IK makes ten times return ahead of fundraising

Nordic buyout firm Industri Kapital has generated an implied return of more than ten times its initial investment by selling Prevesta, a Swedish residential housebuilder, to Norwegian trade rival Block Watne for SKr 1.9 billion (€204 million).

The total deal value consists of SKr 1.2 billion in cash, plus about 6.5 million shares in the Block Watne group, leaving IK with a stake of about 12.6 percent in the combined group. This equates to an implied internal rate of return of 332 percent, or ten times the firm’s initial investment, according to a banking source.

The bumper return will be welcome news for the Nordic firm, which according to investors is about to start raising another buyout fund, with an initial target of €1.25 billion.

A Prevesta house

IK only bought Prevesta in March 2005, but has enjoyed a successful period of ownership. The buyout firm was able to improve the efficiency of the production process while dividing the company’s offering into two separate brands: the higher end Myresjöhus and a more budget offering called SmålandsVillan. The latter in particular enjoyed strong growth, necessitating the opening of a new plant in northern Sweden and driving up profits by more than 100%, to about SKr 190 million. It also boosted the workforce by about 100 people.

IK partner Michael Rosenlew told PEI that his firm had not been looking to sell Prevesta, but the booming market had made bolt-on acquisitions difficult. “Our aim was to try and consolidate the market, but there were no willing sellers.” So when IK received an unsolicited approach for Prevesta from Block Watne – which had very similar ambitions within Scandinavia – the firm decided to cash in on most of its investment, while retaining a stake in the business.

However, IK is unlikely to hold its shares in the Norway-listed Block Watne for long. A source close to the firm said it was expected to sell down its minority stake within the next year.

IK’s investment has also benefited from a highly favourable market. This is the latest in a series of deals in the European housebuilding sector, with the UK being particularly active. HBOS and Sir Tom Hunter teamed up to buy McCarthy & Stone for £1.1 billion and Crest Nicholson for £715 million, while Barratt snapped up Wilson Bowden for £2.2 billion and Taylor Woodrow and Wimpey have today merged to create the UK’s biggest building group. There has also been rumours of private equity interest in building materials group Wolseley.

The deal is one of the most successful from IK’s Industri Kapital 2004 Fund. The firm had initially aimed to raise €2.5 billion for the fund, but eventually closed on €825 million in February 2005 following a difficult fundraising period.