PRIVATE EQUITY

Capvis Equity Partners

The Capvis team looking after investments in Germany. From left: Julia Stadler, Marc Battenfeld, Daniel Flaig and Concetta Sonetto.

During these past 15 years, the Capvis team has made 28 investments in mid-sized companies, with an overall transaction volume of over €2 billion, and completed 19 exits, of which 5 have been successful IPOs on the Swiss stock exchange. Through them Capvis has shown that it can carve out a distinct market position in financing management buyouts and providing expansion capital to growth-oriented mid-sized companies. The firm's market focus is businesses with between €30 million to €300 million enterprise value in Switzerland, Austria and Southern Germany. Such companies are typically in high-value manufacturing such as measurement and control, medical devices, automobile components and other precision-engineering and technically demanding sectors.

The origins of Capvis go back to 1990 when it was established as a separate department, later named SBC Equity Partners by Swiss Bank Corporation. In 1999 it was spun-off as Capvis Equity Partners, with UBS retaining a minority stake in the firm. In 2003 the Capvis team bought out UBS and since then the partners fully control the firm.

Daniel Flaig, a partner at Capvis says, "One of our strengths is that we promote entrepreneurship in our portfolio companies. And by having done our own buyout, we have shown that we live by what we say.

But what makes Capvis an attractive investor? When one looks at how the firm adds value, its operational philosophy is essentially a partnership with the management. This partnership continues throughout the holding period of the investment and is backed by a long-term commitment and an efficient decision-making process. To streamline the interaction, Capvis has shortened communication lines and structured its organisation into one that operates in an environment of trust and responsibility. If this is the secrete of Capvis's success, then integrity is the essence of its achievements.

"One of the most appreciated attributes for our investee companies," explains Flaig, "is the harmonious relationship that we build with them. Management teams value this and know that when we invest, it is a partnership and not just a quick in-and-out situation. In addition, we help our portfolio companies in a variety of decision-making processes, such as planning acquisitions, entry into new markets, strategy development, improving operations, and so forth. For instance, we assisted Tobler Group, one of our portfolio companies that we divested last year, to implement a new logistic system. In addition to significantly improving operations, the logistics system, along with various other efficiency measures, helped Tobler double its EBIT. Another example is that of Uster Technologies, a Swiss manufacturer of measurement instruments used for quality control in the textile industry. In December 2002 we invested in the company's buyout jointly with Quadriga, the German private equity house. Although a global operator, Uster's main growth markets are now in Asia, where it was seeking to further expand its operations. As such, through our relationship with Asian investors, we helped Uster establish a production facility and negotiate with potential acquisition targets in China."

An inseparable component of such value-added services is Capvis's international network and group of advisors. Wolfgang Quantschnigg, who represents Capvis in Austria, is well experienced as a turnaround manager and business consultant; and Hans Knürr, who represents Capvis in Germany, is the former CEO of Knürr AG, a company that was part of the Capvis portfolio during the 1990s. They and others such as Bernard Steck and Rudolf Lyner, both former partners, not only function as anchors in the Capvis network, but also as 'ambassadors' who assist in cementing international contacts for the firm's portfolio companies.

The advantages of such networking are easy to see and are an important value-added service for Capvis's six partners: Dr Alexander Krebs, Dr Yves Dudli, Rolf Friedli, Daniel Flaig, Dr Tobias Ursprung and Felix Rohner. As investors they all possess valuable experience of working with mid-sized companies. This ensures that, in addition to having the necessary intellectual and analytical skills, they have specific industry knowledge necessary to assist growth-oriented businesses.

When one examines companies that perform well, they do so because of good management. So a lot of what Capvis does is related to management: helping with strategy development and implementation.

"For us the management is at the centre of a transaction," says Flaig. "Therefore the quality of people running the organisation is of utmost importance. Our investment approach follows the view that every company has unique needs. We therefore tailor the financing based on a variety of factors such as the company's liquidity needs, cycles in the industry, etc.

This has long-term benefits as even a marginal improvement in the financial structure of a transaction can result in significant gains for the investee company.

"In assessing potential investments, Flaig adds further, "we can delegate the functions of financial audit, industry appraisal and legal due diligence; but these so called 'hard facts' only tell half the story. What we need to evaluate in detail is the environment the company operates in, the way the managers, think and react to different market conditions.

Such aspects essentially address the future development of the company, where the value will come from how value can be generated. All this goes beyond the analysis of financial statements, sector assessment and other quantitative data. Another factor is that when one looks at technology-based sectors in which CapVis invests, a company's past performance is not a guarantee for its future and there are seldom objective methods of evaluating the management of potential buyout and acquisition candidates.

Flaig explains, "As the evaluation period, before we make the investment, is always relatively short, such factors can get difficult to determine. Therefore I always compare due diligence with the work of an archaeologist excavating a mosaic. One can find single stones, but seldom all the pieces needed to complete the object. To get the complete picture, the excavator needs to view all the pieces not only together but also in the correct position. For us the challenge is similar, as we do not always get the pieces of information that we ideally require. The skill in our work therefore, is to be able to fill in the voids and make the right judgement. This is not only hard work, but also a matter of experience."