NOVEMBER 24 2023
The Private Equity industry in the Nordics has become ever-more specialist since first emerging in the 1980s. In this summarising excerpt of a panel discussion at the Real Deals Nordic Summit, David Samuelson, Managing Director at Nordic Capital Advisors, reflects on Nordic Capital’s early decision to go in a very specialist direction.
In October, Real Deals hosted the inaugural Nordic Summit in Stockholm. Industry professionals convened to discuss the effects of the uncertain macroeconomic environment, the perspectives of General Partners (GPs) and Limited Partners (LPs) as well as the PE landscape in the Nordics.
In a fireside chat, David Samuelson was joined on stage by representatives from both Axcel and Argentum to debate whether the future of the PE industry in the Nordics is generalist or specialist.
"By contributing with deep-sector knowledge, GPs can drive change and create value in a more effective way"
"More than a decade ago, when I joined the firm, the private equity industry was fairly generalist. But Nordic Capital took the decision early on that it wanted to apply a clear sector specialism and approach. Since then, this has become a trend across the industry as a whole, not least because of increased competition in the market," David said.
He added: "In fact, it would be fair to say that sector specialists are the new generalists in private equity. You need to be specialised at something, be that on certain sectors or specific value creation plans, for example. When we talk about genuine specialism, it’s not just focusing on specific industries – it’s more accurate to describe ourselves as subsector and segment specialists. Our long experience in our core sectors means we know which segments represent the strongest growth opportunities. We can identify investment opportunities confidently and we have stuck closely to this core strategy."
"Nordic Capital has geographic diversity and focuses on Northern Europe and the US and three core selected sectors and subsectors, to which we can contribute deep and extensive expertise and experience. This has been developed over many years. Our senior investment professionals focus exclusively on their specialist sectors, and, for us, this has been a very scalable and successful model, which we now apply across two fund strategies."
The panellists said that specialism can be seen as an enabler of genuine value creation and, in turn, a way to appeal to LPs. Returns are critical regardless of strategy, but by looking at recent numbers, it makes sense for LPs to continue investing in specialist managers.
"Challenging market conditions make it even more important to bring sector specialisation as it is this level of insight that in turn enables genuine value creation. By understanding their sectors and subsectors, GPs can use their deep-sector knowledge and industrial experience to drive genuine transformative change within companies," David said.
But specialism and being focused on selected sectors or regions also implies heightened exposure. For specialist funds, one major challenge is finding the right balance and then coherently communicating this approach and its rationales to stakeholders, the panellists suggested.
Although acknowledging inherent risks for GPs that are too specialised, David said, there are antidotes for this. Being true sector specialists also mean that you have that deep understanding of how global economic trends impact these industries and the specific segments within them.
"Nordic Capital has always deliberately selected companies whose growth is not reliant on macro-economic factors. Our experience is that good stable assets in well insulated industry segments will fetch attractive prices from the right buyers even in a lower valuation or more volatile environment," said David.
Specialist approach led to the launch of Nordic Capital Evolution
A desire to maintain this specialist approach laid the foundation for the launch of Nordic Capital’s Evolution strategy in 2021. It enables Nordic Capital to leverage its institutional resources and expertise and is a continuation of the primary strategy whilst allowing the firm to be more flexible in the size range of companies it backs.
"The market’s response to Nordic Capital Evolution was a testament to this. It was raised in only three months, oversubscribed at its hard cap, and significantly exceeded its target. It’s very unusual in the mid-market to have access to the depth of experience and resources that Nordic Capital provides," David said.
"It's worth highlighting that local expertise and having people on the ground are key to being a successful specialist. As we already had a significant presence in the Nordics, the DACH region, the UK and, increasingly so, in the US, the Fund was ready from the get-go."
Outlook for the future of Private Equity in the Nordics
Being focused on carefully selected sectors and regions, however, doesn’t imply inflexibility, the panellists said.
"It’s essential to figure out what’s noise and what’s real. Of course, we remain open minded as new types of deal opportunities arise. Areas such as AI and sustainable investment are just some of the things we’re looking at. But we’ll continue to focus on the core strategy and use our industry specialism to ensure that new opportunities are always fully understood and that diligence and investments are always very carefully considered," said David.
For GPs, a shift toward a more specialist approach has become increasingly critical for establishing a corporate structure capable of delivering robust returns and articulating a compelling strategy to LPs. This shift has become particularly pronounced in the Nordics, for long an economically stable region and acknowledged producer of technological innovations and companies – where heightened competition and an increasingly uncertain economic climate have further underscored the need for strategic differentiation.
In the years to come, GPs will have to leverage their specialist approach to be successful.
"Whereas this can be challenging, it will also mean opportunities for those that can navigate in these environments," David concluded.