Kohdeyhtiö caset

The bold vision of KH-Koneet found someone to share the risk

Sievi Capital invested in KH-Koneet in 2017. Since then, the company has expanded to new sectors, entered the Swedish market and more than doubled its net sales. The bold vision of entrepreneurs has borne fruit while the company has retained its distinctive spirit.

In 2017, entrepreneurs of KH-Koneet Group Teppo and Timo Sakari and Kari Salo faced an important decision. Established in 1996, the company importing machines had grown over 20 years into a highly profitable company with net sales of around EUR 50 million. For a few years, however, growth had come to a standstill. CEO Teppo Sakari had a bold vision of where the company should aim next, but the entrepreneurs felt that the risk was too great.

“We wanted to find an investor to share the risk and who would be good match for a small family business like ours,” says Teppo Sakari.

The Sakari brothers had been importing earth-moving machines from Sweden since the 1980s. The recession of the 1990s interrupted operations, but in 1996 they re-established KH-Koneet with the same concept and started importing used road construction equipment and mini excavators from Sweden and Germany. KH-Koneet started importing new machines in 1999. Around the same time Kari Salo joined the company as a third entrepreneur, bringing financial management expertise with him.

In the 2000s, the company grew vigorously at an average rate of 15 per cent per year. There was a steady demand for machines, and the customers learned to associate the company as a “responsible machine seller” who held up their end of the bargain. CEO Teppo Sakari says that everything is arranged with the customers so that both are satisfied.

“It has carried us far, because the customers appreciate our culture.”

Bold vision got the green light

Sievi Capital is looking for excellent companies with growth potential. CFO Markus Peura describes KH-Koneet as a “strong company in its own sector”, which caught Sievi Capital’s attention. Negotiations on the transaction lasted eight months. According to Peura, there was a lot of talk about the company’s vision, strategy, as well as, preserving the corporate culture of KH-Koneet.

According to Teppo Sakari, the negotiations were conducted in good spirit, even though there was a presence of sadness over relinquishing. At the same time, it was clear that all entrepreneurs would continue in the company even after the acquisition.

The vision Teppo Sakari had before the transaction was not the most modest. KH-Koneet was aiming to become the leading machine dealer in the Nordic countries. First you had to enter the machine rental sector, then start importing large machines and finally go to Sweden. Sakari believes that he demonstrated the desire to realise the dream and his ambition was credible in the transaction negotiations.

At the same time as the negotiations were held, Kesko was about to stop importing Kobelco’s large machines, and KH-Koneet had the opportunity to implement one part of its strategy. The future majority owner agreed to change the order of the strategy. On the following day, after the transaction with Sievi Capital had been concluded, KH-Koneet acquired Kobelco’s business operations from Kesko. The following year, Crent, which focuses on machine rental, was established.

Growth accelerated at full speed

Sievi Capital’s active ownership has been most evident in the development of financial management of KH-Koneet, consistent work of the Board of Directors and building of the right team. According to Teppo Sakari, the organisation has been built with more courage when a private equity investor is sharing the risk

According to Markus Peura, the growth of KH-Koneet has accelerated at full speed over the past three years and the company’s net sales have grown from EUR 50 million in 2017 to EUR 120 million last year. Behind the growth are, for example, acquisitions made in Sweden. In 2019 KH-Koneet acquired a Norwegian owned company Beck Maskin Sverige AB and in 2020 S-Rental AB.

“Markus Peura and Tuomas Joensuu from Sievi Capital played an important role in the acquisition and financing arrangements. They are hard-core professionals,” says Teppo Sakari.

According to Sakari, the corporate culture and spirit characteristic of KH-Koneet have remained unchanged during the time of the new main owner. He believes that the company’s personnel have “the highest degree of employee autonomy the sector”. Now the goal is to take the same spirit to Sweden, where the aim is to encourage the personnel by creating a sense of belonging to a winning team.

“Everything has gone better than we thought. Nothing has changed in the culture and spirit of KH-Koneet. It was a bold act by Sievi Capital to honour the spirit of the company. If the spirit had been extinguished, the story would have been completely different,” Sakari says.

“The motive behind the acquisition was for us entrepreneurs to repatriate some of the fruits of the 20 years of labour and achieve our dream. Our vision is on track and moving in the right direction, but much remains to be done.”

A forerunner in the locking industry brings a tenfold return on investment

Sievi Capital invested in iLOQ in its early years and as an owner supported the company’s growth and internationalisation. The management of this innovative company was pleased with “an entrepreneurial owner who recognises what is essential”.

Sievi Capital invested in iLOQ in its early years and as an owner supported the company’s growth and internationalisation. The management of this innovative company was pleased with “an entrepreneurial owner who recognises what is essential”.

“The founders, senior management and personnel of iLOQ have done an excellent job in developing the company. Now that iLOQ has entered a new phase of internationalisation, we are convinced that Nordic Capital is a good partner for the company at this stage,” said Päivi Marttila, CEO at Sievi Capital in the stock exchange release back then.

iLOQ had previously announced that it would also explore the listing option, but eventually the sale to another private equity investor was the most sensible option.

“It didn’t matter to us how we exited. The terms were the deciding factor,” says Markus Peura, CFO at Sievi Capital. “It may be better for the company to develop outside the stock exchange without the quarterly pressure.”

Capital, risk-sharing and expertise

Electrical and automation engineer Mika Pukari founded iLOQ in Oulu in 2003 and served as CEO until 2017. Under his leadership, the company launched its first electronic locking innovation in 2008, which received its energy from the key’s physical motion. The company was only at the beginning of its growth path when Sievi Capital made its first private equity investment in 2009.

This initiated fast growth: in 2013, iLOQ became number one in Deloitte’s list of fastest growing technology companies. Between 2008 and 2012, the company’s net sales increased more than 7000 per cent.

Sievi Capital was iLOQ’s active owner and Sievi Capital’s former CEOs Jorma and Harri Takanen served on the Board of Directors.

“Bringing capital into the company and sharing the risk with a founder has been very important in the beginning. In addition, Sievi Capital brought their experience and expertise to the work of the Board of Directors and thereby to leadership,” said Heikki Hiltunen, CEO at iLOQ in Sievi Capital’s Annual Report 2019.

Locking innovations met the trends

During Sievi Capital’s investment period, iLOQ grew and internationalised first in the Nordic countries and later in Central Europe. In ten years, its personnel increased to around 150 employees and the company made good results.

The company manufacturing electronic locking systems benefited from trends that had a strong impact on the industry. These included urbanisation, smart homes and digital integration. iLOQ also developed its industry through strong innovation that combined locking technology, digitalisation and cloud services

iLOQ’s competitive advantage over other electronic access management systems is that their products are self-powered. Since they do not require an external power source, the maintenance and life-cycle costs of the products remain low. A lost key can also be cancelled and renewed in the iLOQ cloud service.

Long investment period paid off

In Sievi Capital’s 2019 Annual Report, Heikki Hiltunen, President and CEO at iLOQ, said that in Sievi Capital’s ownership the company has established a financial base and gained a good market position in Finland and Sweden. He described Sievi Capital as “an entrepreneurial owner who recognises what is essential and acts as a good advisor to the management”.

“Ten years ago, when Sievi Capital became an owner, many probably had their doubts of whether iLOQ would ever amount to anything,” Hiltunen said. According to him, becoming an owner required faith, courage and vision from Sievi Capital.

Markus Peura is satisfied with the development of iLOQ during the investment period. At the time of the first investment in 2009, the company’s net sales were EUR 700,000 and EBITDA negative. In 2019, net sales were 61 million and EBITDA 10 million.

“The company has developed well over the past few years. It was logical to be involved as an owner for longer,” Peura says explaining the long investment period.

“By selling its shares in iLOQ, Sievi Capital received approximately EUR 40 million. In addition, taking into account the dividends received during the years of ownership, we received more than a tenfold return on the investment,” Markus Peura says with satisfaction.

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