Growth in portfolio companies and a strong financial position

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Tesi’s Interim Review 1.1 – 30.6.2017:

– Tesi made new investments and commitments amounting to €37m.
– Tesi’s international partners invested altogether €27m in Finnish companies
(1-7/2017).
– Revenue growth in Tesi’s direct portfolio companies was 19% (median).
– Profit after taxes was €45m.

Tesi’s CEO Jan Sasse comments on the review period:

“Finland’s venture capital and private equity industry is experiencing an upswing. During the past year, Finnish private equity funds have raised roughly one billion euros in capital. M&A activity has continued at a high level, deal-flow looks positive and there are exits on the horizon.

We focus on active ownership and on accelerating the growth of portfolio companies. We want our portfolio companies to grow, to succeed and to operate responsibly. Major events in our direct portfolio companies during the review period included the strategic partnership of Valmet Automotive with Chinese CATL, Profit Software’s acquisition of Evolvit, and European Investment Bank’s €25m financing of MariaDB Corporation – the largest growth financing package ever granted by EIB in the Nordic countries.

The aim of our investments is to foster growth and renewal. During the first half of 2017, we made new investments amounting to €37m. Our international partners invested altogether €27m in Finnish companies in the January-July period. In addition to capital, investors also bring expertise to the companies they invest in.

The financial result of 45m€ for the first half of the year is a good indicator of the work done in portfolio companies, both directly and through funds. Our financial performance enables us to pursue our investment strategy in the long-term and to continue making new investments.”

Business environment

Venture capital in both Finland and Europe was more subdued in early 2017 than in the peak years of 2015-2016. Finnish healthtech companies raised large venture capital rounds. The importance of crowdfunding as a source of risk financing is clearly on the rise.

Finnish buyout funds have roughly one billion euros of investment capacity. Finland’s macroeconomic upswing is expected to support the operative development of later-stage companies and boost both investment and exits.

The importance of Asia, and in particular China, as a player in the global economy has substantially increased in recent years. In 2014, the size of Greater China Region’s venture capital market exceeded that of Europe’s (source: Prequin). In addition to abundant capital, the phenomenon is supported by China’s own technological expertise and the globalisation megatrend. Chinese venture capital and M&A volumes are growing strongly, which is also visible in many of Tesi’s portfolio companies. The availability of more capital is particularly important for Finland’s later-stage venture capital market.

Investment operations

Tesi made new investments and commitments amounting to €37m during the review period.

In fund investments, Tesi gave commitments totalling €26.9 to three funds. Two of these were venture capital funds, of which one was Finnish Vendep Capital and the other an international fund (currently fund raising, name to be published later). In addition, Tesi gave a commitment to Vaaka Partners’ new private equity fund.

Tesi made direct investments totalling €10.3m in 12 companies. First-round investments were made in two companies: BC Platforms and Mustavaaran Kaivos. Exits included the sale of Rightware to Chinese Thundersoft and of Thermisol to Norwegian Jackon Group.

International co-investors were involved in five of the direct investments Tesi made during the first half of the year, investing altogether €6.7m in companies such as BC Platforms, Mustavaaran Kaivos and Keliber. In addition, Tesi’s international portfolio funds made investments totalling €20m in six Finnish companies.

Result, balance sheet and cash flow

Profit after taxes for the review period amounted to €45m. The macroeconomic upturn and favourable development of the venture capital and private equity sector contributed to enhanced profitability. Net gains from investments amounted to €48.8m, consisting of €33.8m from fund investments and €15m from direct investments. The profit from fund investments derived evenly from venture capital funds and later-stage funds. In direct investments, active portfolio management and the continued strong growth of portfolio companies were reflected in the positive change in unrealized fair value. Retained earnings from Tesi’s operations amounted to €302m at the end of the review period.

The balance sheet total at the end of the review period was €997m and shareholders’ equity totalled €957m. Altogether €63.4m was returned from the company’s investments during the review period and net cash flow was €16.9m. A total of €50.4m was returned to Tesi from investments in funds, and €13m from direct investments. 

Investments under management

Tesi’s investments under management at the end of the review period totalled €1,018m, which includes Tesi’s own investments as well as investments made by the KRR funds managed by Tesi.

Prospects for year end

Since the end of the review period, Tesi has made an investment in the healthtech company BCB Medical together with Standout Capital. Tesi’s portfolio company OptoFidelity was sold to the Chinese CYG Group. In August, Matias Kaila started at Tesi as Director for Fund Investments, and Jussi Hattula as Director for Growth & Industrial Investments.

Deal-flow and M&A activity look promising for the rest of the year. There are some exits in the pipeline from both venture capital and growth investments. In fund investments, both Finnish and international venture capital funds are visible in the deal-flow. Tesi is currently fund-raising for the fund-of-fund KRR III.  International investors continue to be active in Finland.

The strong start to the year gives Tesi sound resources for financing new investments and for continuing its mission of accelerating the international growth of Finnish companies.

Read more: Tesi’s Interim Review H1/2017

Further information:

Jan Sasse, CEO, Tesi
tel: +358 40 861 9151
e-mail: jan.sasse@tesi.fi
 

Tesi (Finnish Industry Investment Ltd) is a venture capital and private equity company that accelerates companies’ success stories by investing in them directly and via funds. Tesi always invests together with other investors, providing them with access to high quality deal-flow in Finland. Our investments under management total 1 billion euros and we have altogether 723 companies in portfolio. www.tesi.fi / @TesiFII