Business
CapMan is an alternative asset manager and its 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.
CapMan Plc’s business areas
CapMan has two business areas: CapMan Private Equity (management of private equity funds making investments in portfolio companies) and CapMan Real Estate (management of private equity funds making real estate investments and providing real estate consulting). The funds investing in portfolio companies focus mainly on the Nordic countries in three investment areas: middle market buyouts (CapMan Buyout); technology investments (CapMan Technology); and life science investments (CapMan Life Science). The private equity real estate funds focus on real estate targets in Finland.
Information about each business area is reported in its own segment in the Interim Reports. The associated company Access Capital Partners has been included in the Group’s figures under CapMan Private Equity. As far as funds are concerned, Access Capital Partner’s figures are presented separately.
Turnover and financial performance in January–September 2007
CapMan’s turnover for the review period increased to MEUR 43.6 (MEUR 29.0 for the comparison period), mainly as a result of the growth in carried interest income.
The amount of management fees paid by the funds, MEUR 18.5 (MEUR 18.7), remained at the level as the comparison period. CapMan started receiving management fees from CapMan Technology 2007 and CapMan RE II funds during the review period, whereas the amount of fees received from older funds decreased due to exits implemented after the comparison period.
Carried interest income received by CapMan totalled MEUR 22.4 (MEUR 7.5). The sale of CapMan Real Estate I fund’s portfolio accrued carried interest totalling MEUR 21.0, of which the share belonging to the parent company shareholders was MEUR 13.4. The remaining MEUR 1.4 was accrued from carried interest income received from other funds generating carry.
The impact of fund investments made from CapMan’s own balance sheet totalled MEUR 7.9 (MEUR 3.4). Realised returns on the investments were MEUR 0.4 (MEUR 0.7), and fair value gains/losses relating to fund investments were MEUR 7.5 (MEUR 2.7). The gains in fair value were influenced by the value creation in Moventas Oy, from which CapMan Equity VII fund made a partial exit during the review period, and by value creation in other portfolio companies of CapMan Equity VII fund, in portfolio companies of CapMan Buyout VIII fund and in the funds managed/advised by the associated company Access Capital Partners. The main value creation driver in CapMan funds’ investment operations is increase in portfolio companies’ sales, which is supported by increase in profitability and exploitation of market conditions. The aggregate fair value of all fund investments made from CapMan’s own balance sheet was MEUR 46.6 at 30 September 2007.
Returns on real estate consulting operations totalled MEUR 1.6 (MEUR 1.4) and other operating income within turnover was MEUR 0.7 (MEUR 0.6). Operating expenses were MEUR 19.8 (MEUR 20.3). The fall in expenses is mostly due to one-off fundraising expenses and bonus allocation differences in the comparative period. Comparable operating expenses have increased by some 5% against the comparison period.
The Group’s operating profit increased to MEUR 31.4 (MEUR 12.0). The share from the associated companies’ result increased to MEUR 1.9 (MEUR 0.1), mainly with the value creation in the portfolios of the Maneq funds, which are included in CapMan’s associated companies. Profit before taxes was MEUR 34.0 (MEUR 12.6) and profit after taxes MEUR 25.5 (MEUR 9.5). The parent company shareholders’ share of the profit was MEUR 19.8 (MEUR 9.3), and earnings per share were EUR 0.25 (EUR 0.12).
The impact of carried interest income on the profit is a prominent factor when analysing the first three quarters of the year. As a result of fluctuations in accrued carried interest, CapMan’s financial performance should be examined over a longer time span than the quarterly reviews.
Balance sheet and financial position on 30 September 2007
The amount of non-current assets in the balance sheet increased to MEUR 75.4 during the review period (MEUR 53.0 on 30 September 2006). Fund investments from CapMan’s own balance sheet increased and their fair value at the end of the review period was EUR 46.6 (EUR 30.2). Long-term receivables amounted to MEUR 17.9 (MEUR 13.9). Of the receivables, MEUR 13.4 (MEUR 10.1) was loan receivables from the Maneq funds, which are co-investors in portfolio companies with the funds managed by CapMan. The Maneq funds’ investors are CapMan and, subject to set principles, CapMan’s personnel. Goodwill was MEUR 4.8 (MEUR 4.8) and it was mainly allocated to the acquisition of Swedestart Management AB in 2002. The Company’s net cash assets including current investments were MEUR 36.7 (MEUR 8.5). The Company had interest-bearing liabilities worth MEUR 16.0 (MEUR 4.7).
CapMan’s equity ratio at the end of the review period was 64.8% (81.1%). Return on equity for the period was 39.0% (18.5%) and return on investment 43.6% (23.7%). The Company has target levels of at least 50% for the equity ratio and over 25% for return on equity.
Key Figures
|
|
30.9.2007 |
30.9.2006 |
31.12.2006 |
|
|
|
|
|
|
Earnings / share, EUR |
0.25 |
0.12 |
0.15 |
|
Earnings / share, diluted, EUR |
0.25 |
0.12 |
0.15 |
|
Shareholders’ equity / share, EUR |
0.95 |
0.70 |
0.74 |
|
Share issue adjusted number of shares |
77,796,919 |
76,127,208 |
76,212,849 |
|
Number of shares at the end of the review period |
78,540,222 |
76,379,548 |
77,158,698 |
|
Number of shares outstanding |
78,540,222 |
76,349,548 |
77,158,698 |
|
Return on equity, % |
39.0 |
18.5 |
23.4 |
|
Return on investment, % |
43.6 |
23.7 |
29.9 |
|
Equity ratio, % |
64.8 |
81.1 |
71.6 |
Turnover and profit quarterly as well as turnover and operating profit per segment are presented in the tables section of the Interim Report.
Fundraising
Funds investing in portfolio companies
On 9 February 2007 CapMan established a new technology fund CapMan Technology 2007, which has investment focus on expansion and later stage technology companies in the Nordic countries. Commitments totalling MEUR 140.3 had been raised to the fund as at the end of the review period and its fundraising still continues. CapMan’s own commitment to the fund is MEUR 15 and division of any carried interest generated by the fund will be 50% for CapMan and 50% for the Technology team.
CapMan Life Science IV fund held a final close in May at MEUR 54. The fund invests in medical technology companies mainly in the Nordic countries. CapMan’s own commitment to the fund is MEUR 10 and the division of any carried interest generated by the fund will be 50% for CapMan and 50% for the Life Science team.
Real estate funds
The CapMan RE II fund reached its maximum investment capacity of MEUR 600 on 31 March 2007. The aim is to finance an average 75% of the fund’s investments with debt, in which case the MEUR 600 investment capacity comprises MEUR 150 of shareholders’ equity with the remainder being debt financing. The investment focus of CapMan RE II is on property development targets in Finland. The fund’s management company CapMan RE II GP Oy has an investment commitment of MEUR 2 to the fund. CapMan Plc’s share of any carried interest from CapMan RE II is 60% and the combined share of the Real Estate investment team and Corintium Oy, the management company’s other owner, is 40%.
Capital under management
As at 30 September 2007, CapMan managed a total of MEUR 3,019.3 in capital (MEUR 2,598.3 on 30 September 2006). The capital under management in funds making direct portfolio investments in companies amounted to MEUR 1,919.3 (MEUR 1,822.3). There has been growth in capital after the review period as a result of fundraising for CapMan Technology 2007 and CapMan Life Science IV funds, and a fall in capital as a result of the termination of operations of Finnmezzanine Fund I and Alliance ScanEast Fund. The capital under management in real estate funds increased during the review period as a result of fundraising for CapMan RE II, and amounted to MEUR 1,100 on 30 September 2007 (MEUR 776 on 30 September 2006).
Capital under management by associated company Access Capital Partners
The capital under management by CapMan Plc’s associated company Access Capital Partners increased to a total of MEUR 2,160.5 during the review period (MEUR 1,301.5 on 30 September 2006). Of this, MEUR 1,023.5 (MEUR 832.1) was in the funds of funds and MEUR 1,137.0 (MEUR 469.4) in private equity investment mandates. The assets were increased especially during the third quarter when Access received a MEUR 300 private equity investment mandate from the French government’s pension fund and established a fourth-generation buyout fund of fund ACF IV Growth Buy-out Europe. The size of the fund was MEUR 100.0 as at 30 September 2007 and fundraising continues.
Investments and exits by funds during the review period
Funds investing in portfolio companies
Between January and September the funds made 11 new investments and add-on investments worth MEUR 152.0 in total. New investment targets include Global Intelligence Alliance Group Ltd, IT2 Treasury Solutions, KMW Energi AB, Komas Oy, Mawell Ltd, Mirasys Ltd, Movial Corporation, Nacka Närsjukhus Proxima AB, Skandia Autologistics Oy, Telemark Røntgen Group and Walki Group. In addition, a substantial add-on investment in OneMed Group was announced during the review period.
The funds exited from a total of six companies, including Avitec AB, Copterline Oy, Distocraft Oy, LindPlast A/S, MediaNorth Group Corporation and Synerco AB, and made a partial exit from Moventas Corporation during the review period. In addition, the funds sold their shares in SysOpenDigia Plc. The acquisition costs of the exits executed during the review period (including mezzanine loan instalments and partial exits) totalled MEUR 60.6. The funds also announced exits from Secgo Software Oy and Hantro Products Ltd during the review period and sold their shares of Affecto Plc after the review period.
Real estate funds
During the review period the Real Estate funds announced 14 new investments or investment decisions. Of these ten were in completed properties, three in properties under construction, and one in land. Six of the completed properties are located in Helsinki, two in Hämeenlinna, one in Tampere and one in Vantaa, and they all are mostly office properties. The properties under construction include the shopping centre Entresse in Espoo, Tokmanni’s logistics centre in Mäntsälä, and the shopping centre Skanssi in Turku. The land area is located in Kivistö Vantaa. Investments totalling MEUR 132.4 were made during the review period and the funds have additionally committed a total of MEUR 255.5 to finance the aforementioned real estate acquisitions and projects in the next few years.
CapMan Real Estate I fund exited from a total of 22 properties during the review period when the sale of the fund’s real estate portfolio to Samson Properties Ltd, The Royal Bank of Scotland (RBS) and Ajanta Oy was finalised on 31 January 2007. The acquisition price of the portfolio was MEUR 304.4 and the sale price MEUR 377.5.
Investments and exits at acquisition cost, MEUR
|
|
1–9/2007 |
1–9/2006 |
1–12/2006 |
|
New and follow-on investments |
|
|
|
|
|
|
|
Funds investing in portfolio companies |
152.0 |
|
110.8 |
|
158.8 |
|
|
Buyout |
|
116.0 |
|
90.2 |
|
127.8 |
|
Technology |
|
28.1 |
|
9.1 |
|
16.8 |
|
Life Science |
|
7.9 |
|
11.5 |
|
14.2 |
|
Real estate funds |
132.4 |
|
74.4 |
|
78.7 |
|
|
Total |
284.4 |
|
185.2 |
|
237.5 |
|
|
|
|
|
|
|
|
|
|
Exits* |
|
|
|
|
|
|
|
Funds investing in portfolio companies |
60.6 |
|
102.0 |
|
173.8 |
|
|
Buyout |
|
42.6 |
|
83.9 |
|
144.7 |
|
Technology |
|
18.0 |
|
13.8 |
|
24.7 |
|
Life Science |
|
- |
|
4.3 |
|
4.4 |
|
Real estate funds |
304.4 |
|
- |
|
- |
|
|
Total |
365.0 |
|
102.0 |
|
173.8 |
|
* includes partial exits and mezzanine loan instalments.
The investment activities of the funds managed by CapMan are described in more detail in Appendix 2.
Status of CapMan funds as at 30 September 2007
Funds investing in portfolio companies
Investments in portfolio companies at acquisition price totalled MEUR 662.0 at the end of the review period. The fair value of the investments was MEUR 841.7. The fund’s portfolios are valued at fair value in compliance with EVCA’s guidelines, as specified in Appendix 1.
Excluding actual and estimated expenses, CapMan funds had an investment capacity of some MEUR 700 for new and follow-on investments in portfolio companies. Of this, some MEUR 480 is reserved for buyout investments (including mezzanine investments), some MEUR 175 for technology investments, and about MEUR 45 for life science investments.
Real estate funds
At the end of the review period the funds’ investments in real estate assets at acquisition price totalled MEUR 132.4 and the fair value of investments was MEUR 130.6. The portfolio is wholly comprised of assets acquired during the review period. The vacancy rate of the portfolio’s completed properties at the end of the review period was 9.6%. As at 30 September 2007 the funds had also committed a total of MEUR 255.5 to finance real estate acquisitions and projects over the next few years. The funds have an investment capacity of some MEUR 405 for new real estate investments.
Funds’ gross portfolio* as at 30 September 2007, MEUR
|
|
Portfolio at |
Portfolio at |
Share of |
|
|
acquisition |
fair |
the portfolio |
|
|
cost |
value |
(fair |
|
|
MEUR |
MEUR |
value) % |
|
Funds investing in portfolio companies |
662.0 |
841.7 |
86.6 |
|
Real estate funds |
132.4 |
130.6 |
13.4 |
|
Total |
794.4 |
972.3 |
100.0 |
|
|
|
|
|
|
Funds investing in portfolio companies |
|
|
|
|
Buyout |
504.5 |
680.7 |
80.9 |
|
Technology |
116.2 |
118.0 |
14.0 |
|
Life Science |
41.3 |
43.0 |
5.1 |
|
Total |
662.0 |
841.7 |
100.0 |
*Gross portfolio of all portfolio companies and real estate assets managed by CapMan funds.
As a result of the real estate portfolio sale that was realised in January and the short holding period of the current real estate portfolio, the proportional share of real estate targets in the gross portfolio of all funds managed by CapMan is at a low level.
Funds generating carried interest as at 30 September 2007
A private equity fund begins to generate carried interest after the investors have regained their investment and generate a preferred annual return, usually 7–8%. During the review period CapMan Real Estate I and Finnventure V funds began to generate carried interest, and of these funds CapMan Real Estate I is still in the active investment phase. At the close of the review period the following funds were in carry:
|
|
CapMan’s |
Portfolio at fair |
|
|
share of |
value 30.9.2007 |
|
|
cash flows* |
MEUR |
|
Finnventure Fund II, Finnventure Fund III |
|
|
|
and Finnmezzanine Fund II B in total: |
20–35% |
2.8 |
|
Finnventure Fund V: |
20% |
57.0 |
|
Fenno Program (Fenno Fund, |
|
|
|
Skandia I and II) in total: |
10–12% |
21.6 |
|
CapMan Real Estate I: |
25% |
81.2** |
* Net share of cash flows, taking into consideration Fenno Management Ltd’s share as far as Fenno Program is concerned and Corintium Oy’s and the investment team’s shares as far as CapMan Real Estate I is concerned.
** The fund still continues active investment operations. Of the portfolio at fair value, MEUR 58.5 is financed with debt.
The current portfolios of funds generating carried interest amounted to MEUR 162.6 at fair value, which is 16.7% of the total fair value of all the portfolio funds on 30 September 2007 (MEUR 972.3). Information about 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 generally 20–25% of a fund’s cash flow in respect of funds that were established before 2004, and 10–15% with respect to newer funds. The lower carried interest percentage for newer funds results from a share of the carried interest being distributed to the members of the investment team who have been responsible for the funds’ investment activities during the funds’ life cycle (generally 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. The Company invests from its own balance sheet about 5–10% of the total capital in equity funds that invest in portfolio companies. The aim of investing in own funds is to improve the Company’s return on equity and to even out fluctuations in income 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 variations in fair value gains/losses due to changes in the value of investment targets as well as to realised exits and the expenses incurred by funds.
CapMan, like other investors, gives commitments to the funds when they are established. As at 30 September 2007 the total sum of current investments at fair value and remaining commitments was MEUR 103.8 (MEUR 84.9 at 30 September 2006), of which remaining commitments totalled MEUR 57.2 (MEUR 54.7). Of these, MEUR 24.0 is allocated to the CapMan Buyout VIII Fund, MEUR 12.4 to the CapMan Technology 2007 fund and the remainder mainly to the 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 for the review period totalled MEUR 14.2 (MEUR 8.7). The majority of investments were made in CapMan Buyout VIII fund. The fair value of cumulative fund investments made from CapMan’s own balance sheet was MEUR 46.6 as at 30 September 2007 (MEUR 30.2).
CapMan’s Investments and commitments in the funds as at 30 September 2007, MEUR
|
|
Investments |
Remaining |
Total |
|
|
at fair value |
commitments |
|
|
Funds investing in portfolio companies |
|
|
|
|
Equity funds |
34.9 |
48.3 |
83.2 |
|
Mezzanine funds |
3.1 |
4.5 |
7.6 |
|
Funds of funds* |
8.3 |
2.2 |
10.5 |
|
|
46.3 |
55.0 |
101.3 |
|
|
|
|
|
|
Real estate funds |
0.3 |
2.2 |
2.5 |
|
Total |
46.6 |
57.2 |
103.8 |
* Managed by CapMan’s associated company Access Capital Partners
CapMan’s own investments in the funds
|
|
1–9/2007 |
1–9/2006 |
1–12/2006 |
|
Funds investing in portfolio companies |
|
|
|
|
Equity funds |
11.8 |
6.3 |
9.8 |
|
Mezzanine funds |
1.5 |
0.7 |
0.7 |