Business
CapMan’s core business is private equity fund management and advisory services. The funds under management invest mainly in unlisted Nordic companies or real estate assets. CapMan Plc’s income derives from management fees from the funds, carried interest from funds generating carried interest, returns on direct fund investments made from CapMan Plc’s own balance sheet and returns on real estate consulting activities.
As a private equity fund management company, CapMan begins to receive carried interest after the investors have regained their investment in addition to a preferred annual return, usually 6–8%. In the case of CapMan funds that were established before 2004, carried interest is typically a 20–25% share of a fund’s cash flow through exits from its portfolio companies. For newer funds CapMan’s share is 10–15%. The lower carried interest per cent results from the fact that for funds established in 2004 and thereafter a share of carried interest will be distributed to the members of the investment teams responsible for the funds’ investment activities during its life cycle (typically 10 years), in accordance with common practice in the private equity investment industry.
CapMan Plc’s returns on direct fund investments made from its own balance sheet will have a greater impact on the Company’s result in the next few years, as since 2002 CapMan has been a significant investor in the funds managed by the Group. CapMan invests 5–10% of the total capital in CapMan funds investing in portfolio companies. The investments made have been valued at fair value in accordance with EVCA guidelines as specified in Appendix 1. There may be quarterly changes in fair value gains and/or losses and, in addition to the value creation of portfolio companies, these are affected by executed realisations.
CapMan Plc’s business areas
CapMan provides management and advisory services in two main business areas: CapMan Private Equity (funds making investments in portfolio companies) and CapMan Real Estate (private equity real estate funds making investments in real estate assets as well as real estate consulting). Investments by CapMan funds investing in portfolio companies focus mainly on the Nordic countries in three investment areas, which are middle market buyouts (CapMan Buyout), technology investments (CapMan Technology) and life science investments (CapMan Life Science). The investment focus of CapMan Real Estate I Fund is on commercial properties in the Helsinki metropolitan area.
Information on each business area is reported in its own segment in Interim Reports. Associated company Access Capital Partners has been included in the Group’s figures under CapMan Private Equity. As for funds, Access Capital Partners’ figures have been presented separately.
Turnover and result development in January–June 2006
CapMan’s turnover constitutes management fees, carried interest, realised returns on direct fund investments and other returns including income from real estate consulting activities. There was an increase in turnover for the first half of 2006 to MEUR 18.4 (MEUR 15.9).
The sum of management fees paid by the funds increased to MEUR 12.4 (MEUR 9.9) as a result of management fees received from CapMan Real Estate I, CapMan Buyout VIII and CapMan Life Science IV funds that were established after the comparative period. On the other hand, there was a fall in the sum of management fees received from older funds with exits that were executed after the comparative period.
Carried interest income received by CapMan Plc from funds generating carried interest totalled MEUR 3.8 (MEUR 5.7).
The impact of fund investments made from CapMan’s own balance sheet totalled MEUR 2.4 (MEUR 0.8). Realised returns on fund investments were MEUR 0.7 (MEUR 0.0) and they are mostly associated with the exit by Finnventure V fund from Mehiläinen Oyj, which was closed during the review period. Fair value gains/losses associated with fund investments totalled MEUR 1.7 (MEUR 0.8), and they were related in particular to value creation in CapMan Equity VII fund. There was a fall in fair value gains in the second quarter because value appreciation in Mehiläinen was transferred to realised returns. The fair value of all fund investments made from CapMan’s own balance sheet totalled MEUR 28.8 at 30 June 2006.
Returns on real estate consulting activities, totalling MEUR 1.1, also had a growth effect on turnover.
Operating expenses were MEUR 13.1 (MEUR 9.4). The rise in expenses was mainly influenced by CapMan Real Estate’s operating expenses, fundraising expenses during the period for CapMan Buyout VIII and CapMan Life Science IV funds as well as development and preparation expenses for other investment activities and fundraising.
CapMan Plc sold 12.5% of the shares of its associated company Access Capital Partners to the managers of Access on 28 June 2006. After the transaction CapMan Plc owns 35% of the advisory/management companies of Access and the management owns 65%. The carried interest rights of CapMan related to Access funds and mandates remain unchanged following the transaction. The transaction has a positive effect of approx. MEUR 0.6 on CapMan Plc’s result for January-June.
Operating profit for the period increased to MEUR 7.6 (MEUR 7.4). The share from the result of CapMan’s associated companies was MEUR 0.0 (MEUR 0.0). Profit before taxes was MEUR 7.9 (MEUR 7.8) and profit after taxes totalled MEUR 5.9 (MEUR 5.7). Earnings per share was EUR 0.08 (EUR 0.08).
Balance sheet and financial position at 30 June 2006
The sum of non-current assets in the balance sheet grew to MEUR 49.1 in the period under review (MEUR 34.5). In line with CapMan’s strategy, the sum of CapMan’s own investments increased and totalled MEUR 28.8 at the end of the period (MEUR 17.1). There was also an increase in non-current receivables to MEUR 11.7 (MEUR 8.2). Of the receivables MEUR 8.3 (MEUR 7.2) was loan receivables from Maneq funds, which make portfolio company investments along with CapMan funds and whose investors are CapMan’s investment professionals and other key personnel. Goodwill was MEUR 4.8 (MEUR 4.5), and is directed mainly at the acquisition of Swedestart Management AB in 2002. CapMan’s net cash assets, including current investments, totalled MEUR 7.0 (MEUR 12.0). The Company has interest-bearing liabilities of MEUR 4.4 (MEUR 0.0).
Key ratios
|
|
30.6.06 |
30.6.05 |
31.12.05 |
|
Shareholders’ equity / share, EUR |
0.66 |
0.63 |
0.64 |
|
Share issue adjusted |
|
|
|
|
number of shares |
76 008 900 |
74 740 987 |
75 041 938 |
|
Number of shares |
|
|
|
|
at 30.6.2006 |
76 339 548 |
75 048 048 |
75 923 348 |
|
Number of shares outstanding |
76 339 548 |
75 048 048 |
75 923 348 |
|
Return on equity, % |
11.9 |
12.4 |
14.8 |
|
Return on investment, % |
15.3 |
17.1 |
20.2 |
|
Equity ratio, % |
77.6 |
88.7 |
85.8 |
Turnover and profit quarterly as well as turnover and operating profit per segment for the review period are presented in the tables section of the Interim Report.
Fundraising
Funds investing in portfolio companies
The final close of CapMan Buyout VIII Fund was held on 14 June 2006 at MEUR 440. The fund was established in November 2005 and its original target size was MEUR 375. CapMan Buyout VIII invests in middle market buyout transactions in the Nordic countries. There are 31 institutional investors in the fund, of which 15 are new investors in CapMan funds. There are ten non-Nordic investors in the fund from Europe and the USA. CapMan’s own commitment into the fund is MEUR 37.5, and the allocation of possible carried interest that will be received from the fund is 70% for CapMan and 30% for the Buyout team.
The first closing of CapMan Life Science IV was held at MEUR 45 on 23 March 2006. CapMan’s own commitment into the fund is MEUR 5. The fund will invest in Nordic medical technology companies, and its fundraising still continues. The allocation of possible carried interest that will be received from the fund is 50% for CapMan and 50% for the Life Science team.
Additionally, CapMan commenced fundraising preparations for a new technology fund during the first half of 2006.
Real estate funds
Studies for the establishment of a new private equity real estate fund were commenced in the second quarter of the year.
Capital under management
As at 30 June 2006 CapMan managed a total of MEUR 2,322.7 in capital (MEUR 1,872.9 at 30 June 2005), of which MEUR 1,822.7 (MEUR 1,372.9) was in funds investing in portfolio companies and MEUR 500 (MEUR 500) was in CapMan Real Estate I investing in real estate assets. Capital under management in funds making direct portfolio company investments grew during the review period as a result of fundraising for CapMan Buyout VIII and CapMan Life Science IV funds.
Capital under management by associated company Access Capital Partners
CapMan Plc’s associated company Access Capital Partners managed/advised MEUR 1,262.9 (MEUR 917.2) in total assets as at 30 June 2006. Of this, MEUR 793.5 (MEUR 527.3) was in funds of funds and MEUR 469.4 (MEUR 389.9) in private equity investment mandates.
Fundraising for Access Capital Fund III continued during the review period and commitments to the fund totalled MEUR 266.2 at 30 June 2006. The fund consists of two separate subfunds, which are Access Capital Fund III Mid-market Buyout Europe (target size MEUR 250) and Access Capital Fund III Technology Europe (target size MEUR 100). Fundraising for Access Capital Fund III will continue in 2006.
Investments and exits by the funds during the review period
Funds investing in portfolio companies
In the first half of 2006 the funds made six new investments, two substantial add-on investments and several smaller add-on investments, investing MEUR 108.2 in total. There were new investments in 42Networks AB, MQ Sweden AB, Neoventa AB, ProstaLund AB, Spintop Netsolution AB and Tamro MedLab Oy. Substantial add-on investments were made in Tokmanni Oy and SciBase AB.
The funds exited in total from six companies during the period under review: Mehiläinen Oyj, Modultek Oy, PPTH-Norden Oy, Prostalund AB, Puulämpö Yhtiöt Oy and Quartal Oy. Additionally Finlayson & Co, Kultajousi Oy and Matkatoimisto Oy Matka-Vekka repaid their mezzanine loans. Exits at acquisition cost (including partial exits and mezzanine loan instalments) for the period totalled MEUR 68.0.
Real estate funds
CapMan Real Estate I Fund made three new investments during the period under review. The new assets are Kiinteistöosakeyhtiö Erottajankatu 15–17, Kiinteistöosakeyhtiö Malmin Nova and Kiinteistö Oy Tikkurilantie 136. Additionally, the last of the real estate acquisitions that were agreed in connection with the establishment of CapMan Real Estate I Fund were closed in January. The acquisition cost of all transactions executed in the first half of 2006 was MEUR 66.4.
Investments and exits at acquisition cost, MEUR
|
|
1-6/2006 |
1-6/2005 |
1-12/2005 |
|
New and follow-on investments |
|
|
|
|
|
|
|
Funds investing in portfolio companies |
108.2 |
|
67.5 |
|
127.3 |
|
|
Buyout |
|
90.1 |
|
56.5 |
|
96,7 |
|
Technology |
|
7.6 |
|
8.7 |
|
25,6 |
|
Life Science |
|
10.5 |
|
2.3 |
|
5,0 |
|
Real estate funds |
66.4 |
|
194.0 |
|
225.7 |
|
|
Total |
174.6 |
|
261.5 |
|
353.0 |
|
|
|
|
|
|
|
|
|
|
EXITS* |
|
|
|
|
|
|
|
Funds investing in portfolio companies |
68.0 |
|
60.8 |
|
118.7 |
|
|
Buyout |
|
50.0 |
|
44.1 |
|
78,0 |
|
Technology |
|
13.8 |
|
10.9 |
|
31,8 |
|
Life Science |
|
4.2 |
|
5.8 |
|
8,9 |
|
Real estate funds |
- |
|
- |
|
- |
|
|
Total |
68.0 |
|
60.8 |
|
118.7 |
|
|
|
|
|
|
|
|
|
|
|
|
* incl. partial exits and mezzanine loan instalments
The investment and exit activities of the funds managed by CapMan are described in more detail in Appendix 2.
Status of CapMan funds as at 30 June 2006
Funds investing in portfolio companies
Investments in portfolio companies at acquisition cost totalled MEUR 625.8 at the end of the period under review. The fair value of investments was MEUR 686.1. The funds’ portfolios are valued to fair value in accordance with the guidelines of EVCA as specified in Appendix 1.
Excluding realised and estimated future expenses, CapMan has an investment capacity of about MEUR 750 for new and follow-on investments in portfolio companies. Of this, approx. MEUR 630 is reserved for buyout investments, approx. MEUR 72 for technology investments and approx. MEUR 48 for life science investments.
Real estate funds
At the end of the review period, the funds’ investments in real estate assets at acquisition cost totalled MEUR 292.5 and the fair value of investments was MEUR 290.6. The fair value of assets is based on value appraisements made by external experts. The focus of the current portfolio is on properties with a medium level risk/return profile. The vacancy rate of the properties was 3.5% and average length of lease contracts 4.5 years as at 30 June 2006. The fund has an investment capacity of about MEUR 200 for new investments.
Funds’ gross portfolio* as at 30 June 2006, MEUR
|
|
Portfolio at |
Portfolio at |
Share of |
|
|
acquisition |
fair |
portfolio |
|
|
cost |
value |
(fair |
|
|
MEUR |
MEUR |
value) % |
|
Funds investing in portfolio |
|
|
|
|
companies |
625.8 |
686.1 |
70.2 |
|
Real estate funds |
292.5 |
290.6 |
29.8 |
|
Total |
918.3 |
976.7 |
100.0 |
|
|
|
|
|
|
Funds investing in portfolio |
|
|
|
|
companies |
|
|
|
|
Buyout |
488.1 |
560.6 |
81.7 |
|
Technology |
107.9 |
96.1 |
14.0 |
|
Life Science |
29.8 |
29.4 |
4.3 |
|
Total |
625.8 |
686.1 |
100.0 |
*Gross portfolio of all portfolio companies and real estate assets managed by CapMan funds.
Funds generating carried interest as at 30 June 2006
The CapMan funds already generating carried interest were Finnventure Fund II (since 1997); Finnventure Fund III (since 2000); Finnmezzanine Fund I (since 2001); the Fenno/Skandia II (since 2004), Fenno/Skandia I (since 2005) and Fenno (since 2005) funds co-managed by CapMan and Fenno Management Oy; and Finnmezzanine Fund II B (since 2006). At 30 June 2006 the fair value of the current portfolios of funds generating carried interest totalled MEUR 41.9, which represents 6.1% of fair value of portfolios of all funds investing directly in portfolio companies (MEUR 686.1) and 4.3% of fair value of portfolios of all funds at 30 June 2006 (MEUR 976.7). Information on each fund’s investment targets is presented on CapMan’s website at www.capman.com/Fi/InvestorRelations/Funds.
Finnmezzanine Fund II B began to generate carried interest during the period under review, following Finlayson & Co Oy’s repayment of its mezzanine loan to the fund. The exit from Mehiläinen Oyj moved Finnventure Fund V closer to carry.
Carried interest income received by CapMan from funds generating carry totalled MEUR 3.8 for the review period. Of this, MEUR 2.2 was received from Fenno Fund as a result of the exit from PPTH Norden and MEUR 0.9 from Finnventure II, Finnventure III and Finnmezzanine I funds as a result of the exit from Puulämpö Yhtiöt.
CapMan’s own investments in the funds
Since 2002, CapMan Plc has been a substantial investor in the funds managed by the Group. According to the decision adopted by the Board of Directors on 9 May 2005, the Company’s objective is to invest about 5–10% of the total capital in future equity funds from its own balance sheet. The previous level has been 3–5%. The investment strategy, which applies to investments by equity funds investing in portfolio companies, aims to improve the Company’s return on equity and to even out fluctuations in income in coming years with returns from these investments.
CapMan, like other investors in the funds, gives commitments to the funds when they are established. As at 30 June 2006 the total amount of current investments at fair value and remaining commitments was MEUR 82.5, of which remaining commitments totalled MEUR 53.7. Of these commitments MEUR 33.3 is targeted for CapMan Buyout VIII, with the remainder targeting mainly CapMan Life Science IV, CapMan Mezzanine IV, CapMan Equity VII and Access Capital Fund II funds. The commitments will be drawn down gradually within the next 3-4 years as new investments are made. Fund investments (the used commitments) for the review period totalled MEUR 8.1 (MEUR 3.8). The majority of investments were made in CapMan Buyout VIII, Swedestart Tech and Access Capital Fund II funds. The fair value of cumulative fund investments made from CapMan’s own balance sheet was MEUR 28.8 as at 30 June 2006.
CapMan’s investments and commitments in the funds as at 30 June 2006, MEUR
|
|
Investments |
Remaining |
In total |
|
|
at fair |
commitments |
|
|
|
value |
|
|
|
Funds investing in portfolio companies |
|
|
|
|
Equity funds |
20.6 |
43.0 |
63.6 |
|
Mezzanine funds |
1.7 |
6.0 |
7.7 |
|
Funds of funds* |
6.3 |
3.9 |
10.2 |
|
|
28.6 |
52.9 |
81.5 |
|
|
|
|
|
|
Real estate funds |
0.2 |
0.8 |
1.0 |
|
Total |
28.8 |
53.7 |
82.5 |
* Managed/advised by CapMan’s associated company Access Capital Partners.
CapMan’s own investments in the funds for the period 1 January – 30 June 2006, MEUR
|
|
1-6/2006 |
1-6/2005 |
1-12/2005 |
|
Funds investing in portfolio companies |
|
|
|
|
Equity funds |
5.9 |
2.8 |
5.0 |
|
Mezzanine funds |
0.7 |
0.1 |
0.3 |
|
Funds of funds* |
1.5 |
0.8 |
2.2 |
|
|
8.1 |
3.7 |
7.5 |
|
|
|
|
|
|
Real estate funds |
0.0 |
0.1 |
0.2 |
|
Total |
8.1 |
3.8 |
7.7 |
* Managed/advised by CapMan’s associated company Access Capital Partners.
Personnel
|
|
30.6.2006 |
30.6.2005 |
31.12.2005 |
|
CapMan Private Equity |
37 |
40 |
39 |
|
CapMan Real Estate |
20 |
15 |
15 |
|
Other |
38 |
31 |
33 |
|
Total |
95 |
86 |
87 |
As at 30 June 2006 the Group had 95 (86) employees, of whom 68 (44) were located in Finland and the remainder in other Nordic countries. In addition there were five Senior Advisors acting as consultants for CapMan, four in Finland and one in Denmark.
Changes in management
On 15 May 2006 Senior Partner Petri Saavalainen was appointed as a member of the Management Group of CapMan Plc, effective 1 August 2006, with responsibility for Group Business Development. Senior Partner Vesa Vanha-Honko has resigned his post as a member of the Management Group as of 1 August 2006 and he will transfer from operational duties in CapMan as of 1 September 2006. As of 1 August 2006 the reporting of the real estate business has transferred under Senior Partner Olli Liitola, CFO.
Shares and shareholders
The share capital of CapMan Plc was increased by EUR 4,162.00 during the review period when CapMan B shares were subscribed with 2000A/B options. At 30 June 2006 the Company’s share capital totalled EUR 763,395.48, the number of B shares was 68,339,548 and the number of A shares was 8,000,000. The nominal share value is EUR 0.01.
Trading and price development of shares and options
|
|
B shares |
2000A/B options |
|
|
1-6/2006 |
1-6/2005 |
1-6/2006 |
1-6/2005 |
|
Trading turnover, number |
10 222 243 |
12 222 046 |
952 300 |
917 900 |