The art of private equity

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Panu Vuorela from Vaaka Partners sheds light on the reason why a private equity investor can advance a company’s value creation. Hint: a mutual understanding of direction at the get-go.

Taking steps towards growth can be arduous for many companies. A clear direction may be lacking, there may be hesitation by taking such a risk, or capital may be scarce.

The good news is that backing may be closer than the entrepreneur realises.

“When we take an interest in a company, the business owner doesn’t necessarily know about all the due diligence we do,” says Partner Panu Vuorela from Vaaka Partners.

So how can the private equity investor get the traction needed to shift gears when the entrepreneur hasn’t managed to find it?

“Entrepreneurs create a strategy based on their own circumstances, but we can bring a diverse toolbox to unlock opportunities that individual entrepreneurs often do not have access to,” explains Vuorela.

The key ‘tools’ for growth include systematic strategy work, sufficient resources and a hungry team comprised of the best talent from multiple sources. The strategy team may have, for instance, seasoned industry professionals, consultants, equity experts and, of course, company management.

Prerequisites for growth

Often times, the company does not have the right team of facilitators to revitalise the management system, execute business acquisitions, internationalise or build digital services. And this is where an equity investor enters the big picture.

In many cases, the equity investor is able to work in partnership with the board to advise management in these types of frequently recurring situations. Sometimes, however, the expertise must be hired from an external source. In some cases, the equity investor may also assume an operational role. For example, investors have plenty of experience in implementing M&As.

Who will lead the growth creation?

According to Vuorela, it is important to gauge whether the company has a culture to even build growth.

Cultural change often requires renewal of the management team. The old management may not necessarily be ready to shift into a higher gear even if the equity investor were to encourage it. In this instance, choosing between new growth and the role of the CEO requires almost exceptional maturity from the entrepreneur.

“We can bring a diverse toolbox to unlock opportunities that individual entrepreneurs often do not have access to,” sums up Panu Vuorela from Vaaka Partners about the benefits that a private equity investor brings.

Private equity investors can find experienced and hungry leaders from key positions in big companies, for example. An individual who has had a diverse career with a major company may very well be interested in an entrepreneurial career change. Making a leap to take the reins of a growth-oriented company supported by an equity investor may be enticing.

“With the right incentives, we can attract heavy hitters to growth-oriented companies,” says Vuorela.

Capitalisation of the company is a third element in the toolbox. As implied by its name, an equity investor can help to do that. However, capital is only one of the tools in the toolbox.

The tools have also produced results. Vaaka Partners has invested in 12 companies between 2008 and 2015 and more than doubled their turnover. During that time, the investment targets have grown annually by more than 15 per cent, half through organic growth. The rest of the growth has come through more than 40 add-on acquisitions.

Structures in order

After the first phases of the new beginning have been taken care of, the daily grind starts. At that point, the private equity investor is supporting the company especially through active board work.

“In our companies, the board is not a rubberstamp; they actively spar with management throughout the journey,” says Vuorela.

Successful new growth requires the same shared view of the key issues by the entrepreneur who is possibly remaining with the company, the private equity investor, and the new management – already at the agreement signing phase.

“If they don’t have a shared view, there is a big potential for conflicts.”

Many entrepreneur-headed companies encounter a situation in which, for the first time, the ownership, the management and the board are not in the hands of the same person. This transition is facilitated by Vaaka Partners’ management model, which spells out the division of labour between the board and the CEO as well as many other principles of good governance.

Private equity investor broadens horizons

Kh-kiinteistöpalvelut’s main shareholders had many possibilities a couple of years ago when they started thinking about a new business path. Operating for some 25 years, the company had grown into a cluster of over 30 companies. It didn’t have any debt, and the owners were still passionate.

“New challenges and job descriptions were found by taking a stronger than normal approach to growth. In practice, it required an external investor,” says Business Director Matti Lukkari, who was one of the two main owners prior to Vaaka Partners.

The participation of a private equity investor felt attractive because, for one thing, the investor was able to offer terms that were more interesting than those of a bank.

“If the negotiations with Vaaka Partners had not succeeded, it wouldn’t have been catastrophic, but the growth steps definitely would have been slower,” says Lukkari.

The new growth-oriented strategy has already spurred 10 acquisitions and has doubled the turnover to nearly 53 million euros. The new strategy also included the hiring of an external CEO. A year-and-a-half ago, Tiina Nieminen was recruited for the position. Her previous positions included CEO of Avecra, VR Group’s restaurant services provider.

Nieminen’s strengths include experience in building management systems and concepts. That was exactly what the rapidly growing company needed. Knowing that the private equity investor was systematically operating in the background made it easier for Nieminen to move to the SME after having previously worked for large companies.

“During the job interview, I appreciated the way of thinking and the fact that there were clear goals and the means to achieve them,” says Nieminen.

Those means included building an organisation that enables growth and systematic board work. She was also intrigued by the opportunity to become an entrepreneur.

“It sparked my interest right away, even though I personally didn’t have an entrepreneurial background.”

Vaaka Partners

  • Established 1989 (as OKO Venture Capital).
  • MBO in 2010.
  • Ownership: Acting management.
  • Managing Partner: Juha Peltola.
  • Personnel: 15, plus regular collaboration with 14 industrial advisors.
  • Fund investment commitments of EUR 470 million.
  • Investment portfolio: Tietokeskus, Molok, LTP-Group, Unisport-Saltex (with Tesi), Fysios, Kh-Kiinteistöpalvelut, Enegia, Sataservice, Solita, Ovenia, Musti & Mirri.
  • Funds: Vaaka Partners Buyout I and Vaaka Partners Buyout Fund II and III, in which Tesi is also an investor. Additionally, FoF Growth has invested in Buyout Fund II and FoF Growth II in Buyout Fund III.

Panu Vuorela

  • Education: MSc, Industrial Engineering and Management.
  • Partner. With Vaaka Partners since 2007.
  • Career: New business development at Sonera’s corporate business, private equity investor in Silicon Valley, and managing director of the mobile phone map software developer Navicore.

The article was first published in Growth 1/2017.