EQT – started in Sweden in 1994, is one of the world’s largest #privateequity fund managers. They are also a regular #IPO sponsor, particularly in #Europe but increasingly globally as well. Some of their recent #IPOsAzelis in 🇧🇪 , Musti Group in Finland 🇫🇮 and AutoStore™ in Norway 🇳🇴 . And of course, the IPO of their own GP in 2019.

Magnus Tornling joined EQT in 2016 and has managed all their IPO processes since then – from (early) preparation to complete exit.

🧾With Magnus, we discuss the timeline and considerations EQT applies when considering an IPO, management incentives and retention after the IPO and the importance of preparing a company’s sustainability strategy early. Magnus also shares his views on European #listings versus US, and how to make an IPO a success for all parties involved.

📈 Our favorite quote:
“Of course timing the market at the time of the IPO is nice, but it’s not there where you make your money. It’s on the selldown. We would rather go a bit early, the IPO window doesn’t need to be fully open, you take a little bit higher discount than you would do in a buoyant IPO market, but you can do your selldowns in a more orderly fashion in terms of increasing share prices and better risk appetite.”

🎧Listen on: Spotify  | Apple Podcasts 🎧

Disclaimer: this discussion is not financial advice, nor an investment recommendation, nor a sollicitation to buy or sell any financial instruments, or an offer for financial services or any other transaction. The information contained in the recording have no contractual value and are destined for an informational purposes only. Amundsen Investment Management and the participants on this podcast may have holdings in the companies being discussed.


Per: Today we will talk with Magnus Tornling, the global head of equity capital markets at EQT. EQT was founded in Sweden in 1994 and is today one of the world’s largest private equity firms. EQT is a regular IPO sponsor, particularly in Europe and among the largest private equity holdings. For example, they listed Autostore in Norway as the list in Belgium and Suse in Germany in 2021. In 2019, they listed their own management company, EQT AB.

With Magnus, we discuss the timeline and considerations EQT applies when considering an IPO, management incentives and retention after the IPO, and the importance of preparing a company’s sustainability strategy early. Magnus also shares his view on European listings versus US and how to make an IPO a success for all parties involved.

Before we start, we’d like to remind you that this discussion is not financial advice, nor an investment recommendation, nor a solicitation to buy or sell any financial instruments or an offer for financial services, or any other transaction. The information contained in the recording have no contractual value and are destined for an informational purpose only. Amundsen Investment Management and the participants on this podcast may have holdings in the companies being discussed.

Gautier: Magnus, good morning. Very nice to have you here in our Oslo office. I think it’s the first time we have actually a physical podcast recording. That’s the first thing. Great to have you here. Maybe you should introduce yourself to start with.

Magnus: Thanks, Gautier. My name is Magnus Tornling. I’m running the equity capital markets division at EQT. For you who doesn’t know, the idea of starting a private equity firm rooted in the Wallenberg family, traditional responsible ownership was started in Stockholm in the early ’90s. Today we are a global purpose-driven investment organization, slightly more than €100 billion in fee-paying AUM. It’s been a pretty impressive journey from a little office in Stockholm in 1994 to now a global alternative investment organization.

Gautier: Because we’re here to talk about IPOs, can you remind us what IPOs EQT has been involved in the last few years?

Magnus: Yes, I would say, of course, always since the beginning, I think since the early 2000s, probably from the old EQT platform, we’ve done over 20 IPOs. Since we IPO’d ourselves, we’ve done a few transformative mergers, one with a life science firm called LSP. They did a few IPOs before joining EQT and the same with Barings Private Equity in Asia who’s also been very active on the IPO front. Of course, as with you guys, it fluctuates year by year. In 2017, we did one IPO in Terveystalo in Finland. 2018, none. 2019, so come back to we IPO’d ourselves. Then in 2020, it started, of course, getting more active. Then we did Musti, whose company and then in 2021, Suse, Acelis, and Autostore. Then in 2022, a quiet year, and then so far this year, we’ve done one IPO in the US called Kodiak.

Gautier: Okay. You’re getting global, right?

Magnus: Yes. Clearly, of course, with the now increasing presence in Asia, that will also be a bigger market for us. That’s something in the media. There is one IPO out in Japan of a portfolio company of ours right now.

Gautier: Yes, so no IPOs in 2022. Obviously, the market was down, right? Very little activity. After strong years, as you say, 2021, ’23, you’re starting to see a bit of IPO recovery. You mentioned this IPO in the US, one in Japan. What’s your view on the IPO market? Do you think we’re at a time where it will start recovering after two years of very quiet deal flow expectation on that front?

Magnus: I would say that, of course, if you look on the indices, you look on the volatility coming down, I think everything would be perfect for an IPO market but still, it’s very slow. We see it ourselves with the IPOs that we’ve been out to, but also on the sell downs of our listed stakes, it is tough out there. I think it will take time, especially in Europe, for the market to recover. I don’t think we will see a boom second half 2023, probably opening up a little bit more in 2024.

Gautier: I think you’re right. We see the same, the volatility index, the VIX being a good lead indicator for IPO deal flow, and it’s been pretty low now for a couple of months, so it sounds like IPO activity could pick up. Back to equity. How many exits do you do across your fence per year and how many will be done through IPOs?

Magnus: I think, of course, it differs year by year. Of course, we have a venture portfolio, which is very broad, so there we do exit probably every month. From the larger strategies, so the infrastructure and the private capital, especially in the private equity, I would say we probably see 5, 10 exits per year, of those zero to three being IPOs. Of course, given the size of our investments nowadays, and also the investment thesis of EQT of investing into high growth, high profitability, many of them fit very well for the public market. I think over time, that will just grow to probably maybe 25, a third of all our exits through the IPO.

Gautier: Yes, it makes sense. Bigger funds, bigger investments, obviously the public market being a more credible option to exit those bigger companies. Is that the reason why your role has been created at EQT? We don’t see that in a lot of private equity funds, clearly.

Magnus: Yes, I think that it will just become a more and more used exit alternative for us. Hence, it makes sense to have someone who looks at it also from a global perspective and making sure that we maximize our efforts but also learn from historical mistakes, especially helping management to not make the mistakes that previous managements have done.

Gautier: Is there a good formula when you look at your investment portfolio companies that, okay, this company is perfect for public markets? When would you know that the public route is actually the best-suited one?

Magnus: I think it is, of course, a little bit. First, it comes back to size. I think above €5 billion in equity value starts to be tough on third private equity exits, also on strategic exits, that is size. Then of course, we see in the public market, if we’re going to take a company public, it preferably has a predictability of earnings, especially on the quarterly earnings. I think the companies that fluctuates more will have a more difficult life on the stock exchange. Hence, we prefer to take the companies public who has fairly stable and predictable earnings.

Gautier: Yes, it makes sense. A bit less prone for surprise, which usually the market doesn’t like. If you look at your portfolio, again, different companies provide some very growthy companies, some a bit more mature business models. Does it make a difference, again, this growth profile, if you choose the IPO option or not? How are you thinking about that?

Magnus: I would say that, of course, we have a fund called EQT Growth, but also the Venture Portfolio, which clearly invest in slightly higher growth than, of course, an IPO. Also very attractive exit alternative. Remember, on most of the really high-growth companies, there are a lot of several owners who probably have a different time horizon than the IPO is an ideal exit avenue where people can have difference in terms of exit horizon.

Gautier: When you interact internally with your deal partners and the sector teams, obviously, at EQT, you are the public heirs in a way, right? You talk to investors, you follow the market quite closely but you have those partners in charge of the portfolio companies and investment. How do they look at the IPO and the public markets? Are they actually afraid of that? Do they think it’s just a bad option? We know the cumbersome of the process, the challenge of monetizing your investment over time. What’s the debate typically internally when you discuss about IPOs with those partners?

Magnus: It, of course, depends on the company profile. It also depends where are we in the life cycle of a fund. Towards the end of the fund life cycle, of course, the IPO is less attractive. It is more likely that we’re gamed by the market. They know that we should exit within the next two to three years. I think in the earlier, in the fund horizon, it’s easier to do an IPO, we can hold the companies for longer, as you’ve seen in Acelis, which we IPO-ed in ’21.

We’ve done just one little minor adjustment to the ownership and kept that one and are in no rush of selling. I think that, and of course, it differs market to market. We all know the US market, it takes a long time to exit a public stake. Also there, I would say the deal partners is probably a bit more reluctant while here in Europe, at least historically, the IPO market, and we’ll come back to that, has historically worked very well. You can do larger sell downs. We see that historically we needed two to three sell downs to fully exit our portfolio companies here in Europe through an IPO. Of course, that has changed over the last couple of years.

Gautier: It’s interesting, actually, if you make an investment, which is early in the fund life cycle, you’re probably better off to start thinking about an IPO early because you keep that optionality as well, right? You list the assets, you still keep a controlling stake, so you have other options if you want to exit, right?

Magnus: Yes, correct.

Gautier: If you time the market right, because usually, you are a bit dependent on market conditions to IPO.

Magnus: Correct. Of course, on the IPO side, I think it’s a little bit, I think in hindsight, if you look back, of course, timing the market at the time of the IPO is, of course nice but it’s not there where you make your money, it’s on the sell-down. I think we would rather then go a bit early, the IPO window doesn’t need to be fully open, you take a little bit higher discount than you probably should do in a buoyant IPO market but you can do your sell-downs in a more orderly fashion in terms of increasing share prices and better risk appetite. I think it’s important that you actually start before you get the optimal market conditions.

Gautier: That means you need to get your portfolio companies ready to IPO and we come back to that but I guess it’s always important to keep in mind. Actually, this dual track process where you keep that option where potentially you work for an IPO but you also keep the option to sell to strategic and other private equity, I guess it’s case by case again,

the biggest risk I will assume is that a lot of stress and pressure on management to run two processes.

Magnus: That’s why we said that, okay, we cannot run a dual-track process for all companies. Of course, we have a fiduciary responsibility towards our LPs to always try to maximize value but also in terms of maximizing value, its transaction certainty. Of course, what happens happen if you do a dual track, management gets distracted, both running the IPO track, running the M&A track and suddenly, they lose focus on the business, current trading starts to soften and then you don’t get an exit either through the IPO or M&A market.

Gautier: Now question on helping those companies to be IPO-ready, is there an EQT playbook? Do you have a secret sauce that helps those companies being better prepared to IPO?

Magnus: I wouldn’t call it a secret sauce but we try to get involved very early on in the ownership period. I was meeting a company this week, they’re thinking of listing in ’25, or ’26 but actually start the IPO preparations now, then you can run it pretty softly for a year or two, not interfering with the current business but also making sure that you have all the KPIs in place, you have the equity story thought out, what are the supporting numbers that you need to verify the equity story, include those in the annual accounts, et cetera.

We would like to start, actually the IPO preparations at least 24 months ahead of the IPO. Actually, we have companies now as you know, that are set for an IPO in ’25 where we are meeting investors like yourself.

Gautier: Already now?

Magnus: For you to get a little bit of a look and feel of them but also for them to meet investors, hear what it’s important for them. We think the early preparations that is critical for the success of our IPOs at least.

Gautier: I was thinking there’s another IPO you have, I will not mention the name but we looked at the financials and all those EBITDA adjustments, which makes sense because some of them are related to IPO costs and actually they start like three years before the IPO. It is really confirmed that there is preparation work well ahead of the IPO to get finance teams in place reporting in place, sometimes even are well ahead of the IPO. Where do you guys have do you think the most value?

Magnus: It’s especially around the finance function, I will say. I think our companies are, of course, most focused on hitting the yearly numbers, they have a three to five-year plan is focused on that. Of course, shifting that mindset, making sure that you will also hit the quarterly numbers, they are great in terms of forecasting full-year numbers and longer but not that great in terms of quarterly numbers. Actually, starting early on with the finance team to do, say, mock trials or quarterly reporting, quarterly forecasting, it’s always the finance function that is too lightly staffed ahead of the IPO.

They are the one that are mostly impacted by the IPO process and at the same time, of course, the company needs to hit their numbers, at least for the next 24 to 36 months after the IPO and of course during the IPO process as well.

Gautier: This is also why we think for companies to be good IPO candidate, they need to have some critical size, because otherwise suddenly, the top management is drawn in these public markets and probably losing a bit focus on the business as well, spending more time marketing and talking to investors and spending quarterly numbers instead of running the business. You can only do that if you have enough staff and some critical size, obviously.

Magnus: Yes, I fully agree. Back to the IR function as well, we would like all our companies to actually have that and actually the IR person being early involved in the process. I think historically we have had some companies where we have had the IR post the IPO, then it’s almost too late. I think the IPO process is a great learning exercise for a new IR to get involved in the business, maybe be the project manager for the IPO and then we said that works excellent.

Gautier: Definitely and that’s the feedback we keep getting because not only you have the person who actually understand and own the equity story and is a bit more accountable to the public markets as well because he was involved early and he understand expectation as well. That’s important, give some continuity to the management team as well to have an IR before the IPO. It also helps I guess, the market to engage with a company after the IPO.

As you know, too often we have a lack of liquidity engagement with the public investors who have not participated in the IPO and to engage them you need a receive a very active IR function. Some private equity house decide to postpone I guess, the investment. It’s a bit of an additional cost but I think it’s actually a good investment we think that new investment over time.

Magnus: Truly and of course, also, sparing a bit of the time to the CEO and CFO post the listing. Of course, you have when you’re done the IPO, you also have a responsibility to follow up with your new partners on the shareholder register so actually you need to spend time with them as well. It’s probably better that it’s done by an IR than the CEO.

Gautier: What do you think management struggle the most with during the IPO process?

Magnus: I would say that, and it actually comes back to our own IPO. Remember, previously, we couldn’t understand why we couldn’t list the company within six months. We couldn’t really understand why the CEO and CFO struggled to do that and run the business at the same time. Come on, they have advisors with them, they have equity helping them, how hard can it be? I think that was a real eye-opener for ourselves, how much work it actually is for a CEO and especially for a CFO to take a company public.

Gautier: Does actually your IR team interact a lot with those private companies or IRs of the public companies, do you exchange a lot on that?

Magnus: Yes, we try to do and then of course, our CFO, Kim, he has had a lot of discussions with other CFOs and IPO candidates in our portfolio companies in terms of lessons learned, we interact a lot with the project managers for IPOs between different portfolio companies to share lessons learned, what works, what doesn’t work that well and also on the CEO side but outside, especially on the CFO side and the project managers for the IPOs, they interact a lot across portfolio companies as well.

Gautier: There’s a topic where we could probably spend an hour just on that but I think it’s a very interesting one, it’s how you incentivize management in an IPO context and after the IPO. I know it’s a tricky question, we know that management like to work with private equity because there’s very strong incentives to make a great exit. Question that we see really is to what extent the management is also incentivized to stay with the new shareholders in a public world, how you think about that?

Magnus: That’s something we spend enormous amount of time on, how do we make sure that they are as motivated for the next journey, so they’ve been under our private ownership. Of course, in the private ownership, you can create fairly attractive incentive structures linking it to the value creation done for us in equity. Of course, it’s much more scrutinized in the public market, especially in Europe, it’s tougher in Europe than compared to the to the US in terms of incentive plans.

Gautier: When you say tougher, you mean in terms of incentive plans.

Magnus: Yes, in terms of the markets in the US, they are more open to share even more upside with the management team than people are used to in Europe. That’s something we spend a lot of time on and then of course, making sure that you have a management team that is as motivated as they were during our ownership phase. Of course, it’s a great motivation that all of them are shareholders in the new company and working on that, but often it needs to come something on the top of it. We’re working a lot to find the best structures there.

I wouldn’t say that we have found the silver bullet yet, but we have some, what we think is pretty attractive plans for the management.

Gautier: It’s interesting because we very often ask a question to management and I always feel that they don’t want to disclose much as if they have a great management package and they’re making a good exit but actually, we think it will be positive to see that thing transform into equity into the company at the IPO and they have a bit more skin in the game. They should disclose a bit more, I think, how much of the company they eventually own when the management package unfold because that will probably give more control on our side that they have skin in the game and question is how long they’re going to be locked up.

I think showing that participation to the upside post IPO, I think it’s very important and they should put that forward to be more instead of hiding numbers really.

Magnus: That’s a great comment. I think there’s also a little bit in the US they’re very open with that while in Europe, people are a little bit more restrictive in terms of disclosing that upfront.

Gautier: Now one of the risk or concerns we have to be fair, sometimes we think that the management also see the IPO as an exit. It’s an exit for the pre-IPO owners and that makes sense, we understand the model, but I’ll put the management in two categories, some management you really feel they need to maximize the exit and take a big check and make sense. Again, question is how long they’re going to stay in the business. Some other type of management, you feel they’re happy to get rid of their prior IPO shareholder and the PE funds, and they want to stay on board and behave as the owner of the business.

Magnus: For many management teams out there, I think the IPO is a golden stamp on their business. They’ve been able to take a company from a private setting to publicly listed company. for many, that is a key achievement in their career path as well.

Gautier: Do you sit down with your management ahead of the decision to IPO and ask them about their longer-term intentions to make sure it’s a PLC-type management who can stay on board for the next 5 to 10 years after IPO?

Magnus: Yes. What we at least try to say is that’s why we like to start two years ahead of the IPO with a real grown-up discussion with the management team. Are you ready for the next five-year journey? Being, say, two years ahead of the IPO and at least three years post the IPO. If they’re not ready with that, then we need to have a discussion in terms of orderly transition. I think it’s hard to IPO a company where you have had a new CEO for six months. It’s not his story that is selling to US new investors. It’s the old CEOs. Also, we cannot have a CEO that we know will say, “Okay, after the lockup period, after a year, year and a half, I’ll leave and sell my shares.”

Then I think we have broken the responsibility and the contract with you guys as new investors. We try to say that if you’re going to be part of the IPO and be the public CEO, you at least need to have a, say three-year horizon. Maybe in some cases, it’s shorter, but then the natural new CEO candidate is so obvious to the IPO market that they say, “Okay, but it’s clear that it’s he or she that will become the new a CEO, and especially if you have a CEO that is age-wise, say in the mid-60s, it’s natural to see that transition come maybe closer to two years than three years.”

Gautier: We’re running statistics and we need to check, but it seems to me that there’s been a bit of a tendency again of having too much management change post IPO, probably related to the difficult market conditions the last two, three years, some management probably struggling to face reality of the big market. I think it’s very important to show a bit more continuity here post-IPO. ESG, we just talk about gold and silver governance, but the G.

If we talk about E and S here, I know it’s always very high on your agenda. I remember back at the time of your IPO, your own IPO in 2019, I was quite impressed by how you put ESG across all your investments. You didn’t have a dedicated fund. Really sounded like this is something you implement day one across your portfolio companies. When you look at public exit, how are you thinking about sustainability, ESG, what are the focus internally on that?

Magnus: If you go back five years, the ESG report was something that was hastily created three to six months ahead of the IPO so you at least could tick the box that you had an ESG report. I think nowadays that doesn’t work in the public market anymore. If you haven’t published an ESG report before your IPO, people will say, “This is not an integrated part of your strategy. It’s something that you have found out because you have seen that this is important for public markets.”

You also see the growth of dedicated ESG investors as well. Of course, this is part of every value creation plan in every portfolio company in EQT from day one. Hopefully, they should be very well prepared for the public market on the ESG side.

Gautier: Yes, I think you’re right. It shouldn’t be a tick-the-box exercise. Companies who actually, before I do sustainability report, clearly we understand it’s been part of their process and we make that difference. Five years ago, I wasn’t spending a lot of time on that during due diligence, but clearly today we spend a lot of time with management about disclosure, EU taxonomy, compliance and alignment, environmental targets.

We do actually some ESG benchmarking as well, which, again, we were not doing a couple of years ago. I think there’s a trend toward that, obviously. Also when you know that it’s quite challenging already to engage with public investors in an IPO, today, I don’t think you can actually afford missing any investors just because you haven’t done that reporting and ESG requirements. I think it’s a must-do today.

Magnus: Yes, and I fully agree. Also, you said the ESG dedicated funds are one of the few segments that is actually also growing in the mutual fund market as well.

Gautier: Indeed. It’s no surprise, I think you have three IPOs live in Europe as we speak. Two of them are very much directly related to the energy transition. I think there is capital being deployed in the space. Moving on, success factors for an IPO. I’m keen to get your experience here. What you think is very critical, what has played out as an important factor success or failure for IPOs?

Magnus: I think it’s come back to what we discussed earlier in terms of hitting the numbers. The first six quarters post the IPO is just critical. You see the success of the companies that do it. People get the confidence in terms of the management team. Yes, maybe we don’t like the pricing, but at least people are there if we want to do a monetization event, if the company wants to raise money, there is capital there.

I think the capital market is so brutal that if you miss one of your first four quarters, it will take you another year or two years to build confidence back to the market. That’s why the companies that go public, they really need to be so predictable in terms of their earnings that they always hit their numbers or preferably continue to outperform the guidance they’ve given.

Gautier: Unfortunately, the market can be a bit binary, but it’s true that if you miss really your numbers, you’re putting yourself at risk of being dead money and illiquidity will start hitting you and then you won’t make the local market indexes. Then you’re not a most own and it’s a very difficult path to recover.

Magnus: Yes, it’s tough to get out, and then suddenly liquidity drives up. Sounds like yourself in terms of difficulties, increasing the position despite the earnings looks and valuation looks attractive because you just say, the risk from the compliance department is not possible to add more stocks given how illiquid it is. It’s a tough one. That’s why in our view, it’s better to be long-term greedy, make sure the company hits the numbers for the first couple of quarters, even though you don’t.

Maybe then like the IPO valuation, you feel that you could push it a little bit higher if management were a bit more forward leaning on their guidance. I think in the end, you will come out in a much better situation if you’re given some headroom to the numbers.

Gautier: You have to maximize 100% of equity, not the 20% you sell at IPO, but specifically to get around this momentum around the IPO process itself. Back to the IPO process, you have a lot of advisors around you. The management has a lot of advisors. You take on advisors as well. How are you thinking about those IPO equity advisors? Do you onboard them every time?

Magnus: I would say probably 50% of the time. I would say that if there is a large IPO, we often have a lot of co-investors with us. We actually like to have an independent financial advisor. I think it’s good in terms of managing all the stakeholders. Also if there is a market where we as EQT, haven’t done an IPO before, to have a local independent financial advisor, to have the knowledge of the local market. There’s a lot of regulations that we aren’t aware of.

I would say if it’s a small midcap IPO in Sweden where we’ve done 10 IPOs before, I think we have less tendency to bring on an independent financial advisor, at least early on, maybe towards the end of the process in terms of allocations or anything. On the bigger ones, we usually have it.

Gautier: Where can they add most value, you think?

Magnus: I would say especially around the stakeholder management. Remember, especially on the big IPOs, we have, of course, management, big shareholders, we as a tee, maybe some of our most important LPs are invested there as well. People have a little bit of a different time horizon in terms of where to optimize, when to go, how much can we sell at the IPO. History is a coordinated sell-down agreement afterwards. There, I think it’s great to have an independent advisor to help us sort out that.

Gautier: It seems that it’s a very European thing. Is that the same in the US?

Magnus: I think in the US, it’s few firms that dominate the market. I would say they are much more involved, especially around the marketing phase, around the coordination of the analyst, and really on the book-building phase. While in Europe, they are even more earlier involved in the IPO process. Really being more of a project manager for the IPO. I would say the US advisors are a little bit lighter in the beginning of the process, and then towards the end, they get heavily involved.

Gautier: Do you have experience in Europe, in US, now in Asia as well, of obviously, I’m keen to get your views on– because there’s been very little innovation in the IPO process over the years, I think. You have some regional differences, we touched upon one. As you know, there’s a lot of debate as well how we can make European listing location in the UK bit more attractive versus the US, for example. I think there’s a lot of debate on that. What’s your take on that? Do you have strong views about what could be changed in Europe, at least compared to the US or vice versa?

Magnus: I would say, of course, the US market has some clear benefits over the European. Of course, it’s deeper, clearly deeper. The process is more flexible in the US. It’s shorter time to market. I think it’s normal in the US to flex both on size and price. It’s not a disaster to price below the range in the US or above the range, which will be highly unusual in Europe. I think where Europe struggles is of course in the aftermarket liquidity, which is in our view the real tough question for the European market to cope with. I would say of course in the US, the liquidity is centered around New York or the NASDAQ while, of course, in Europe, every country has their local exchange, and of course, the more you spread out liquidity, the less trading you get.

I think that over time, if Europe is going to be successful competing with the US, and you see, unfortunately now a lot of European companies are moving to the US, and then decide to do a listing in the US instead of in Europe. Of course, for Europe, that’s very, very unfortunate. I think if you’re going to turn that, you will need to see more consolidation on the listing locations. I think that over time, you cannot have an exchange in every market in Europe. You need to have fewer, which we think will drive more liquidity, and then Europe will once again become a very attractive listing location, hopefully.

Gautier: Yes. That’s a very, very good point. Totally agree on that. Liquidity is a big issue, and I think obviously, Europe is always more fragmented. That’s a technical constraint for companies listing in their domestic markets. Although markets like in Sweden, they’ll be more liquid because I think they have a bit more of a captive local investor base.

Magnus: Sweden, you see Switzerland as well. You see the clear benefit of those market who has a real retail high net following who invests in stocks, whereas the other European markets where it’s less common for the man on the street to own stocks, and of course the liquidity goes down drastically. Of course, there are some markets in Europe that work excellently, and of course, Sweden is one of them.

Gautier: The shorter time to market in the US, I think it’s possible because they also give more information to the market early and they have those S-1 filing rights. Actually, yes, it’s shorter time to market, but that’s probably a bit more time to prep and get to know the company really from the investors.

Magnus: Yes, of course, as you said, you have the public filing that can be public for six months, 12 months ahead of the IPO for people actually to spend time on the company and the industry. Then when the window is open, you can go out quickly. Of course in the US, you also share much more granular data on the short-term guidance. You actually share the model with the analysts. There is, I would say also less uncertainty around which are the right numbers for the consensus.

Gautier: This decision to go in the US versus listing in your home market, does it happen, you have such discussion with your portfolio companies? I know you have a venture fund. You have some very exciting tech investment as well. I’m sure the US is a very exciting, attractive market for those companies and founders. What’s the debate around that? Spotify is a good example. A couple of years ago they chose the US, was big news in in Sweden, right?

Magnus: Yes. For many tech founders being listed on NASDAQ is also a stamp of quality approval for them that they have done something right. I know, and of course also for our larger investments where we see some good peers if they are in US or London, but I think in the end, listing in the whole market is most likely the preferred option. I think it’s hard, say for a Swiss company, even though you have a great peer in the UK, if you don’t have your head office in the UK, or significant business in the UK to go there just because you have a good peer , and the same is also for tech companies.

Also, remember if you are not US domiciled company with significant activity there, you’ll not come into the relevant indices in the US. Then going into the US, if you’re not a household name, I don’t think liquidity will be any better than in Europe. Rather the opposite. Often, we learn at the first instance that the US market looks super attractive for some of our European assets, but then when we dig a little bit deeper, I think it’s few of them that at least now will actually go to the US market. Let’s see how Europe develops over the next five years, if there are some changes so that we increase liquidity, or if liquidity just continues to go down Europe, and then I think companies will be forced to list in the US.

Gautier: Hopefully, that doesn’t happen. We see a few changes on that front from the regulator and politicians you mentioned in the US. IPO size tends to be a bit smaller than in Europe as well, I think in the US, usually we see more of a primary component grow C type of equity stories as opposed to Europe where it tends to have a bit more of a secondary component. That leads to the question to me, how you’re thinking about monetizing investment over time post-IPO? What are the key considerations from that perspective?

Magnus: I think of course it’s important to understand that the IPO itself for a private equity firm, it’s not the monetization event, and especially not in the US where it’s a primary component of it. If it’s not 100%, it’s at least very large. Where we drive our monetization is of course on the secondary sales. Hence, we just need to make sure that we set up the IPO for success. It needs to trade well. I think for us that wants to be frequent IPO participant, of course, we need to make sure that everyone earns money on our IPOs.

Everyone earns money on our sell downs. Of course, then, pricing at 100, do the first sell down at 90, and the third at 60, it’s tough to get back to the market. That’s why the IPO needs to work out of the gate. Of course, sometimes it doesn’t. I think that at least it shouldn’t because of company factors. Yes, if the market is down 20%, 30%, 40%, of course, I think it’s understandable that an IPO trades down, but it shouldn’t trade down due to say, weak performance.

Gautier: How do you go if it trades well below the IPO price? You say it’s a challenging one. Do you think your LP is putting pressure on you to actually keep monetizing or exiting, or there’s a case where you should take it private? Do you still have a big stake, potentially you’re controlling stake? As you say, it’s very difficult to get back to where it should be if you’re a bit of dead money and nothing related to the management and execution. It’s just that market condition made it tough. Do you think there’s a good case for taking those companies private again, or you should just not do that because it’s bad for your firm, for your reputation to IPO companies, and take them private again?

Magnus: I think it of course differs case by case. I think in some cases where say the company has delivered according to plan, but the market has rerated, I think it’s a good case for thinking, “Okay, is this an attractive take private opportunity?” I think we are in a fortunate situation where we have a high DPI in our funds as we don’t have a lot of pressure from our LP to quickly monetize assets. We have the time to get them closer back to the IPO price and do the monetizations then. I think we’re in a pretty fortunate situation, at least right now.

Gautier: Coming to the end, there’s one last topic I want to touch upon, is the equity investor base. You have many years experience interacting with the public markets. Can you tell us a bit what is a typical profile of investor participating in an IPO and the one not participating in an IPO, potentially later? Do you think that there’s a big difference in the crowds of investors around IPOs? I remember, one of your deck for IPO preparation where you say to management, that this is the only chance they have to really choose the investors at IPO, right? It’s a very important time, but it feels to me again that the engagement of public investment IPO is quite limited to a very narrow crowd, unfortunately.

Magnus: Yes, and I think it’s, unfortunately, getting more and more limited. I think you see the successful funds are attracting more and more money on behalf of less successful funds. Then suddenly you only have a few big ones that play in the IPO. What we tell the management team is for the first time actually they have the chance to choose who the shareholders are at least for six hours before the stocks start trading, and they should really use that.

I think historically where you can say, “Okay, why are the European IPOs trading less than the US?” It’s probably also you see more concentration in European books. You see the top 10 is taking more of the IPO than in the US books. Of course, we really like the long-term holders as yourself at the time of the IPO. Of course, we also need to make sure that there is some trading. Actually, need to make sure that there is some shares for investors like yourselves to buy post the IPO.

Otherwise, we could have done it completely in a private setting, bringing in some new piece and running on the private side. I think that we need to also facilitate for aftermarket trading, making sure that the books aren’t as concentrated as maybe they were just off COVID, where you have top 10 taking 75%, 80% of the book. If you all believe that they are holders for three to five years, it’s very little say, real flow in the stocks.

Gautier: Yes, that’s a real issue. I think where maybe book runners and everyone can try to do better here is just to tap into those tier 2, tier 3 accounts from the middle of the book, where you can just expand the number of investors engaging around the process because concentration is one thing. It’s great to de-risk the transaction when markets condition are challenging but doesn’t really solve this liquidity issue and coverage post-IPO.

Magnus: No. That’s why something we at least try to engage a lot with during the pre-deal investor education. Of course, everyone wants to meet the 15, 20 largest global fund complex in the syndicate, but it’s not really a point that seven or eight banks are spending meetings with those, it’s enough with two, three, and they should be out on the road meeting the tier two and tier three accounts to drive more lines into the book. We actually looked at lines of European IPOs, in the early 2000s. We had around 280 lines in the books of the last five years that has been now down to 160 lines. It’s going the wrong way. We need to make sure that we get more liquidity, we need to get more investors into the book, and if that is private wealth channel or other channels, but it needs to come more liquidity into the books.

Gautier: Yes, I think there’s a lot of money on the side. You see private wealth, family officers, funds, I think it’s just about making the IPO probably a bit more exciting as well. I’m sure you will be engaged with the broader investor base and hopefully, this podcast helps engaging interest on IPOs. Very final questions any fun facts that you can share with us during past IPOs experience?

Magnus: I would say for ourself, doing an IPO of the GP was a big moment of revelation how tough it actually is. I think that previously we talked internally that you should be able to IPO on six months. Now we say, oh, if you’re doing it within a year, you are very very good. We truly understand how difficult it is for you as a management team. I think we are better at supporting the management teams post-2019 than we were prior to 2019.

Gautier: You always have to lead by showing the example, right?

Magnus: Yes.

Gautier: I think that’s really good memory and if there was any company you will dream to IPO, which one that would be?

Magnus: Probably if Fleming and Thomas from Galderma is listing, they would probably kill me if I wouldn’t say them, it will be a marquee IPO in Europe when that comes. Of course, otherwise, it will be fantastic the day when we decide if we go into IPO, Anticimex or not, that will also be a great story.

Gautier: I think I heard someone say never sell Anticimex, [laughs] but let’s wish for us as well. It’s a great business as well. We’ll be looking forward to that one if it happens. Magnus, thank you very much, and have a great summer.

Magnus: Thank you for having me.