 2010

Anne Holm Rannaleet

Confidential 2


Section 1 Brief introduction to IK

Section 2 How can PE drive industrial change?

Section 3 Corporate Governance in a Private Equity setting

Section 4 Discussion

Contents

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Section 1

Brief introduction to IK

Confidential 4


IK - A leading European private equity firm

• Founded in 1989

• €5.7 billion raised in six funds

• 69 investments

• 51 exits1)

• Aggregated sales of portfolio companies approximately €8 billion

• 30+ investment professionals of9 nationalities

1) Including partial exits

IK’s mission is to deliver above average returns to its investors by creating long-term

value in acquired businesses

Introduction to IK Investment Partners

Investment teamsInvestment advisory officesFund administration office

London

Jersey

Paris

France

BeneluxGermany,Austria,

Switzerland andCentral

Eastern Europe

Hamburg

Denmark

Sweden

Stockholm

FinlandNorway

Luxem-bourg

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Creating regional and pan-European market leaders

Investment strategy and process

Further international expansion

Develop on European scale - Buy and build strategy

Internationalise standards

Broaden management team

Acquire national champion

Introduction to IK Investment Partners

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The IK portfolioIntroduction to IK Investment Partners

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Section 2

How can PE drive industrial change?

The IK way

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The IK way – an operating approach to building companies

Operational

excellence

Strategic focus

Expansion

Industryrestructuring

Corporate Governance

Strong Corporate Governance constitutes one of the cornerstones of IK’s approach to value creation

Capital

Active Ownership – a catalyst for change - the IK way

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Themes Measures Examples

Refocus Business line restructuring

Operational excellence Benchmarking

Transfer of best practices

Industrial restructuring Consolidation through mergers/acquisitions

Dedication to service aspects Maintenance

After-sales

Expansion Market growth

Product expansion

Change is effected in different ways for different situationsCorporate Governance within IK

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Corporate governance

Operational Board of Directors

– Appropriate board composition

– Frequent board meetings

– Strategic issues always board decisions

Continuous evaluation of management capabilities and requirements

Close partnership between IK and portfolio company management

– Frequent informal contacts

– Entrepreneurial management culture

– Incentive schemes to align interests

Actions

Value creation

Stimulate fast and professional decision making process

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Strategic focus

Identify core business(es) immediately

Find homes for non-core assets and focus on building the core business

Identify key strategic directions– Clear goals– Set deadlines

Tailor the organisation to fit strategy

Building a leading kitchen company through industry consolidation

Actions

Value creation

Set strategic road-map for value creation

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Operational excellence

Initiate transfer of best practices through benchmarking

Set measurable performance targets

Increase organisation’s focus on capital efficiency

Implement systems for continuousperformance improvement

Actions

Value creation

Create best-in-class company

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Expansion

Enhance R&D and marketing efforts to:– Target new customer segments/

applications– Develop new products

Invest in production capacity

Expand after-sales and service

Pursue geographical expansion– Organic growth– Acquisitions

Actions

Value creation

Invest in growth

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-1%

2,769

+107% -19%13% 7,575

0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

8 000

9 000

EquityInvestment

EarningsGrowth

MultipleArbitrage

Debt Reduction Other Exit Valuation

Equity MEUR 100%

The IK approach: Proven hands-on investment strategyIK value creation


Confidential 14

Note: Based on weighted numbers as of 30 September 2009

Confidential 15


The IK approach

Different industries…..

Different geographies……

Different situations…..

Different cycles…..

Is there a common denominator?

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Section 3

Corporate Governance in a Private Equity setting

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Key Success factors in Private Equity

Alignement of interest

Strong and active owners

Corporate governance in a Private Equity setting

Sense of Urgency

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Does the ownership structure affect success?

Owner(IK Fund)

Board

Management

Board

Management

Owners

Private Equity Public companies


Intresse-gemenskap

Starka ochAktiva ägare

Momentum

Which are the differences?

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Does the ownership structure affect success ? (cont.)

Private Equity Public companies

Board is the owner’s prolonged arm

Smaller boards

Informal communication and decision making facilitated

Value creation strategies are more easily agreed and pursued

CEO rarely Chairman

Often need to compromise different owners’strategic agendas

Can be more challenging and time consuming to find mutual consent

Quarterly earnings focus

Largely institutional ownership

Risk of longer term lethargy

PE firms can exercise a stronger and more active influence on the board and management than in public companies


Starka och aktiva ägare

Intresse-gemenskapp

Momentum

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Sense of Urgency in Private Equity

Well-defined time horizon: exit is anticipated within 3-7 years

Detailed value creation plan prepared and agreed at the outset; needs to be executed and future growth platform put in place to ensure successful exit

The IRR-measure, which itself is return and time driven, makes timing of a successful exit paramount. Purchaser needs visibility on future value potential

Acquisition financing comes with a detailed amortisation plan which needs to be adhered to in order to avoid default on financial covenants

Corporate Governance in a Private equity setting

Strong and clear Sense of Urgency throughout system

Alignementof interest

Strong and active owners

Sense of Urgency

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Alignment of Interest in Private Equity

The IK fund is the majority owner, but management and external board members co-invest in equity

- Investing on same commercial terms as IK- Option like programme to boost upside

PE firms share risks with their investors and are rewarded by the IRR delivered to the fund. Incentive programmes for management are predominantely also based on the IRR at exit

Common goal is clear to everyone from the start and also measurable (IRR)

Private Equity vs Public Equity

High degree of common goal and alignment of interest

Intresse-gemenskap

Starka ochaktiva ägare

Momentum

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Board work as a channel for value creation

An active and competent board is a prerequisite for a successful investment

”The Investment case” presented to new board members is a platform for value creation and thereby for the board work– Strategic agenda– Operational improvements– Financial goals

Detailed and effective framework for improved board work (”Board Guidelines”)

Division of responsibilities – owners vs. operators

To ensure a quick, structured and flexible decision making process

Corporate governance

Industry restructuring

Strategic focus

Operational excellence

Expansion

Board work in a Private Equity setting

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Management of the portfolio company

The company management team is responsible for day-to-day operations

IK is involved in strategic decisions at board level

Frequent informal contacts between IK and management

IK expects management to invest in the Portfolio Company

Portfolio company CEO member of the board of directors where legally possible

Corporate Governance within IK

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Matters always to be dealt with by the portfolio company board

The purchase or sale of any real estate, business, shares or other securities

Changes of business focus and significant organizational changes

Major investments or divestments

Employment or discharge of top management

Important EHS matters


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Matters always to be dealt with by the portfolio company board (cont)

Significant law suits

Changes in credit arrangements

Publication of important information

Board of Director’s fees and auditor’s fees

Proposals on election of external advisors


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To sum upCorporate Governance within IK

Active ownership with clear agenda and alignment of interests

Control of investments & divestment process

Clear division of responsibilities

Leverage the know-how acquired and networks

PE model provides good setting for driving industrial change

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