1. Private Equity – a catalysts for
change?
EC Restructuring Forum, Brussels, July 2010
Anne Holm Rannaleet
© IK Investment Partners

2. Confidential 2
Contents
Section 1 Brief introduction to IK
Section 2 How can PE drive industrial change?
Section 3 Corporate Governance in a Private Equity setting
Section 4 Discussion
© IK Investment Partners

3. Confidential 3
Section 1
Brief introduction to IK
© IK Investment Partners

4. Confidential 4
Introduction to IK Investment Partners
IK - A leading European private equity firm
• Founded in 1989
• €5.7 billion raised in six funds
Finland
Norway Sweden
• 69 investments
Stockholm
Denmark
• 51 exits1)
London
Hamburg
• Aggregated sales of portfolio
Benelux
Jersey Luxem- Germany,
Paris bourg Austria,
Switzerland and companies approximately €8 billion
Central
France Eastern Europe
• 30+ investment professionals of
9 nationalities
IK’s mission is to deliver above average
Investment teams
returns to its investors by creating long-term
Investment advisory offices value in acquired businesses
Fund administration office
1) Including partial exits
© IK Investment Partners

5. Investment strategy and process
Confidential 5
Introduction to IK Investment Partners
Creating regional and pan-European market leaders
Further international
expansion
Develop on European scale
- Buy and build strategy
Acquire national Internationalise standards
champion Broaden management team
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6. Confidential 6
Introduction to IK Investment Partners
The IK portfolio
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7. Confidential 7
Section 2
How can PE drive industrial change?
The IK way
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8. Confidential 8
Active Ownership – a catalyst for change - the IK way
The IK way – an operating approach to building companies
Corporate
Governance
Industry Strategic focus
restructuring
Capital
Expansion Operational
excellence
Strong Corporate Governance constitutes one of the
cornerstones of IK’s approach to value creation
© IK Investment Partners

9. Confidential 9
Corporate Governance within IK
Change is effected in different ways for different situations
Themes Measures Examples
Refocus Business line restructuring
Benchmarking
Operational excellence
Transfer of best practices
Industrial restructuring Consolidation through mergers/acquisitions
Maintenance
Dedication to service aspects
After-sales
Market growth
Expansion
Product expansion
© IK Investment Partners

10. Confidential 10
Value creation
Corporate governance
Actions
Operational Board of Directors
– Appropriate board composition
– Frequent board meetings
– Strategic issues always board decisions
Continuous evaluation of management
capabilities and requirements
Close partnership between IK and portfolio
company management
– Frequent informal contacts
– Entrepreneurial management culture
– Incentive schemes to align interests
Stimulate fast and professional decision making process
© IK Investment Partners

11. Confidential 11
Value creation
Strategic focus
Actions
Identify core business(es) immediately
Find homes for non-core assets and focus
on building the core business
Identify key strategic directions
– Clear goals
– Set deadlines
Tailor the organisation to fit strategy
Building a leading kitchen company
through industry consolidation
Set strategic road-map for value creation
© IK Investment Partners

12. Confidential 12
Value creation
Operational excellence
Actions
Initiate transfer of best practices through
benchmarking
Set measurable performance targets
Increase organisation’s focus on capital
efficiency
Implement systems for continuous
performance improvement
Create best-in-class company
© IK Investment Partners

13. Confidential 13
Value creation
Expansion
Actions
Enhance R&D and marketing efforts to:
– Target new customer segments/
applications
– Develop new products
Invest in production capacity
Expand after-sales and service
Pursue geographical expansion
– Organic growth
– Acquisitions
Invest in growth
© IK Investment Partners

14. IK value creation Confidential 14
The IK approach: Proven hands-on investment strategy
Confidential 14
Equity MEUR 100%
9 000
+107% -19%
8 000 13% -1% 7,575
7 000
6 000
5 000
4 000
2,769
3 000
2 000
1 000
0
Equity Earnings Multiple Debt Reduction Other Exit
Investment Growth Arbitrage Valuation
Note: Based on weighted numbers as of 30 September 2009
© IK Investment Partners
© IK Investment Partners

15. Confidential 15
The IK approach
Different industries…..
Different geographies……
Different situations…..
Different cycles…..
Is there a common denominator?
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16. Confidential 16
Section 3
Corporate Governance in a Private Equity setting
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17. Confidential 17
Corporate governance in a Private Equity setting
Key Success factors in Private Equity
Sense of Urgency
Strong and
Alignement of
active owners
interest
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18. Confidential 18
Corporate governance in a Private Equity setting
Does the ownership structure affect success?
Momentum
Starka och Intresse-
Aktiva ägare gemenskap
Private Equity Public companies
Owner Owners
(IK Fund)
Board Board
Management Management
Which are the differences?
© IK Investment Partners

19. Confidential 19
Corporate governance in a Private Equity setting
Does the ownership structure affect success ? (cont.) Momentum
Starka och Intresse-
aktiva ägare gemenskapp
Private Equity Public companies
Board is the owner’s prolonged arm Often need to compromise different owners’
strategic agendas
Smaller boards
Can be more challenging and time
Informal communication and decision consuming to find mutual consent
making facilitated
Quarterly earnings focus
Value creation strategies are more
easily agreed and pursued Largely institutional ownership
CEO rarely Chairman Risk of longer term lethargy
PE firms can exercise a stronger and more active influence on the board
and management than in public companies
© IK Investment Partners

20. Confidential 20
Corporate Governance in a Private equity setting
Sense of Urgency in Private Equity
Sense of Urgency
Strong and Alignement
Well-defined time horizon: exit is anticipated within 3-7 years active owners of interest
Detailed value creation plan prepared and agreed at the outset; needs to be
executed and future growth platform put in place to ensure successful exit
The IRR-measure, which itself is return and time driven, makes timing of a
successful exit paramount. Purchaser needs visibility on future value potential
Acquisition financing comes with a detailed amortisation plan which needs to be
adhered to in order to avoid default on financial covenants
Strong and clear Sense of Urgency throughout system
© IK Investment Partners

21. Confidential 21
Private Equity vs Public Equity
Alignment of Interest in Private Equity
Momentum
Starka och Intresse-
aktiva ägare gemenskap
The IK fund is the majority owner, but management and external board members co-
invest in equity
- Investing on same commercial terms as IK
- Option like programme to boost upside
PE firms share risks with their investors and are rewarded by the IRR delivered to the
fund. Incentive programmes for management are predominantely also based on the
IRR at exit
Common goal is clear to everyone from the start and also measurable (IRR)
High degree of common goal and alignment of interest
© IK Investment Partners

22. Confidential 22
Board work in a Private Equity setting
Board work as a channel for value creation
Corporate
governance
An active and competent board is a prerequisite for a
successful investment
Industry Strategic focus
restructuring
”The Investment case” presented to new board
members is a platform for value creation and thereby
for the board work Expansion Operational
excellence
– Strategic agenda
– Operational improvements
– Financial goals
Detailed and effective framework for improved board
work (”Board Guidelines”)
Division of responsibilities – owners vs. operators
To ensure a quick, structured and flexible decision making process
© IK Investment Partners

23. Confidential 23
Corporate Governance within IK
Management of the portfolio company
The company management team is responsible for day-to-
day operations
IK is involved in strategic decisions at board level
Frequent informal contacts between IK
and management
IK expects management to invest in the Portfolio Company
Portfolio company CEO member of the board of directors
where legally possible
© IK Investment Partners

24. Confidential 24
Corporate Governance within IK
Matters always to be dealt with by the portfolio company
board
The purchase or sale of any real estate, business,
shares or other securities
Changes of business focus and significant
organizational changes
Major investments or divestments
Employment or discharge of top management
Important EHS matters
© IK Investment Partners

25. Confidential 25
Corporate Governance within IK
Matters always to be dealt with by the portfolio company
board (cont)
Significant law suits
Changes in credit arrangements
Publication of important information
Board of Director’s fees and auditor’s fees
Proposals on election of external advisors
© IK Investment Partners

26. Confidential 26
Corporate Governance within IK
To sum up
Active ownership with clear agenda and alignment of interests
Control of investments & divestment process
Clear division of responsibilities
Leverage the know-how acquired and networks
PE model provides good setting for driving industrial change
© IK Investment Partners