Ticking the right boxes

Operational strength, a long and solid track record that extends through a number of economic cycles, focus on recession-proof sectors – these are the kind of boxes that would-be investors like to tick on their due diligence checklists these days whenever a private equity firm wielding a PPM comes knocking. When all the relevant criteria are met, then even in these cashstrapped times, you can still end up hitting your hard cap – which is exactly what North Europe-focused private equity firm Nordic Capital has done.

The firm, which has offices in Stockholm, Copenhagen, Helsinki, Oslo, Frankfurt and London, recently closed its seventh fund on its €4.3 billion maximum limit, having set a target of €3.7 billion [the firm's previous fund closed on €1.9 billion in 2006]. After the PPM was issued in November 2007, “most of our existing investors came in more or less straightaway,”saysAndrew Bennett, Nordic Capital's investor relations director. The fundraising lasted a year altogether, as the firm was keen to bring in new investors in order to diversify its LP base geographically.

Bennett says the firm was able to demonstrate to wavering investors that Nordic Capital's target market was “still there” despite the credit crunch and worsening economic backdrop by completing three deals during the fundraising process. One of these, US-based wound-care business Convatec, was not only the firm's first investment outside Europe but also provided evidence that substantial debt funding could still be tapped for the right business and/or financial sponsor. The deal, which was struck in May, saw the successful syndication of $3 billion of acquisition finance facilities which, according to lead arranger Dresdner Kleinwort, were “almost two times oversubscribed”.

As a healthcare business, Convatec operates in a sector which Bennett identifies as a speciality of the firm. It is also highly attractive in current market conditions, he adds, because“it has low exposure to private discretionary spending so it's relatively neutral in relation to economic cycles”.

There are other reasons why investors might have been encouraged to part with their money.“We've been around a number of years now [the firm was launched by co-founders Robert Andreen and Morgan Olsson in 1989], we've been through a number of cycles, and investors can see that the returns have come through consistently,” he says, adding: “People are talking a lot about operational improvements now. It's what we've always done.”