Nordic report Q&A: Procuritas by Sam Birchall, Real Deals
Procuritas Co-Managing Partners JohanConradsson and Mattias Feiff talk to Real-Deals about investing in the Nordics, the importance of strong relationships with management teams, their recent exit of SOFACOMPANY and successful IPO of PierceGroup.
Procuritas recently made a 6x return on the sale of SOFACOMPANY. what led to the successful hold and exit?
Mattias Feiff: We acquired a majority stake in SOFACOMPANY in 2017 because the founders wanted a partner to take it to the next level. We teamed up with them to shift the focus of the company to become a more direct-to-consumer business. We focused on what we call third-party platforms such as Wayfair to help sell the products and rolled out an international expansion strategy. We also helped build on SOFACOMPANY’s online presence, which allowed customers to buy products online, and this obviously attracted a lot of potential buyers because they can see that this is actually the way the industry is going.
Overall, we were able to double the sales of the company and profits increased more than that, so it was a fantastic deal. In many of Procuritas’ deals, the relationship with a portfolio’s management team appears to be an important aspect of the investment. What do you have to get right when backing founders?
Feiff: I think the most important thing is clarity and alignment. Even before we enter the partnership, we do what we call a joint value creation plan, which includes everything from the strategy of the company, to succession, to new management. It ensures that there are no surprises during the journey and we know what to expect before we actually make the acquisition. Procuritas has 30 years of experience in scaling up these SEK 100m companies to SEK 1bn businesses so we’ve developed a pretty systematic approach to how to work with portfolio companies and create value, and I think that is something that entrepreneurs really appreciate.
Procuritas recently achieved an 8x return for Pierce Group’s IPO. How did this deal come about and what is the attraction of the Nordic IPO market at the moment?
Feiff: Pierce is a really compelling story for an entrepreneur to join a financial partner like Procuritas. We were able to take the company from being a Swedish and Nordic player to a large European player and it entered the Nasdaq stock exchange earlier this year with an IPO price of SEK 64 per share, giving the company a market capitalisation of about SEK 2.45bn ($283m). When we partnered with the company’s founders in 2017, it had revenues of a couple of SEK 100m, and by last year this had grown to SEK 1.5bn. It was a tremendous growth.
Conradsson: The Nordic IPO market has been super busy and, no doubt, there will be a lot of companies coming out in the near future. Part of the reason for this is because you have the smaller markets in Norway and Stockholm that can take quite high quality businesses to market when they are a bit smaller, which has created a really strong exit route and one that we haven’t seen in many years.
Despite the pandemic, the Nordics have maintained a strong deal flow. Why does the region continue to be so attractive?
Feiff: The Nordics is at the forefront with IT infrastructure and fibre broadband connections, so a large part of the population has been able to continue to work and operate normally throughout the pandemic, which has helped the economy.
Conradsson: The region has also been able to maintain steady deal flow because of the fact that private equity has such a good name in Sweden and other Nordic countries, and is seen as being a route for entrepreneurs to scale their growth businesses.This has given a lot of private equity firms a chance to be an incentive programme and help to scale up businesses.
Private equity tends to have a bad reputation. Is public opinion different in the Nordic region?
Feiff: Private equity had a very positive reputation about a decade ago, but suffered a setback due to tax structuring. Now, however, we are seeing the tide turn once again thanks to the positive impact of private equity in creating workplaces, scaling up businesses, and creating a good impact on the local society. PE’s focus on ESG has certainly contributed to helping
improve the reputation of the industry.
Conradsson: It’s fair to say that private equity has really progressed in this ESG-type value creation, which includes making sure that workplaces add value or have a purpose. This is a key emphasis for Procuritas across our investments, for example, we recently completed an investment in Polarn O. Pyret, a Swedish children’s clothing brand focused on sustainable clothing. More generally, when you look at the Nordic region, I think that people living here have been used to paying high taxes and building a system to take care of others, so arguably the region is perhaps better adapted to focusing on ESG factors. This is because it goes back to our roots.
What are Procuritas’ plans for the rest of the year?
Conradsson: We’ve been very busy recently, having done four new platform deals and 16 add-on investments over the last 16 months. The plan going forward is to continue focusing on these add-on acquisitions because we believe this is where we can add the most value at the moment.