Industrial Advisors Conference

A full potential mindset

The most recent conference took place in Stockholm in October and had a “full potential” theme, elaborating on how to gear up for a full potential experience.

“The support from the owner was essential and EQT had a very clear view on what could be achieved”, Gunnar Asp stated when sharing his experiences as CEO, developing Swedish cable TV operator ComHem during EQT’s ownership between 2003 and 2005. The entire cable TV industry was transformed when ComHem introduced the so called triple play service (TV, telephony and broad band) and the transaction is recognized to be one of the most successful private equity investments in the Nordic region ever.

“We focused on ComHem’s core offering. For instance, we deliberately decided not to produce content. We also made sure we had the right people onboard – people mean everything – it took seven months to have a new management group with the right skills and experience for us to target a full potential scenario”, Gunnar Asp continued.

Gunnar Asp stayed with EQT after the exit as industrial advisor, and has since then had a key role in all of EQT’s cable TV investments. He currently sits on the boards of for example IP-Only, Anticimex, Blizoo and Broadnet.

Geoff Roberts, industrial advisor primarily to EQT Infrastructure (currently on the boards of Peregrine, Synagro and Westway) shared some lessons learned from being an EQT portfolio company board member in the US. “Operational excellence is the foundation for reaching a full potential but you must be able to walk before you run and jump. As board member, it is really important to get the basics working first and to remember to be hands on, not hands in,” Geoff Roberts concluded.

“Reaching a base case assumption with a portfolio company is not enough. It’s about having a full potential ambition. The mind should be set to identifying ways of developing the company and defining how to truly impact the end users or stakeholders, what the company can do to really make a difference”, Stefan Glevén, Partner at investment advisor EQT Partners in Stockholm, stated when summarizing the discussions of the full potential-session.

Networking in Central and Eastern Europe

Earlier in October, a selected group of EQT industrial advisors met up in Warsaw to get an update on EQT’s strategy in general as well as the activities in Poland and the market conditions. “There are over 1,000 companies in Poland that might fit into EQT’s Mid-Market investment strategy”, Bartek Trzebinski, Director at investment advisor EQT Partners in Warsaw, explained when describing the strategy for Central and Eastern Europe. “EQT prefers companies within the Services, Healthcare, TMT or Consumer Goods sectors with a good potential for growth, consolidation, internationalization and operational excellence”, Bartek Trzebinski continued.

Ryszard Petru, Partner at PWC in Warsaw, commented on the macroeconomic drivers of the Polish economy. Poland is the 8^th largest economy in Europe and 21^st in the world measured by its GDP. The structure of the Polish economy is broadly balanced without reliance on any specific sector or commodity. “The emerging markets are still driving global growth whereas the developed world struggles. Poland remains the front runner in Europe in terms of growth performance and managed to avoid the recession. Obviously, there has been a growth slowdown but the prospects for the economy are improving”, Ryszard Petru explained.

“Speed of change creates a wilder, more uncertain ride,” Jacek Poswiata, Managing Director of Bain & Company in Poland stated when kicking off the discussion about how to tackle the changing nature of business strategies in order to achieve successful growth. “Complexity is a silent killer of profitable growth in our ever-faster world which is why strategic and operational simplicity are increasingly becoming competitive advantages. Define the core strategy and stay close to it – sticking to the core drives success”, Jacek Poswiata concluded.

“The universe of potential investment opportunities in Poland is so broad that it is essential for EQT to work closely with the industrial advisors who pro-actively participate in identifying attractive companies and later on help EQT develop them to their full potential”, Bartek Trzebinski stated when wrapping up the discussions in Warsaw.

Impacts of the “shale gas revolution”

EQT applies a strategic sector approach across investment strategies, monitoring the Consumer Goods, TMT, Healthcare, Industrials, Services and Energy & Environmental sectors. In October, the 3^rd annual EQT Energy & Environmental Sector Conference took place near Munich. The theme of the conference was about opportunities and challenges created by the shale gas and shale oil developments in the US.

The discussions had a strong start with Dr. Heinrich Herm Stapelberg, ExxonMobil, sharing his experiences from the “US shale gas revolution”. According to the International Energy Agency 2011 World Outlook, natural gas – both conventional and unconventional - is abundant and based on current demand, the world has more than 200 years of natural gas available. “Over the past 5 years, natural gas and renewables were the leading sources of incremental electricity generation in the US. CO2 emissions in the US have fallen by 7.7% since 2006, which is the largest reduction of all countries or regions”, Dr. Herm Stapelberg explained. He continued: “Natural gas is the cleanest-burning fossil fuel. In 2012, greenhouse gas emissions were at their lowest levels in the US since 1994 and natural gas played a critical role in this reduction”.

Various topics were debated during the panel discussion with gas sector experts from EQT’s Industrial Network. For example, the competitive advantage North America has established through its low gas and resulting low energy costs. How much production capacity will be moved to the US? What impact will this development have on Europe? Which effects will the shale gas development have on the global energy mix? What is the impact on investments in renewable and other conventional energy sources and on energy intensive industries?

The complexity of shale gas and shale oil was also debated. Its production is more than only wells and requires sophisticated infrastructure investments: in roads, pipelines, processing, transportation facilities, liquefaction, marine transport, service industries and more. In this context it was discussed which type of investor will master this massive infrastructure development?

Ultimately, the panel debated what region and what business activity EQT should target to benefit from the shale gas and shale oil trend.

“Higher gas and energy costs compared to the US are just one of the challenges for the European utilities and energy intensive industries, next to negative spark spreads, phase out of nuclear and the ‘Energiewende’. But, as usual, challenges and change also provide great opportunities for a firm like EQT with its unique group of Industrial Advisors. Therefore, the Energy & Environmental sector has become an increasingly important area for all of EQT, not only the Infrastructure funds ”, Andreas Huber, Partner at investment advisor EQT Partners in Munich, stated when summarizing the sector conference.