AnnuAL RepoRT
2008
Summary of the financial year
• Profit after tax for 2008 amounted to SEK 11.7 million (11.4).
• Reported shareholders’ equity per share at the end of 2008 was SEK 38.47 (39.21), of which cash and cash equivalents accounted for SEK 29.24 (36.26).
• In March 2008 NAXS made a commitment of EUR 10 million to FSN Capital III LP.
• In April 2008, NAXS made a commitment of EUR 20 million to Nordic Capital Fund VII LP.
• NAXS made a commitment of NOK 40 million to Herkules Private Equity Fund III LP in September 2008.
• As of the end of 2008, NAXS had made investment commit- ments totaling approximately SEK 638 million, equivalent to 110 percent of the Company’s equity.
• There has been a high degree of activity in the fund portfolio.
At the end of 2008, 24 percent of the Company’s equity had been drawn by underlying funds, which had acquired over 25 portfolio companies.
• As on December 31 2008, cash and cash equivalents amounted to SEK 439 million. During 2008 liquid assets were invested in interest-bearing instruments or held on interest-bearing bank accounts, in accordance with the Company’s policy.
Shareholders information
Annual General Meeting, 5 May 2009
The 2008 Annual General Meeting will be held on 5 May 2009 at 5:00 p.m. at the Hotel Scandic Anglais, Humlegårdsgatan 21, tockholm. Any questions prior to the Annual General Meeting should be sent to the Chairman of the Board, Björn C Andersson, via e-mail at: bjorn.c.andersson@comhem.se or by telephone +46 (0)70-5861021.
Participation
In order to participate in the Annual General Meeting, share- holders must be registered in the shareholders’ register at Euroclear Sweden AB not later than Tuesday, 28 April 2009, and have also notified their intention to attend the Meeting, along with the information of any representative, proxy or advisor who will represent/accompany the shareholder, not later than Wednesday, 29 April 2009.
Registration for participation should be made either in writing to Law firm Delphi & Co, Attn: Annika Labbate, BOX 1432, SE-111 84 Stockholm, by fax +46 (0)8-20 18 84, or via e-mail to annika.labbate@delphi.se, stating full name, civil registration number or corporate registration number (or similar), address, daytime telephone number and, where appropriate, information on proxies, representatives and advisors.
Nominee-registered shares
To be entitled to participate in the Annual General Meeting, share- holders whose shares are held in the name of a trustee must request to be temporarily registered in the Euroclear Sweden AB’s shareholders’ register. Shareholders must inform the trustee sufficiently in advance to enable completion of such registration by Tuesday, 28 April 2009.
Dividend
The Board of Directors proposes that no dividend be paid for the financial year 2008.
Financial information, 2009 Annual General Meeting: 5 May 2009 Interim report (6 months): 17 August 2009 Interim report (9 months): 4 November 2009
NAXS – a unique opportunity in Nordic private equity
NAXS, which started its operations in 2007, is a company invest- ing in buyout funds with a Nordic focus. The NAXS model, based on a listed fund-of-fund structure, makes the Nordic private equity market accessible for a broader range of investors than in the past. NAXS is listed in the First North, part of the NASDAQ OMX Nordic Exchange.
NAXS follows an investment strategy aimed at creating a diver- sified portfolio of participations in buyout funds. By mid-2008, NAXS had committed essentially all its available equity and by the end of 2008 SEK 638 million had been committed, which corresponds to 110 percent of NAXSÂ’ equity. The equity is committed to six buyout funds, of which three were commit- ments made in 2008.
These funds in turn invest primarily in Nordic companies, calling in capital from their investors upon each new acquisi- tion. All funds to which NAXS has made commitments have begun to deploy their capital and at the end of 2008 approxi- mately 25 percent of NAXS’ equity had been called for invest- ments in around 25 portfolio companies.
The remaining capital is meanwhile invested in interest- bearing securities or held in interest-bearing bank accounts, while waiting for the underlying funds to call in capital for future investments. To date, interest earned on NAXS’ liquid assets has more than covered the Company’s current manage- ment and listing expenses.
When all the funds in NAXS’ portfolio are fully invested, NAXS will basically also have invested all its equity in the various companies acquired by such funds.
After its first two years of operations and the execution of its strategy of investing in a diversified portfolio of buyout funds with a Nordic focus, of different sizes, managers and vintages, NAXS has now entered a new phase: equity is paid to underlying funds for their investment activities, and the funds are monitored continuously, based on their investment strategy, the investments made and how these investment are managed and progress.
An independent investment advisory company, NAXS Nordic Access Advisors AB, identifies and reviews fund investment
opportunities, and prepares investment proposals, which are submitted to the boards of the NAXS Group. The final invest- ment and financing decisions are entirely up to the boards of the NAXS Group. The advisory company remains responsible for the monitoring and evaluation of the private equity man- agers to whose funds NAXS has allocated capital.
Although NAXS made commitments to the various funds in its portfolio over a time span of about a year and a half, the diversification. in terms of vintage years for the underlying investments is nevertheless significant, partly due to the fact that NAXS made commitments to the underlying funds at dif- ferent stages of their fund raising process and partly due to the fact that the investment pace varies for each underlying fund.
NAXS expects that the capital pledged to the six funds in its portfolio will be invested at a relatively uniform rate over the next few years, commencing in spring 2007.
Since the investments will be spread over time, it should mitigate any cyclical risks. Further risk reduction will result from NAXS investing in Nordic funds focused on different segments, from small to large cap businesses, which is also in line with the initially established investment strategy.
Since NAXS has now committed its current equity to funds that have started their own investment activities, the Company is also entering a new phase, where one can expect a continuous flow of information on the underlying funds’ various invest- ments and possible exits. At the same time, the portion of NAXS’
net asset value that derives from investments made by underly- ing funds will steadily increase, in parallel with a decrease in the portion of cash and cash equivalents. NAXS reports its net asset value every quarter, based on reports from its underlying funds, which estimate the current value of their investments accord- ing to approved valuation principles. NAXS then reports the aggregate total value of investments in the funds, as well as the cash and cash equivalents. An increasing portion of the net asset value in fund investments changes its character and increases its volatility. When the funds in NAXS portfolio eventually begin to exit their underlying investments, there will be an inflow of capital back to NAXS. Such capital can then be used to fund new investment commitments or be distributed to shareholders.
• Percentage of committed capital: ca. 110 percent
• Portion of capital invested by underlying funds: ca. 25 percent
• Capital allocated to six funds
• Commitment size between EUR 5 million and EUR 20 million
• Profit before tax for the financial year 2008: SEK 11.7 million
Contents Page
Shareholders information 2 Summary of the financial year 2 NAXS – a unique opportunity within
Nordic private equity 3 Comments from the CEO,
Chairman and adviser 4
Market – A challenging environment
opens new possibilities 5
Goals and strategy 7
Organisation and legal structure 7
Fund portfolio 7
Board and Management 8
Investment adviser 9
Share capital and ownership 10 Board of Director’s report 11
Income statements 13
Balance sheets 14
Changes in shareholders’ equity 15
Cash-flow statements 15
Notes to the financial statement 16
Notes 18
Auditors’ report 22
Summary of the financial year
• Profit after tax for 2008 amounted to SEK 11.7 million (11.4).
• Reported shareholders’ equity per share at the end of 2008 was SEK 38.47 (39.21), of which cash and cash equivalents accounted for SEK 29.24 (36.26).
• In March 2008 NAXS made a commitment of EUR 10 million to FSN Capital III LP.
• In April 2008, NAXS made a commitment of EUR 20 million to Nordic Capital Fund VII LP.
• NAXS made a commitment of NOK 40 million to Herkules Private Equity Fund III LP in September 2008.
• As of the end of 2008, NAXS had made investment commit- ments totaling approximately SEK 638 million, equivalent to 110 percent of the Company’s equity.
• There has been a high degree of activity in the fund portfolio.
At the end of 2008, 24 percent of the Company’s equity had been drawn by underlying funds, which had acquired over 25 portfolio companies.
• As on December 31 2008, cash and cash equivalents amounted to SEK 439 million. During 2008 liquid assets were invested in interest-bearing instruments or held on interest-bearing bank accounts, in accordance with the Company’s policy.
Shareholders information
Annual General Meeting, 5 May 2009
The 2008 Annual General Meeting will be held on 5 May 2009 at 5:00 p.m. at the Hotel Scandic Anglais, Humlegårdsgatan 21, tockholm. Any questions prior to the Annual General Meeting should be sent to the Chairman of the Board, Björn C Andersson, via e-mail at: bjorn.c.andersson@comhem.se or by telephone +46 (0)70-5861021.
Participation
In order to participate in the Annual General Meeting, share- holders must be registered in the shareholders’ register at Euroclear Sweden AB not later than Tuesday, 28 April 2009, and have also notified their intention to attend the Meeting, along with the information of any representative, proxy or advisor who will represent/accompany the shareholder, not later than Wednesday, 29 April 2009.
Registration for participation should be made either in writing to Law firm Delphi & Co, Attn: Annika Labbate, BOX 1432, SE-111 84 Stockholm, by fax +46 (0)8-20 18 84, or via e-mail to annika.labbate@delphi.se, stating full name, civil registration number or corporate registration number (or similar), address, daytime telephone number and, where appropriate, information on proxies, representatives and advisors.
Nominee-registered shares
To be entitled to participate in the Annual General Meeting, share- holders whose shares are held in the name of a trustee must request to be temporarily registered in the Euroclear Sweden AB’s shareholders’ register. Shareholders must inform the trustee sufficiently in advance to enable completion of such registration by Tuesday, 28 April 2009.
Dividend
The Board of Directors proposes that no dividend be paid for the financial year 2008.
Financial information, 2009 Annual General Meeting: 5 May 2009 Interim report (6 months): 17 August 2009 Interim report (9 months): 4 November 2009
NAXS – a unique opportunity in Nordic private equity
NAXS, which started its operations in 2007, is a company invest- ing in buyout funds with a Nordic focus. The NAXS model, based on a listed fund-of-fund structure, makes the Nordic private equity market accessible for a broader range of investors than in the past. NAXS is listed in the First North, part of the NASDAQ OMX Nordic Exchange.
NAXS follows an investment strategy aimed at creating a diver- sified portfolio of participations in buyout funds. By mid-2008, NAXS had committed essentially all its available equity and by the end of 2008 SEK 638 million had been committed, which corresponds to 110 percent of NAXSÂ’ equity. The equity is committed to six buyout funds, of which three were commit- ments made in 2008.
These funds in turn invest primarily in Nordic companies, calling in capital from their investors upon each new acquisi- tion. All funds to which NAXS has made commitments have begun to deploy their capital and at the end of 2008 approxi- mately 25 percent of NAXS’ equity had been called for invest- ments in around 25 portfolio companies.
The remaining capital is meanwhile invested in interest- bearing securities or held in interest-bearing bank accounts, while waiting for the underlying funds to call in capital for future investments. To date, interest earned on NAXS’ liquid assets has more than covered the Company’s current manage- ment and listing expenses.
When all the funds in NAXS’ portfolio are fully invested, NAXS will basically also have invested all its equity in the various companies acquired by such funds.
After its first two years of operations and the execution of its strategy of investing in a diversified portfolio of buyout funds with a Nordic focus, of different sizes, managers and vintages, NAXS has now entered a new phase: equity is paid to underlying funds for their investment activities, and the funds are monitored continuously, based on their investment strategy, the investments made and how these investment are managed and progress.
An independent investment advisory company, NAXS Nordic Access Advisors AB, identifies and reviews fund investment
opportunities, and prepares investment proposals, which are submitted to the boards of the NAXS Group. The final invest- ment and financing decisions are entirely up to the boards of the NAXS Group. The advisory company remains responsible for the monitoring and evaluation of the private equity man- agers to whose funds NAXS has allocated capital.
Although NAXS made commitments to the various funds in its portfolio over a time span of about a year and a half, the diversification. in terms of vintage years for the underlying investments is nevertheless significant, partly due to the fact that NAXS made commitments to the underlying funds at dif- ferent stages of their fund raising process and partly due to the fact that the investment pace varies for each underlying fund.
NAXS expects that the capital pledged to the six funds in its portfolio will be invested at a relatively uniform rate over the next few years, commencing in spring 2007.
Since the investments will be spread over time, it should mitigate any cyclical risks. Further risk reduction will result from NAXS investing in Nordic funds focused on different segments, from small to large cap businesses, which is also in line with the initially established investment strategy.
Since NAXS has now committed its current equity to funds that have started their own investment activities, the Company is also entering a new phase, where one can expect a continuous flow of information on the underlying funds’ various invest- ments and possible exits. At the same time, the portion of NAXS’
net asset value that derives from investments made by underly- ing funds will steadily increase, in parallel with a decrease in the portion of cash and cash equivalents. NAXS reports its net asset value every quarter, based on reports from its underlying funds, which estimate the current value of their investments accord- ing to approved valuation principles. NAXS then reports the aggregate total value of investments in the funds, as well as the cash and cash equivalents. An increasing portion of the net asset value in fund investments changes its character and increases its volatility. When the funds in NAXS portfolio eventually begin to exit their underlying investments, there will be an inflow of capital back to NAXS. Such capital can then be used to fund new investment commitments or be distributed to shareholders.
• Percentage of committed capital: ca. 110 percent
• Portion of capital invested by underlying funds: ca. 25 percent
• Capital allocated to six funds
• Commitment size between EUR 5 million and EUR 20 million
• Profit before tax for the financial year 2008: SEK 11.7 million
Contents Page
Shareholders information 2 Summary of the financial year 2 NAXS – a unique opportunity within
Nordic private equity 3 Comments from the CEO,
Chairman and adviser 4
Market – A challenging environment
opens new possibilities 5
Goals and strategy 7
Organisation and legal structure 7
Fund portfolio 7
Board and Management 8
Investment adviser 9
Share capital and ownership 10 Board of Director’s report 11
Income statements 13
Balance sheets 14
Changes in shareholders’ equity 15
Cash-flow statements 15
Notes to the financial statement 16
Notes 18
Auditors’ report 22
Comments from the CEO, Chairman and Advisors
What have been the most important events for NAXS in 2008?
Jeff Bork: It was an exciting year and we went into 2008 with allocations to three funds, Valedo I, Intera I and Apax Europe VII and made three new allocations in the year to Herkules III and FSN Capital III, as well Nordic Capital Fund VII. That means that we became fully invested in 2008, with 110 percent of our available capital allocated. At the year-end, our underly- ing funds had also invested in some 25 companies.
Why is 2009 a good time for investments in private equity?
Björn C Andersson: Now and the next few years could be a really good investment period. The prices of companies have come down dramatically and competition within the private equity industry has eased. This favors funds with a lot of capital available for investments and it is such funds that NAXS currently has in its portfolio. Tighter credit means that the required equity propor- tion increase, but on the whole we believe that we will see attractive investment opportunities.
How does NAXS view the opportunities to acquire fund stakes on the secondary market?
Björn C Andersson: In light of the current recession, opportu- nities of course emerge in the secondary market, for example in the form of large discounts.
Amaury de Poret: A limitation for NAXS in the secondary market, however, is our focus. We are interested in quality Nordic managers with an outstanding track record and even today, secondary stakes in such funds do not come often on the market. But if they do, we will look into them if we have the required capital available.
How much have you invested so far? Will you raise more capital?
Jeff Bork: Today 110 percent of our available equity is allocated but only 25 percent of it has so far been invested, which means that 75 percent of our assets still consist of cash earmarked for the underlying funds’ future investments. Given the current market situation we are not planning any new fundraising, but when capital markets have reverted to a more normal situation and a larger portion of our equity is invested, we will consider that opportunity, as it is part of our strategy.
What is the market situation for private equity?
Thomas Åkerman: The private equity industry is currently strug- gling with the credit situation in particular and it is difficult to bring new transaction to a close. The recession also makes it dif- ficult to price even good companies and it takes longer for buyers’
and sellers’ expectations to meet. The beginning of 2009 has been
rather slow for the industry and we expect that the rest of 2009 also may be characterized by relatively low investment activity.
How does the recession affect the returns for private equity?
Thomas Åkerman: Historically, the returns on private equity have been very good, especially in the Nordic region. It is also important to view the development of private equity over a longer period and not individual years as the funds have a life-span of around ten years. We believe that returns over time will continue to be good and outdo other investments even if it would be lower in nominal terms than in the past.
Amaury de Poret: Studies have shown that investments made in a recessionary environment, such as the one we are experienc- ing at the moment, have historically produced higher returns.
In addition, there are a lot of opportunities in small to medium sized businesses, and that is precisely where NAXS portfolio has its focus.
How are the funds’ portfolio companies doing?
Amaury de Poret: We have now investments in around 25 portfolio companies, but because they are all quite recent in- vestments, it is too early to issue a judgment on their ultimate performance. However, the current portfolio companies are generally performing according to plan, and in some instanc- es, above plan. We will have to see how the portfolio companies weather the recession, but we think we have reason to be cautiously optimistic.
NAXS has allocated capital to six funds, why these?
Thomas Åkerman: We have chosen them from a larger popu- lation of around 35 funds based on the past performance of managers and investment teams. We have looked for the best investment teams in the Nordic countries and also wanted a predominance of small and medium-sized funds. When credit supply started to tighten in the summer 2007, we expected that the smaller and medium-sized segment would maintain a better access to credit and deal flow and this has also proved to be the case.
Amaury de Poret: We also wanted to mitigate risk by covering various segments of the market and different geographies.
Through Apax Europe VII for example, we have an exposure to the European market.
Why is the NAXS share currently affected by such a wide NAV discount?
Jeff Bork: The public markets have dropped by around 50 per- cent since NAXS’ initial listing and NAXS shares have followed a similar pattern. This is somewhat surprising since a large part of the net asset value, 75 percent at the end of 2008, still consists of cash. In early 2009 the shares traded to a discount to cash.
Market – A challenging environment opens new possibilities
In 2008 the global financial crisis deepened and many Western economies were thrown into a recession that many analysts believe could be the worst since the 1930’s. This affected of course also the private equity industry and portfolio companies backed by private equity. Credit supply tightened markedly already in 2007 and the situation continued to deteriorate in 2008. However, the private equity industry continued to do business but volumes fell to the lowest levels in years and larger transactions demonstrated an almost complete absence.
Value of buyout transactions fell in 2008
According Unquote and Candover Private Equity Barometer the value of the buyout transactions in Europe declined by 61 percent in 2008 to EUR 73 billion, which was the lowest level since 2004. Much of the decline can be credited to larger trans- actions and only one single transaction worth more than one billion EUR was registered in the last quarter of 2008.
Data from the European venture capital associations’ joint body Perec Analytics illustrates the same trend. The amount of equity invested in buyouts in Europe in 2008 fell 40 percent from 2007 to EUR 34.1 billion. That invested equity fell less than the total transaction value also reflects the trend that leverage and hence the financial risk level in the industry is on the way down.
Smaller and medium-sized transactions and the Nordic market in particular, continued to do better than the broader European market. In the Nordic region the value of the buyout trans- actions halved in 2008 to EUR 9.64 billion compared to 2007, according to the Private Equity Barometer.
That the Nordic market seems to withstand the crisis some- what better many industry analysts predicted may be because Nordic banks have so far suffered lighter losses in connection with financial restructuring of portfolio companies than in other markets. The Nordic market is also less reliant on syndicated financing and has instead used traditional bank loans. Caution among lenders has however increased also in the Nordic region as more portfolio companies have run into financial distress.
Strong long-term returns
The broad and deep recession, with a parallel decline in asset values in both public and non-public markets, has also left its mark on the valuation of portfolio companies. Against a back- drop of sharply falling sales and profits in a range of sectors like the construction and automotive industries, some private equity players have had to write down the value of some funds by as much as 50 percent from the acquisition value.
2008 was a year with a negative return for the buyout sector in Europe at 26.4 percent, which nevertheless outperformed most public equity markets. The mid-size segment managed best in 2008, with a return of minus 17.9 percent. The red figures for 2008 are resulted in large parts from lower valuations on portfolio companies in more mature funds.
Over time, however, private equity continues to be an attractive form of investment, and data from EVCA and Thomson Reuters shows that buyouts in Europe by the end of 2008 had yielded a return on average of 14.1 percent per year over both the last 5 and 20 years.
Despite the harsher times, interest for private equity has not cooled off and 2008 was another strong year for the raising of new funds. According to Preqin, new private equity funds raised USD 554 billion last year, just a few notches below the 2007 level, which stood at USD 625 billion. Around USD 216 billion related to buyout funds in 2008. In Europe, new buyout funds raised a total of EUR 44.4 billion, according to statistics from EVCA and Perec Analytics. That was down from EUR 56.5 billion in 2007. Two of the eleven funds in Europe that closed with over one billion EURs were Nordic.
Boost for secondary market
Interest in new funds slowed however significantly in the second half and industry analysts expect 2009 to be a tough year to raise new funds as a growing number of investors are approach- ing the limits of how much they can allocate to private equity.
Meanwhile, the secondary market for fund shares received a boost when some investors have seen themselves forced to sell NAXS has a large cash pile and the interest rate is
very low. Are there plans to invest the cash in any- thing else than safe interest-bearing securities?
Jeff Bork: No, there are no such plans. We intend to continue our conservative cash management policy and will continue to place cash in virtually risk-free interest-bearing securities. We will not take any risks with the Company’s cash.
NAXS is currently listed on First North. Are there plans for a listing on the NASDAQ OMX main lists?
Jeff Bork: In order to apply for listing on the Nasdaq OMX
Smallcap, a company must have existed for three years and
have issued at least three annual reports. Next year we will
meet these criteria, and hence intend to apply for a listing on
the Nasdaq OMX Smallcap.
Comments from the CEO, Chairman and Advisors
What have been the most important events for NAXS in 2008?
Jeff Bork: It was an exciting year and we went into 2008 with allocations to three funds, Valedo I, Intera I and Apax Europe VII and made three new allocations in the year to Herkules III and FSN Capital III, as well Nordic Capital Fund VII. That means that we became fully invested in 2008, with 110 percent of our available capital allocated. At the year-end, our underly- ing funds had also invested in some 25 companies.
Why is 2009 a good time for investments in private equity?
Björn C Andersson: Now and the next few years could be a really good investment period. The prices of companies have come down dramatically and competition within the private equity industry has eased. This favors funds with a lot of capital available for investments and it is such funds that NAXS currently has in its portfolio. Tighter credit means that the required equity propor- tion increase, but on the whole we believe that we will see attractive investment opportunities.
How does NAXS view the opportunities to acquire fund stakes on the secondary market?
Björn C Andersson: In light of the current recession, opportu- nities of course emerge in the secondary market, for example in the form of large discounts.
Amaury de Poret: A limitation for NAXS in the secondary market, however, is our focus. We are interested in quality Nordic managers with an outstanding track record and even today, secondary stakes in such funds do not come often on the market. But if they do, we will look into them if we have the required capital available.
How much have you invested so far? Will you raise more capital?
Jeff Bork: Today 110 percent of our available equity is allocated but only 25 percent of it has so far been invested, which means that 75 percent of our assets still consist of cash earmarked for the underlying funds’ future investments. Given the current market situation we are not planning any new fundraising, but when capital markets have reverted to a more normal situation and a larger portion of our equity is invested, we will consider that opportunity, as it is part of our strategy.
What is the market situation for private equity?
Thomas Åkerman: The private equity industry is currently strug- gling with the credit situation in particular and it is difficult to bring new transaction to a close. The recession also makes it dif- ficult to price even good companies and it takes longer for buyers’
and sellers’ expectations to meet. The beginning of 2009 has been
rather slow for the industry and we expect that the rest of 2009 also may be characterized by relatively low investment activity.
How does the recession affect the returns for private equity?
Thomas Åkerman: Historically, the returns on private equity have been very good, especially in the Nordic region. It is also important to view the development of private equity over a longer period and not individual years as the funds have a life-span of around ten years. We believe that returns over time will continue to be good and outdo other investments even if it would be lower in nominal terms than in the past.
Amaury de Poret: Studies have shown that investments made in a recessionary environment, such as the one we are experienc- ing at the moment, have historically produced higher returns.
In addition, there are a lot of opportunities in small to medium sized businesses, and that is precisely where NAXS portfolio has its focus.
How are the funds’ portfolio companies doing?
Amaury de Poret: We have now investments in around 25 portfolio companies, but because they are all quite recent in- vestments, it is too early to issue a judgment on their ultimate performance. However, the current portfolio companies are generally performing according to plan, and in some instanc- es, above plan. We will have to see how the portfolio companies weather the recession, but we think we have reason to be cautiously optimistic.
NAXS has allocated capital to six funds, why these?
Thomas Åkerman: We have chosen them from a larger popu- lation of around 35 funds based on the past performance of managers and investment teams. We have looked for the best investment teams in the Nordic countries and also wanted a predominance of small and medium-sized funds. When credit supply started to tighten in the summer 2007, we expected that the smaller and medium-sized segment would maintain a better access to credit and deal flow and this has also proved to be the case.
Amaury de Poret: We also wanted to mitigate risk by covering various segments of the market and different geographies.
Through Apax Europe VII for example, we have an exposure to the European market.
Why is the NAXS share currently affected by such a wide NAV discount?
Jeff Bork: The public markets have dropped by around 50 per- cent since NAXS’ initial listing and NAXS shares have followed a similar pattern. This is somewhat surprising since a large part of the net asset value, 75 percent at the end of 2008, still consists of cash. In early 2009 the shares traded to a discount to cash.
Market – A challenging environment opens new possibilities
In 2008 the global financial crisis deepened and many Western economies were thrown into a recession that many analysts believe could be the worst since the 1930’s. This affected of course also the private equity industry and portfolio companies backed by private equity. Credit supply tightened markedly already in 2007 and the situation continued to deteriorate in 2008. However, the private equity industry continued to do business but volumes fell to the lowest levels in years and larger transactions demonstrated an almost complete absence.
Value of buyout transactions fell in 2008
According Unquote and Candover Private Equity Barometer the value of the buyout transactions in Europe declined by 61 percent in 2008 to EUR 73 billion, which was the lowest level since 2004. Much of the decline can be credited to larger trans- actions and only one single transaction worth more than one billion EUR was registered in the last quarter of 2008.
Data from the European venture capital associations’ joint body Perec Analytics illustrates the same trend. The amount of equity invested in buyouts in Europe in 2008 fell 40 percent from 2007 to EUR 34.1 billion. That invested equity fell less than the total transaction value also reflects the trend that leverage and hence the financial risk level in the industry is on the way down.
Smaller and medium-sized transactions and the Nordic market in particular, continued to do better than the broader European market. In the Nordic region the value of the buyout trans- actions halved in 2008 to EUR 9.64 billion compared to 2007, according to the Private Equity Barometer.
That the Nordic market seems to withstand the crisis some- what better many industry analysts predicted may be because Nordic banks have so far suffered lighter losses in connection with financial restructuring of portfolio companies than in other markets. The Nordic market is also less reliant on syndicated financing and has instead used traditional bank loans. Caution among lenders has however increased also in the Nordic region as more portfolio companies have run into financial distress.
Strong long-term returns
The broad and deep recession, with a parallel decline in asset values in both public and non-public markets, has also left its mark on the valuation of portfolio companies. Against a back- drop of sharply falling sales and profits in a range of sectors like the construction and automotive industries, some private equity players have had to write down the value of some funds by as much as 50 percent from the acquisition value.
2008 was a year with a negative return for the buyout sector in Europe at 26.4 percent, which nevertheless outperformed most public equity markets. The mid-size segment managed best in 2008, with a return of minus 17.9 percent. The red figures for 2008 are resulted in large parts from lower valuations on portfolio companies in more mature funds.
Over time, however, private equity continues to be an attractive form of investment, and data from EVCA and Thomson Reuters shows that buyouts in Europe by the end of 2008 had yielded a return on average of 14.1 percent per year over both the last 5 and 20 years.
Despite the harsher times, interest for private equity has not cooled off and 2008 was another strong year for the raising of new funds. According to Preqin, new private equity funds raised USD 554 billion last year, just a few notches below the 2007 level, which stood at USD 625 billion. Around USD 216 billion related to buyout funds in 2008. In Europe, new buyout funds raised a total of EUR 44.4 billion, according to statistics from EVCA and Perec Analytics. That was down from EUR 56.5 billion in 2007. Two of the eleven funds in Europe that closed with over one billion EURs were Nordic.
Boost for secondary market
Interest in new funds slowed however significantly in the second half and industry analysts expect 2009 to be a tough year to raise new funds as a growing number of investors are approach- ing the limits of how much they can allocate to private equity.
Meanwhile, the secondary market for fund shares received a boost when some investors have seen themselves forced to sell NAXS has a large cash pile and the interest rate is
very low. Are there plans to invest the cash in any- thing else than safe interest-bearing securities?
Jeff Bork: No, there are no such plans. We intend to continue our conservative cash management policy and will continue to place cash in virtually risk-free interest-bearing securities. We will not take any risks with the Company’s cash.
NAXS is currently listed on First North. Are there plans for a listing on the NASDAQ OMX main lists?
Jeff Bork: In order to apply for listing on the Nasdaq OMX
Smallcap, a company must have existed for three years and
have issued at least three annual reports. Next year we will
meet these criteria, and hence intend to apply for a listing on
the Nasdaq OMX Smallcap.
funds, have emerged. This development of private equity is another sign that the industry is maturing rapidly.
Goals and strategy
Below are the overall investment criteria for the Company’s investment operations.
Type of fund
Private equity buyout funds that are managed by established managers. However, a smaller portion of the Company’s assets may be invested in newly established buyout funds and manage- ment teams.
INStruMENtS
Interests in private equity funds, e.g., share or contract-based partnership interests. However, the company’s assets shall not be invested in pure debt instruments or various intermediate types, such as convertible debentures and mezzanine instruments.
Geographic focus
Funds, which have the Nordic region (Denmark, Finland, Norway and Sweden) or at least one of the Nordic countries as their investment focus, or have a management group dedicated to the Nordic region.
Investment size
Typically SEK 50 – 300 million, depending on the size of the particular fund, the Company’s available means for invest- ments and the number of fund holdings in the portfolio.
NuMBEr OF FuND INVEStMENtS
1Commitments made to 7-10 different fund managers’ funds and, over time, different vintages.
OtHEr LIMItAtIONS
2Commitments and/or investments may not result in exposure to the Group’s net value assets (NAV), at the time of investment, exceeding:
• 130 percent for commitments to and/or investments in underlying funds
• 40 percent in funds with the same manager
• 20 percent for co-investments
Organisation and legal structure
NAXS Nordic Access Buyout Fund AB (publ) (“NAXS” or the
“Company”) is the Group’s Parent Company, with registered office in Stockholm, Sweden. In addition to the Parent Company, the Group comprises the operating Norwegian subsidiary NAXS Nordic Access Buyout AS, with registered office in Oslo, Norway. The subsidiary functions as a holding company for fund investments.
NAXS’ commitment: EUR 10 million Website: www.fsncapital.no
FSN Capital III is the third fund established by FSN Capital which has an investment team of 12 professional, operating out of offices in Oslo and Stockholm.
Herkules Private Equity Fund III LP Segment focus: Mid-size transactions Geographic focus: Norway and Nordic region NAXS’ commitment: NOK 40 million Website: www.herkulescapital.no
Herkules Private Equity III is the third fund to be established by Herkules Private Equity (formerly Ferd Equity Partners).
Herkules Fund III targets investments with a value between NOK 250 and 2,500 million located in Norway of the Nordic region.
Intera Fund I Ky Segment focus: small cap Geographic focus: Finland
NAXS’ commitment: EUR 7 million Website: www.interapartners.fi
Intera is a newly established Finnish private equity fund, whose primary focus are companies that have not yet achieved their full capacity and that have the potential to become leaders in their respective industry.
Nordic Capital Fund VII LP
Segment focus: large and mid-size transactions Geographic focus: primarily the Nordic region NAXS’ commitment: EUR 20 million.
Valedo Partners Fund I AB Segment focus: small cap Geographic focus: Sweden
NAXS’ commitment: SEK 60 million Website: www.valedopartners.com
Valedo is a growth-oriented Swedish private equity fund with an industrial focus. The fund focuses on investments in well- established and profitable companies with strong market posi- tions within their segments and with the potential to develop the operations significantly.
some holdings because of a need to strengthen liquidity, reduce the exposure to the asset class or a change in investment focus.
For investors with liquidity, such as fund-of-funds, however, it opens new possibilities as fund stakes on the secondary market now typically are sold with larger discounts than before.
Opportunities for NAXS
Meanwhile, there is compelling evidence that 2009 and beyond will offer a number of interesting opportunities, especially for the type of funds to which NAXS has allocated most of its capital. Newly raised funds have avoided to a large extent the bloated prices and leverage multiples that prevailed during the period 2005-2007 and can now operate in a market that both takes into account the current recession and the fact that the credit supply will be tighter for the foreseeable future.
A lot of capital available
In Europe, EVCA estimate that the amount of ”dry powder”, i.e. allocated capital not yet used for investments, amounts to around EUR 80 billion, indicating that once the price expec- tations of sellers and buyers converge activity can increase quite rapidly, especially if any kind of end to, or at least bottom of the recession is discernable.
No sign that the underlying deal flow would be deteriorating have been noted, and instead the continuing restructuring of some industries and generation shifts at many family-owned businesses indicate that the deal flow will remain strong.
The continued weakness in the public equity market also creates attractive opportunities to take listed companies private. A number of such transactions were executed in the Nordic region in 2008.
transparency continues to increase
The industry also continues the trend towards greater openness, transparency and information dissemination. In Sweden for ex- ample, guidelines from the Swedish Venture Capital Association for transparency and information were issued in 2008.
The fact that several portfolio companies are in financial difficul- ties has further increased the need and demand for information from and about the industry. Other factors driving increased transparency is the industry’s rapid growth and its sheer size, together with demands from some investors for more transpar- ency and increased competition within the industry.
the industry continues to evolve
Among private equity players in the Nordic region and the rest of Europe, the hard time have rather quickened the pace of development of investment activities. Real estate funds and in- frastructure funds continue to be popular and in the wake of the recession, funds investing in debt from companies in distress or directly in the companies themselves, so-called turn-around
The operation started on April 17, 2007 and the Company has been listed on First North, part of the OMX Nordic Exchange since May 14 2007.
NAXS Nordic Access Advisors AB has been contracted as the investment and management advisor to the Company. The management agreement is for a five-year period, starting on 14 March 2007.
Legal structure
Fundportfolio
APAX Europe VII LP
Segment focus: large transactions Geographic focus: Pan-European NAXS’ commitment: EUR 15 million Website: www.apax.com
Apax Europe VII is the latest pan-European fund to be established by Apax Partners Worldwide LLP, one of the largest and most well-established private equity organizations in the world.
FSN Capital III LP
Segment focus: Mid-size transactions Geographic focus: Norway and Nordic region
NAXS Nordic Access Buyout
Fund AB
NAXS Nordic Access Advisors AB NAXS Nordic
Access Buyout AS
Investments in fund units
100 %
Investments in fund units
Investments in fund units
1
Applies to the Company’s target portfolio in the long term after the initial investment period of 18 months
2
The aim is to improve the return on equity through a relatively higher portion of NAXS’ capital remaining invested, since the underlying private equity funds seldom draw more than 100 percent of the commitment. However, commitments must never be made in an amount that, at the time of investment, exceeds 110 percent of NAXS’
available funds, which (i) are covered by a bank guarantee, (ii) are immediately accessible within the Group, or (iii) can reasonably be expected to realized from other investments in time for new commitments.
Evolution of Commitment and Investment Levels
funds, have emerged. This development of private equity is another sign that the industry is maturing rapidly.
Goals and strategy
Below are the overall investment criteria for the Company’s investment operations.
Type of fund
Private equity buyout funds that are managed by established managers. However, a smaller portion of the Company’s assets may be invested in newly established buyout funds and manage- ment teams.
INStruMENtS
Interests in private equity funds, e.g., share or contract-based partnership interests. However, the company’s assets shall not be invested in pure debt instruments or various intermediate types, such as convertible debentures and mezzanine instruments.
Geographic focus
Funds, which have the Nordic region (Denmark, Finland, Norway and Sweden) or at least one of the Nordic countries as their investment focus, or have a management group dedicated to the Nordic region.
Investment size
Typically SEK 50 – 300 million, depending on the size of the particular fund, the Company’s available means for invest- ments and the number of fund holdings in the portfolio.
NuMBEr OF FuND INVEStMENtS
1Commitments made to 7-10 different fund managers’ funds and, over time, different vintages.
OtHEr LIMItAtIONS
2Commitments and/or investments may not result in exposure to the Group’s net value assets (NAV), at the time of investment, exceeding:
• 130 percent for commitments to and/or investments in underlying funds
• 40 percent in funds with the same manager
• 20 percent for co-investments
Organisation and legal structure
NAXS Nordic Access Buyout Fund AB (publ) (“NAXS” or the
“Company”) is the Group’s Parent Company, with registered office in Stockholm, Sweden. In addition to the Parent Company, the Group comprises the operating Norwegian subsidiary NAXS Nordic Access Buyout AS, with registered office in Oslo, Norway. The subsidiary functions as a holding company for fund investments.
NAXS’ commitment: EUR 10 million Website: www.fsncapital.no
FSN Capital III is the third fund established by FSN Capital which has an investment team of 12 professional, operating out of offices in Oslo and Stockholm.
Herkules Private Equity Fund III LP Segment focus: Mid-size transactions Geographic focus: Norway and Nordic region NAXS’ commitment: NOK 40 million Website: www.herkulescapital.no
Herkules Private Equity III is the third fund to be established by Herkules Private Equity (formerly Ferd Equity Partners).
Herkules Fund III targets investments with a value between NOK 250 and 2,500 million located in Norway of the Nordic region.
Intera Fund I Ky Segment focus: small cap Geographic focus: Finland
NAXS’ commitment: EUR 7 million Website: www.interapartners.fi
Intera is a newly established Finnish private equity fund, whose primary focus are companies that have not yet achieved their full capacity and that have the potential to become leaders in their respective industry.
Nordic Capital Fund VII LP
Segment focus: large and mid-size transactions Geographic focus: primarily the Nordic region NAXS’ commitment: EUR 20 million.
Valedo Partners Fund I AB Segment focus: small cap Geographic focus: Sweden
NAXS’ commitment: SEK 60 million Website: www.valedopartners.com
Valedo is a growth-oriented Swedish private equity fund with an industrial focus. The fund focuses on investments in well- established and profitable companies with strong market posi- tions within their segments and with the potential to develop the operations significantly.
some holdings because of a need to strengthen liquidity, reduce the exposure to the asset class or a change in investment focus.
For investors with liquidity, such as fund-of-funds, however, it opens new possibilities as fund stakes on the secondary market now typically are sold with larger discounts than before.
Opportunities for NAXS
Meanwhile, there is compelling evidence that 2009 and beyond will offer a number of interesting opportunities, especially for the type of funds to which NAXS has allocated most of its capital. Newly raised funds have avoided to a large extent the bloated prices and leverage multiples that prevailed during the period 2005-2007 and can now operate in a market that both takes into account the current recession and the fact that the credit supply will be tighter for the foreseeable future.
A lot of capital available
In Europe, EVCA estimate that the amount of ”dry powder”, i.e. allocated capital not yet used for investments, amounts to around EUR 80 billion, indicating that once the price expec- tations of sellers and buyers converge activity can increase quite rapidly, especially if any kind of end to, or at least bottom of the recession is discernable.
No sign that the underlying deal flow would be deteriorating have been noted, and instead the continuing restructuring of some industries and generation shifts at many family-owned businesses indicate that the deal flow will remain strong.
The continued weakness in the public equity market also creates attractive opportunities to take listed companies private. A number of such transactions were executed in the Nordic region in 2008.
transparency continues to increase
The industry also continues the trend towards greater openness, transparency and information dissemination. In Sweden for ex- ample, guidelines from the Swedish Venture Capital Association for transparency and information were issued in 2008.
The fact that several portfolio companies are in financial difficul- ties has further increased the need and demand for information from and about the industry. Other factors driving increased transparency is the industry’s rapid growth and its sheer size, together with demands from some investors for more transpar- ency and increased competition within the industry.
the industry continues to evolve
Among private equity players in the Nordic region and the rest of Europe, the hard time have rather quickened the pace of development of investment activities. Real estate funds and in- frastructure funds continue to be popular and in the wake of the recession, funds investing in debt from companies in distress or directly in the companies themselves, so-called turn-around
The operation started on April 17, 2007 and the Company has been listed on First North, part of the OMX Nordic Exchange since May 14 2007.
NAXS Nordic Access Advisors AB has been contracted as the investment and management advisor to the Company. The management agreement is for a five-year period, starting on 14 March 2007.
Legal structure
Fundportfolio
APAX Europe VII LP
Segment focus: large transactions Geographic focus: Pan-European NAXS’ commitment: EUR 15 million Website: www.apax.com
Apax Europe VII is the latest pan-European fund to be established by Apax Partners Worldwide LLP, one of the largest and most well-established private equity organizations in the world.
FSN Capital III LP
Segment focus: Mid-size transactions Geographic focus: Norway and Nordic region
NAXS Nordic Access Buyout
Fund AB
NAXS Nordic Access Advisors AB NAXS Nordic
Access Buyout AS
Investments in fund units
100 %
Investments in fund units
Investments in fund units
1
Applies to the Company’s target portfolio in the long term after the initial investment period of 18 months
2
