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.
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’s private equity real estate funds is on commercial properties in Helsinki metropolitan area and property development in Finland.
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 profit development in January–September 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 period under review to MEUR 29.0 (MEUR 21.8).
The sum of management fees paid by the funds increased to MEUR 18.7 (MEUR 14.9) as a result of management fees received from CapMan Real Estate I, CapMan Buyout VIII and CapMan Life Science IV funds. 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 carry totalled MEUR 7.5 (MEUR 5.7). Of this, approx. MEUR 3.4 was accrued as a result of carried interest received from the Tiimari exit, approx. MEUR 2.2 as a result of carried interest received from the PPTH-Norden exit and approx. MEUR 0.9 as a result of carried interest received from the Puulämpö Yhtiöt exit. The remainder, approx. MEUR 1, was accrued from several smaller carried interests received from funds generating carry.
The impact of fund investments made from CapMan’s own balance sheet totalled MEUR 3.4 (MEUR 1.0). Realised returns on fund investments were MEUR 0.7 (MEUR 0.2) and they are mostly associated with the exit by Finnventure Fund V from Mehiläinen Oyj, which was closed during the review period. Fair value gains/losses associated with fund investments totalled MEUR 2.7 (MEUR 0.8), and they were related in particular to value creation in CapMan Equity VII Fund. The fair value of all fund investments made from CapMan’s own balance sheet totalled MEUR 30.2 at 30 September 2006.
Returns on real estate consulting activities, totalling MEUR 1.4, also had a growth effect on turnover.
Operating expenses were MEUR 20.3 (MEUR 15.3). 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. In addition the accrued bonus based on current profit development is fully allocated in personnel expenses.
The sale of Access Capital Partners’ shares that was executed in June has a positive effect of approx. MEUR 0.6 on CapMan Plc’s result for January–September. 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.
Operating profit for the period increased to MEUR 12.0 (MEUR 7.3). The share from the result of CapMan’s associated companies was MEUR 0.1 (MEUR 0.1). Profit before taxes was MEUR 12.6 (MEUR 7.8) and profit after taxes totalled MEUR 9.5 (MEUR 5.9). Earnings per share was EUR 0.12 (EUR 0.08).
Balance sheet and financial position at 30 September 2006
The sum of non-current assets in the balance sheet grew to MEUR 53.0 in the period under review (MEUR 35.2). In line with CapMan’s strategy, the sum of CapMan’s own investments increased and their fair value totalled MEUR 30.2 at the end of the period (MEUR 18.1). There was also an increase in non-current receivables to MEUR 13.9 (MEUR 7.7). Of the receivables MEUR 10.1 (MEUR 6.8) 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 5.0), and is directed mainly at the acquisition of Swedestart Management AB in 2002. CapMan’s net cash assets, including current investments, totalled MEUR 8.5 (MEUR 15.6). The Company has interest-bearing liabilities of MEUR 4.6 (MEUR 0.0).
Key ratios
|
|
30.9.06 |
30.9.05 |
31.12.05 |
|
Shareholders’ equity / share, EUR |
0.70 |
0.63 |
0.64 |
|
Share issue adjusted |
|
|
|
|
number of shares |
76 127 208 |
74 883 836 |
75 041 938 |
|
Number of shares |
|
|
|
|
at 30.9.2006 |
76 379 548 |
75 402 148 |
75 923 348 |
|
Number of shares outstanding |
76 379 548 |
75 402 148 |
75 923 348 |
|
Return on equity, % |
18.5 |
12.8 |
14.8 |
|
Return on investment, % |
23.7 |
17.1 |
20.2 |
|
Equity ratio, % |
81.1 |
87.3 |
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 invests in middle market buyout transactions in the Nordic countries. 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 Fund was held at MEUR 45 on 23 March 2006. The fund invests in Nordic medical technology companies and its fundraising still continues. CapMan’s own commitment into the fund is MEUR 5, and 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 for CapMan Technology 2006 fund during the third quarter of 2006.
Real estate funds
CapMan established its second private equity real estate fund CapMan RE II Ky on 26 September 2006. The fund has investment focus on property development targets in Finland. At the first closing of CapMan RE II, eight institutional investors had committed a total of MEUR 69 into the fund. The fund’s management company is CapMan Plc’s subsidiary CapMan RE II GP Oy, whose own commitment into the fund is MEUR 2. The aim is that an average 75% of the fund’s investments are financed with debt financing, in which case the fund has an investment capacity of MEUR 276 with the shareholders’ equity of MEUR 69 now raised. Fundraising will still continue, and the maximum investment capacity of the fund is MEUR 600. CapMan Plc’s share of possible carried interest that will be received from CapMan RE II is 60% and the aggregate share of the Real Estate investment team and the management company’s other owner Corintium Oy is 40%.
Capital under management
As at 30 September 2006 CapMan managed a total of MEUR 2,598.3 in capital (MEUR 1,863.5 at 30 September 2005). 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 and totalled MEUR 1,822.3 (MEUR 1,363.5). Capital under management in real estate funds grew as a result of fundraising for CapMan RE II Fund and totalled MEUR 776 (MEUR 500).
Capital under management by associated company Access Capital Partners
CapMan Plc’s associated company Access Capital Partners managed/advised MEUR 1,301.5 (MEUR 923.2) in total assets as at 30 September 2006. Of this, MEUR 832.1 (MEUR 527.3) was in funds of funds and MEUR 469.4 (MEUR 395.9) in private equity investment mandates.
Fundraising for Access Capital Fund III continued during the review period and commitments to the fund totalled MEUR 304.9 at 30 September 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).
Investments and exits by the funds during the review period
Funds investing in portfolio companies
In the period under review the funds made six new investments, two substantial add-on investments and several smaller add-on investments, investing MEUR 110.8 in total. There were new investments in 42Networks AB, MQ Sweden AB, Neoventa Medical AB, ProstaLund AB, Spintop Netsolution AB and Tamro MedLab Oy. Substantial add-on investments were made in Tokmanni Oy and SciBase AB. In addition a new investment in Maintpartner Oy and a substantial add-on investment in Tamro MedLab Oy were announced during the third quarter. It is expected that these investments will be finalised during the final quarter of 2006.
The funds exited in total from ten companies during the review period: Drobe VAB, Kultajousi Oy, Matkatoimisto Oy Matka-Vekka, Mehiläinen Oyj, Modultek Oy, PPTH-Norden Oy, ProstaLund AB, Puulämpö Yhtiöt Oy, Quartal Oy and Tiimari Plc. Additionally Finlayson & Co Oy repaid its mezzanine loan. Exits at acquisition cost (including partial exits and mezzanine loan instalments) for the period totalled MEUR 102.0.
Real estate funds
CapMan Real Estate I Fund made four new investments during the period under review. The new assets are Kiinteistöosakeyhtiö Erottajankatu 15–17, Kiinteistöosakeyhtiö Malmin Nova, Kiinteistö Oy Tikkurilantie 136 and the building and leasing rights to the site located at Henry Fordinkatu 6. 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 review period was MEUR 74.4.
Investments and exits at acquisition cost, MEUR
|
|
1-9/2006 |
1-9/2005 |
1-12/2005 |
|
New and follow-on investments |
|
|
|
|
|
|
|
Funds investing in portfolio companies |
110.8 |
|
116.1 |
|
127.3 |
|
|
Buyout |
|
90.2 |
|
95.5 |
|
96.7 |
|
Technology |
|
9.1 |
|
15.6 |
|
25.6 |
|
Life Science |
|
11.5 |
|
5.0 |
|
5.0 |
|
Real estate funds |
74.4 |
|
195.8 |
|
225.7 |
|
|
Total |
185.2 |
|
311.9 |
|
353.0 |
|
|
|
|
|
|
|
|
|
|
EXITS* |
|
|
|
|
|
|
|
Funds investing in portfolio companies |
102.0 |
|
107.2 |
|
118.7 |
|
|
Buyout |
|
83.9 |
|
74.4 |
|
78.0 |
|
Technology |
|
13.8 |
|
27.0 |
|
31.8 |
|
Life Science |
|
4.3 |
|
5.8 |
|
8.9 |
|
Real estate funds |
- |
|
- |
|
- |
|
|
Total |
102.0 |
|
107.2 |
|
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 September 2006
Funds investing in portfolio companies
Investments in portfolio companies at acquisition cost totalled MEUR 594.1 at the end of the period under review. The fair value of investments was MEUR 682.9. 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 301.2 and the fair value of investments was MEUR 299.8. 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 4.4 years as at 30 September 2006. The fund has an investment capacity of about MEUR 475 for new investments.
Funds’ gross portfolio* as at 30 September 2006, MEUR
|
|
Portfolio at |
Portfolio at |
Share of |
|
|
acquisition |
fair |
portfolio |
|
|
cost |
value |
(fair |
|
|
MEUR |
MEUR |
value) % |
|
Funds investing in portfolio |
|
|
|
|
companies |
594.1 |
682.9 |
69.5 |
|
Real estate funds |
301.2 |
299.8 |
30.5 |
|
Total |
895.3 |
982.7 |
100.0 |
|
|
|
|
|
|
Funds investing in portfolio |
|
|
|
|
companies |
|
|
|
|
Buyout |
454.2 |
550.5 |
80.6 |
|
Technology |
109.2 |
102.9 |
15.1 |
|
Life Science |
30.7 |
29.4 |
4.3 |
|
Total |
594.1 |
682.9 |
100.0 |
*Gross portfolio of all portfolio companies and real estate assets managed by CapMan funds.
Funds generating carried interest as at 30 September 2006
A private equity fund begins to generate carried interest after the investors have regained their investment in addition to a preferred annual return, usually 6–8%. At the close of the period under review 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). Finnmezzanine II B began to generate carried interest following Finlayson & Co Oy’s repayment of its mezzanine loan to the fund during the review period, and the exit from Mehiläinen Oyj moved Finnventure Fund V closer to carry.
At 30 September 2006 the fair value of the current portfolios of funds generating carried interest totalled MEUR 22.1, which represents 3.2% of fair value of portfolios of all funds investing directly in portfolio companies (MEUR 682.9) and 2.2% of fair value of portfolios of all funds at 30 September 2006 (MEUR 982.7). Information on each fund’s investment targets is presented on CapMan’s website at www.capman.com/Fi/InvestorRelations/Funds.
CapMan’s share of carried interest received from funds generating carry is 20–25% of a fund’s cash flow in the case of CapMan funds that were established before 2004, and 10–15% for newer funds. The lower carried interest percentage for newer funds results from the distribution of a share of carried interest to the members of the investment team 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’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. 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, like other investors in the funds, gives commitments to the funds when they are established. As at 30 September 2006 the total amount of current investments at fair value and remaining commitments was MEUR 84.9, of which remaining commitments totalled MEUR 54.7. 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 3–5 years as new investments are made. Fund investments (the called-in commitments) for the review period totalled MEUR 8.7 (MEUR 6.2). 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 30.2 as at 30 September 2006.
CapMan’s investments and commitments in the funds as at 30 September 2006, MEUR
|
|
Investments |
Remaining |
In total |
|
|
at fair |
commitments |
|
|
|
value |
|
|
|
Funds investing in portfolio companies |
|
|
|
|
Equity funds |
21.6 |
42.2 |
63.8 |
|
Mezzanine funds |
1.9 |
6.0 |
7.9 |
|
Funds of funds* |
6.5 |
3.7 |
10.2 |
|
|
30.0 |
51.9 |
81.9 |
|
|
|
|
|
|
Real estate funds |
0.2 |
2.8 |
3.0 |
|
Total |
30.2 |
54.7 |
84.9 |
* Managed/advised by CapMan’s associated company Access Capital Partners.
CapMan’s own investments in the funds for the period 1 January – 30 September 2006, MEUR
|
|
1-9/2006 |
1-9/2005 |
1-12/2005 |
|
Funds investing in portfolio companies |
|
|
|
|
Equity funds |
6.3 |
4.2 |
5.0 |
|
Mezzanine funds |
0.7 |
0.2 |
0.3 |
|
Funds of funds* |
1.6 |
1.7 |
2.2 |
|
|
8.6 |
6.1 |
7.5 |
|
|
|
|
|
|
Real estate funds |
0.1 |
0.1 |
0.2 |
|
Total |
8.7 |
6.2 |
7.7 |
* Managed/advised by CapMan’s associated company Access Capital Partners.
Personnel
|
|
30.9.2006 |
30.9.2005 |
31.12.2005 |
|
CapMan Private Equity |
38 |
40 |
39 |
|
CapMan Real Estate |
24 |
15 |
15 |
|
General functions |
37 |
33 |
33 |
|
Total |
99 |
88 |
87 |
As at 30 September 2006 the Group had 99 (88) employees, of whom 71 (61) 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 resigned his post as a member of the Management Group as of 1 August 2006 and he transferred 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 4,562.00 during the review period when CapMan B shares were subscribed with 2000A/B options. At 30 September 2006 the Company’s share capital totalled EUR 763,795.48, the number of B shares was 68,379,548 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 |
|
|
1-9/2006 |
1-9/2005 |