A man with a message

Mads Ryum Larsen joined Industri Kapital, the pan-European buyout firm with Nordic roots, in 1990 as an investment executive working on deals primarily in the Scandinavian region. He got a taste of the fundraising process when assuming responsibility for the firm’s third fund, which closed on €750 million ($958 million) in 1997. He also participated in the €2.1 billion fundraising in 2000, but without having overall responsibility. He was then involved “at the tail end” of the 2004 fundraising, which collected €825 million.

The 2004 fund was a low-point for the firm, given that it had initially set out to raise €2.5 billion, a target that was later reduced to €1.6 billion. It was following this disappointment that Ryum Larsen was appointed to the newly created position of head of investor relations, based in London. Ryum Larsen says he continues to work with some portfolio companies at board level, and also assists with deal sourcing opportunities in Denmark in particular (Ryum Larsen is a Danish national).

Ryum Larsen took time out to chat about the firm’s current IR strategies and how it is planning for the future. 

PEO: What lessons were learnt from the IK 2004 fundraising?

MRL: I was given my dedicated investor relations (IR) role more or less as a consequence of that fundraising, which, from Industri Kapital’s point of view, was less than satisfactory to put it mildly. As a firm, we ended up prioritising the IR function because we’d seen the consequence of not having done so. I would say the key problem we faced with the 2004 fund was timing. When we started raising it, there was very little visibility with regard to the performance of the 1997 and 2000 funds. Our investment pace with the 2000 fund slowed down: it wasn’t fully invested until about 12 months ago. It was also a disturbance that Harald Mix was no longer with the firm and there was some insecurity on the part of investors as to how the rest of the team would fare [Mix was an Industri Kapital co-founder who left the firm in 2003 to found start-up private equity firm Altor Equity Partners]. Since Harald left, we’ve completed 18 transactions and all are performing in line with, or above, expectations. We therefore have much more confidence now in our ability to raise capital and we know exactly what the appetite is of our investors and the views they have on timing.

PEO: Since 2004, which messages have you been particularly keen to communicate?

MRL: We’ve been focusing on how the portfolio has been performing, which is the issue that is closest to investors’ hearts. We’re trying to make investors understand the inherent value in the portfolio, even in relation to those assets that have not been realised, as well as delivering on the predictions and promises we made when we raised the 2004 fund. If investors are comfortable with portfolio development, it assuages a lot of doubts: you’ll automatically be more comfortable with the team, the strategy and the general management. In 2005, we realised about €1.9 billion at a 40 percent premium to our 2004 valuations and, in 2006, we’ve been realising companies are around a 25 percent premium to 2005 valuations. Getting this kind of information across is a key focus now. In the past, the phrase ‘black box’ has been mentioned in relation to Industri Kapital’s approach to transparency. Now we’re trying to drive the concept of transparency very hard throughout the organisation.

PEO: What are your current priorities? 

MRL: I see the role of IR here as easing the burden of other people at the firm by doing a lot of the heavy lifting. One thing we’ve been doing is getting very close and tight to our existing LP relationships as well as establishing a further 40 to 50 relationships with people who are not investors but might be going forward. To get some of these people up the learning curve is very helpful in terms of not having to start communicating our message from scratch when the next fundraising begins. So they receive our newsletter, as well as emails updating them on the general performance of the portfolio as well as any new investments and exits.

PEO: And what IR role does the rest of the IK team play?

MRL: In general, we will definitely draw on all of the firm’s internal resources, from senior partners down to more junior members of staff. The expected involvement from those at associate director/deputy director level would be to talk about the markets they operate in and the portfolio companies they are either involved with or have been involved with. When it comes to partner level, we would like people to be able to talk quite freely about strategy, investment philosophy, competition and so forth.

PEO: As a firm with Nordic roots that operates in certain parts of Europe, is it difficult to communicate the firm’s strategy to investors?

MRL: US investors that don’t know us very well might think that we are still a Nordic-focused firm but most European investors know and appreciate that we’ve done eight transactions in France, for example, where we’re one of the most active players in the mid-market. Obviously we are trying to communicate and address this issue depending where investors are on the learning curve. The broad message is that, although we do have Nordic roots, we are a pan-regional continental European buyout fund addressing the Nordic region, the Benelux region, France and Germany – and we have an equal emphasis on all of these. We’d actually much rather be defined by the type of deals we’re doing rather than the geography we’re covering. Our deals involve scope for profit improvement primarily through cost restructuring programmes and add-on acquisitions. We typically do European consolidation plays where we buy a local company and take it into a regional or pan-European market.         

PEO: Have you noted any significant changes to the fundraising climate recently, and, if so, what are the implications for Industri Kapital? 

MRL: You’ve seen more concentration in the sense that large and established investors are seeking to consolidate the number of GP relationships they have. Mega-fund demand is being driven by people looking to commit up to $500 million per fund. We’re a pan-regional, mid-market player whose investor base has historically been Scandinavian and European, but we’re now seeing a significant increase in interest from larger, well established US investors who are fully allocated to mega funds in Europe and are now looking to commit to interesting mid-market opportunities.

PEO: In what ways has LP due diligence become more demanding these days?

MRL: In terms of the volume, questionnaires have become bigger and more comprehensive, but I don’t see that as a major issue because GPs are better equipped to respond these days with dedicated accounting and IR functions. I think where investors are getting more value add is in getting exposure to all layers of the investment organisation. They are keen to ensure that the team dynamics are good and that there is a thorough understanding among all team members of the investment process, the firm’s philosophy and its position in the market. You can learn a lot from interviewing the whole team and get a feel for the quality of staff that the GP is able to attract.

PEO: Has your approach to reporting and valuation changed recently?

MRL: Over the last couple of years, we’ve definitely shifted up in gear. We’ve gone from semi-annual reporting and annual valuations to quarterly reporting and semi-annual valuations. We’ve also established an Extranet so existing investors can log on and retrieve information on historical valuations and track record, and download that information. I suspect that our next fundraising will be aided by the fact that we have a virtual data room at our disposal and that information requests will be quite easy to log and progress.

PEO: IK recently shuffled its personnel, with two partners leaving the firm. What were the reasons for that?

MRL: Basically, we wanted to have the right organisation in place for the next fundraising. In the Stockholm office, there was one layer of partners too many and we wanted to have a very flat, simple structure which is easy to explain and which doesn’t have too much fat on it taking into account that we don’t manage huge pools of capital. We also wanted an organisation where there’s space for some of the younger members of staff to grow and potentially become members of the partnership.

This interview originally appeared in the Private Equity Manager Yearbook 2006 (see www.privateequitymanager.com).