Translink Corporate Finance joined the Finnish Venture Capital Association in 2019. This is an important association for us, as many of our entrepreneurial clients consider exit or partial sale to private equity and venture capital ownership. We also habitually serve both VC and PE funds in their exits. Oskari Auramo wrote his master’s thesis on Finnish PE exits. FVCA was extremely helpful with assisting in gathering of the data.
There are three generic exit routes:
1) Trade sale to an industrial buyer
2) Secondary sale to another private equity fund
Public market exit route:
3) Initial Public Offering (followed by a block trade of retained shares)
The following figure shows the frequencies of the Finnish buyout portfolio company exits in each of these exit channels, splitting the public market exit route to the initial listing IPO and the later disposal of retained shares on the secondary market.
Trade sale is typically the most frequent exit route. The years 2015 and 2017 saw a heightened PE-driven IPO activity with 10 IPOs in total. With high levels of fundraising, PE funds have also been active acquirers of PE assets. The observed exit mode masks an increasingly popular process called dual track, where the M&A and public market routes are investigated in parallel or sequentially to find and execute the best exit outcome.
The bottom line is that the PE fund sells its holding to whomever provides the best terms. In addition to price, these may include consideration, deferred payment structures or liabilities. From the perspective of the company management, the preferred outcome typically is the outcome which best facilitates the future growth of the company. These often go hand-in-hand as the best match may be able to offer the highest bid price and favourable terms. While each exit is unique and dependent on the particular asset and timing, there are common characteristics with each exit channel. Some thoughts on each exit channel from the perspective of both the fund manager and the company management have been listed on the table below.
The M&A routes are often preferable due to the possibility for a quick up-front cash consideration and one step exit. Further, synergistic buyers have been seen to pay whopping prices for a must-win asset. In all its glory, an IPO leaves the fund with a portion of its shares locked up and exposed to market turbulence. In this way, IPOs can be seen as a secondary exit channel. That is not to say that there haven’t been immensely successful IPOs in our market in the recent years. The table below shows successful examples of each exit route.
A sample of 101 Finnish PE exit deals were examined in more detail. In line with the data above, trade sales were the most frequent and IPOs the least frequent exit routes in the sample. A general observation is that typically the portfolio companies exited via a trade sale were smaller and less profitable. IPOs on the other hand had the largest average revenue. However, it must be noted that both trade sales and secondary buyout exits included mega deals with revenues of hundreds of millions. Secondary buyouts were found to have the highest average investment holding period.
Translink Corporate Finance participates in private equity value creation, aiming for long-term relationships. An example of such process by Sentica Partners is shown below, where Translink initially advised the owners of two companies G7 and Chilit in combining their companies under Sentica Partners ownership. In 2019, Translink Corporate Finance advised Sentica Partners in selling the combination to a listed synergistic company, Dustin Group of Sweden.
Please contact Translink Corporate Finance experts for a meeting to discuss the suitability of exit channels and private equity participation in value creation.