Venture capitalists driving Nordic tech enterprise growth

Nordic IT companies are seeing a surge in interest from the region’s venture capital groups, which are funding investments in new technology.

Nordic venture capitalist firms such as EQT, FSN Capital, Nordic Capital, Adelis and CapMan are targeting IT firms with growth-potential, and are becoming a hugely important source of investment capital for both IT startups and more mature tech firms. IT domains where there is high interest include artificial intelligence (AI) and internet of things (IoT).

This is producing a new generation of well-financed small and medium-sized enterprises (SMEs) with robust business models and the capacity to compete in international markets.

For capital hungry IT- firms, venture capitalists offer the prospect of an alternative route to growth at a risk level that can be lower than other traditional paths to capital, such as off-exchange funding or the pursuit of an initial public offering (IPO) and stock exchange listing.   

Nordic venture capitalists are also using selective acquisitions to drive consolidation within specific IT- and communications sectors.

The Stockholm-headquartered EQT Infrastructure, part of the EQT Partners group, merged Broadnet and GlobalConnect in September 2018 to create a leading Northern European actor in the fields of cloud enabling systems and fiber-based datacom services. The two companies had combined revenues of more than €310m in 2019. The greater part of their sales are being generated in the Nordic and German markets. 

“The merger delivers improved opportunities for Broadnet and GlobalConnect in Northern European markets. It optimally puts the combined company in a stronger position to serve customers with mission critical, future proof communication services and cloud enabling infrastructure,” said Daniel Pérez, a partner at EQT Partners and investment advisor to EQT Infrastructure.

The Broadnet-GlobalConnect merger reflects a stronger focus by Nordic venture capitalists eager to achieve greater added value from their IT-portfolio companies.

Broadnet and GlobalConnect are two relative newcomers in EQT’s portfolio. GlobalConnect was acquired by EQT Infrastructure in February 2017 and it finalised the takeover of Broadnet in May 2018.

EQT’s appetite for niche-market IT-consolidation was again in evidence when it merged Sweden-based companies Candidator and DGC IT Services in to Candidator DGC.

The Candidator-DGC IT Services merger created a significantly larger managed IT services provider. For EQT, the pivotal driver for the May 2018 merger was to form a company with the scale and size to become a leading player in the managed IT services domain across all Nordic markets.    

“The immediate impact of the merger was to create one of the largest managed IT services providers in the Swedish market. The long-term ambition is to grow throughout the Nordic region,” said Jörgen Qwist, CEO of Candidator DGC.

The Nordic managed-IT services domain continues to attract consolidation-led venture capital interest. FSN Capital, the Oslo-based private equity group, has backed the merger of IT-innovators Office IT-Partner, Zetup and Dicom.

With projected revenues of €100m in 2019, the Office IT-Partner/Zetup/Dicom merger positions it as a major new force in IT infrastructure, cloud and process digitalisation service areas in Sweden. For FSN, the long-term strategic plan is to consolidate the three companies in to a single pan-Nordic group. 

“We will look to organic growth, which is already strong, and there will certainly be acquisitions along the way as we grow and expand our market reach. Our primary target area will continue to be serving the digital, cloud and IT-infrastructure needs of mid-sized companies,” said Lotta Widorson Lassfolk, managing director of Office IT-Partner and interim CEO of the new group.

FSN has not ruled out leading Office IT-Partner/Zetup/Dicom to an eventual IPO and stock market listing. The venture capitalist has a track-record in grooming portfolio companies for the IPO-stage as part of long-term exit strategies.

This was the case when FSN took the IPO route with Netcompany, a Danish IT company that it acquired in December 2015 and guided to a stock exchange listing on Nasdaq Copenhagen in June last year.

FSN reduced its overall shareholding in Netcompany to under 5% in November 2018. Under FSN’s ownership and financial support Netcompany went on to increase its market reach as one of the largest suppliers of  IT- and digital transformation support services to customers within Denmark’s public and private sectors.

The venture capitalist focus on turning domestic IT firms in to significant pan-Nordic players was visible in Nordic Capital’s recent acquisition of Conscia, a mid-sized Danish supplier of IT-security, networking and managed services. Conscia was bought from the Danish private equity group Axcel and the company’s management. Axcel acquired Conscia in 2015.

Under the takeover deal, Conscia will obtain funding and market knowledge support from Nordic Capital to expand its operations across markets in the Nordic-sphere, the Netherlands and Slovenia.

“Nordic Capital is a very experienced investor in the Nordic tech sector. We see this change in ownership as achieving our ambition to take Conscia to the next level,” said Claus Thorsgaard, CEO of Conscia.

Meanwhile in Denmark, Adelis Equity Partners acquired a majority equity position in Hantverksdata, a company specialising in providing managed IT-digitalisation service to the construction industry. On the exit side, Adelis has divested out of IT Relation, a supplier of managed IT services to SMEs.

The focus on capital investments in robotics and AI firms in the Nordics is a trend. Digital Workforce, one of Finland’s fastest growing intelligent automation and cognitive solutions’ innovators, and a CapMan Growth portfolio company, has raised €3m in funding to support new projects within machine learning and other AI technologies.

The new round of funding will enable Digital Workforce to further develop its robotic process automation powered Digital Worker cloud platform, said Juha Mikkola,  managing partner in CapMan Growth.