Verso Capital, a Helsinki-based buyout investor, has raised a new €100 million private equity fund that seeks to invest in spin-offs and other businesses not living up to their full potential in their current ownership. Founder Anssi Kariola explains how Verso helps former spin-offs on the road to success. Read how Cumulocity, Everon and Ginolis benefitted from Verso’s helping hand.
Verso Fund III, which operates in multiple sectors, is seeking to invest in businesses with annual sales of €5 – €50 million that cannot currently live up to their full potential due to their current circumstances. Carve-outs are Verso’s most typical operations.
“A small business within a large company does not always get the resources it needs and is often first in the list in cost-cutting exercises. Sometimes it is simply better to develop the business as an independent company with dedicated resources and financing,” explains Kariola.
Another bottleneck that interests Verso relates to the ownership base of existing companies. Their ownership may be fragmented and some of the owners are not committed to developing the company, or the owners cannot find consensus on direction. They may also lack the expertise needed for international expansion. In these situations, Verso can re-arrange ownerships, and also offer the financing and expertise needed to fuel growth.
“A third typical situation in which we can help is accelerating growth through mergers and acquisitions. We have executed dozens of M&A transactions in Europe, the US and Asia, and can use our expertise to help growth companies with accelerated growth,” Kariola adds.
Ginolis: Finnish automation lines producing coronavirus tests
Oulu-based Ginolis manufactures liquid dispensing equipment and automation solutions for the diagnostics and healthtech sectors. Verso acquired a stake in Ginolis in 2017.
“Ginolis’s approach represents Finnish engineering expertise at its best. All its equipment is developed and assembled in-house, and the company’s modular precision robotics solutions are designed specifically to meet the highly challenging requirements of diagnostics customers,” comments Kariola proudly.
Ginolis bought JOT Automation’s Life Sciences business in 2015. The company’s ownership base was fragmented and the largest owner, JOT Automation, was no longer prepared to finance the development of its business operations. The company had growth potential but insufficient resources for growth. Verso stepped in by buying JOT Automation’s shares and those of another shareholder, and by investing a sizeable sum of money in the company.
“Our first task was to sell half the company, namely the metal workshop that manufactured robot arms and bodies. This heavy-duty production machinery produced relatively little added value. After this we increased the sales resources and restructured the company’s operational activities in collaboration with its executive management. The company’s net sales have increased by a factor of approximately eight within three years,” Kariola says.
Kariola points out that Ginolis is now riding an extremely high wave of growth. Coronavirus tests and COVID-19 antibody tests are currently being manufactured with the company’s technology in the USA and Finland. Ginolis also operates in Sweden, Ireland, England and Suzhou, China. Verso’s work is not yet complete, though, as it is still working with the company’s executive management in, for instance, solving various production and growth-related challenges.
Everon: From inching forward to fast-track growth
Turku-based Everon produces cloud-based call systems and care safety equipment for social welfare organisations. Everon’s sensors monitor, for instance, the movements of a residential patient with memory disorders. If the resident should not be allowed out, an electric door will lock as he/she approaches it. When the resident presses a call button, the call is registered on the nurse’s mobile phone app. The information is securely transmitted via Everon’s own base stations.
“When we were building Fund II, we looked for an elderly care related health tech investment because population demographics are driving fast-growth sector in this sector. As we couldn’t find a suitable carve-out opportunity, we turned our attention to tech companies serving the sector. We found Everon, whose founder was still with the company although ownership was fragmented. The company had insufficient resources for development and was progressing very slowly with income financing,” explains Kariola.
Verso quickly agreed with the founder on the best course for development and realised that their competences supplemented each other. Verso became Everon’s largest shareholder in 2016, after which Everon was systematically developed through operational improvements and acquisitions.
“A particularly successful acquisition opened the door for Everon’s access to Sweden’s healthcare market. It is fortunate that Everon is no longer so dependent on the Finnish market because delay in Finland’s health and social services reform has caused delays in Finnish customers’ decision-making processes. We also supplemented the company’s product range by acquiring a small Finnish software company. The company’s personnel doubled rather quickly, and now it’s on a solid path to growth and internationalisation,” says Kariola.
Verso’s involvement typically includes more investment in marketing and sales. That was true for Everon also. “A small company is apt to think it cannot afford international marketing and sales. Accelerating growth through corporate acquisitions produces sufficient resources for an effective international marketing and sales channel also,” explains Kariola.
Cumulocity: Nokia’s offshoot grew wings
Cumulocity is the most successful investment made by Verso’s funds to date. The SAAS company’s application development was carried out in Nokia’s Silicon Valley and Düsseldorf units. Cumulocity was established as an independent company in 2013 in Düsseldorf, where its key personnel worked. Its business operations were headed by a Nokia veteran of German nationality.
“Such a small business didn’t attract enough attention within Nokia’s large sales channel. Another bottleneck was the narrow market segment, because the IoT platform was developed specifically for mobile operator customers. We saw that the product could attract customers also from the broader enterprise market,” Kariola says.
After the friendly exit from Nokia, Cumulocity set out to build its own sales channel. Cumulocity’s strength was the strong technological base created with the large corporation’s resources. The product was of high quality and ahead of its time.
“When Cumulocity was able to sell its products with trained sales personnel via its own sales channel, it leapt into fast-track growth. We received the first bids for buying the company within a year of spinning off from Nokia,” comments Kariola.
Verso grew Cumulocity for about four years. In 2017, the company was sold to Software AG, a large German software corporation. There were two competing bids. Verso sold Cumulocity for a price equivalent to 20 times its net sales. Verso I fund received all its committed capital back, satisfactorily multiplied, through this one transaction alone. Overall, the fund returned three times the capital invested.
“The investment proved to be very successful for the buyer, too, because Cumulocity has grown further within Software AG. Its business director was promoted to CTO and sits on the company’s executive board,” Kariola adds.
In the main picture: Ginolis manufactures automation solutions for the diagnostics and healthtech sectors.
Who he is: Founder and CEO of Verso Capital
Education: Helsinki University of Technology. MBA in Corporate Finance from Helsinki School of Economics and Business Administration
Experience: Worked for over 17 years in large corporate environments, primarily Nokia and Nokia Siemens Networks. Former head of M&A for Nokia Siemens Networks. Has held management and executive positions in R&D/product management, international marketing & sales, and strategy & business development.
Founded: 2012 in Helsinki. At present five people in Helsinki and one in Munich.
Operations and goals: Investor in Finnish and European growth-stage buyouts. Specialised in spinoffs, i.e. building independent companies from existing businesses. Invests in Finland and northern Europe in companies with business operations that have international potential. Assets under management €126 million.
Earlier funds: Verso Spin-off Fund I is a €10 million fund that makes minority investments in IT/telecoms spinoffs. Verso Fund II is a €50.5 million fund that makes control equity investments in tech spinoffs and growth companies.
Verso Fund III: A buyout fund operating in multiple sectors that raised €66 million at founding and has a target size of €100 million. Investors at founding: KRR III, Tesi, pension funds Ilmarinen, Varma and Elo, as well as Nokia, Valeado AB and Etrisk Oy. Fund-raising continues in 2020.
Fund III’s portfolio companies: Companies with annual sales of €5 – €50 million but that currently have growth bottlenecks hindering business performance.