The board of directors of Inin Group AS has yesterday approved structural and commercial changes that transform the company to a dedicated, listed investment vehicle with a long-term investment horizon.
Going forward, Inin Group AS will be a fully-fledged, listed investment company with a vertical-focused buy-and-build strategy within infrastructure and industry services niches in the Nordics.
Increased focus on investments
To ensure cost-efficient implementation of the buy-and-build strategy, accountability and recruitment of experienced investment professionals, the board has decided to implement an effective, private equity-like structure, for the future development and management of Inin Group’s investment portfolio.
The structure entails that all personnel in Inin will be transferred to a newly established entity named Inin Capital Partners AS. Under a management agreement, Inin Capital Partners will, under the supervision of the Inin Group board of directors, be responsible for executing Inin Group’s buy-and-build strategy.
Sourcing all investment activities and other administrative functions from Inin Capital Partners will result in a net reduction of fixed overhead cost of approximately NOK 5 million annually for Inin Group from last year’s cost level as today’s employees in Inin Group AS will be transferred to Inin Capital Partners.
In addition to cost savings, Inin Group will benefit from the new management structure, as Inin Capital Partners will have the ability to recruit senior private equity investment professionals.
Inin Group is therefore also pleased to announce that Inin Capital Partners has recruited Patrik Egeland to join the investment team. Egeland has more than 20 years of experience from management consulting, private equity and M&A advisory, from companies such as McKinsey & Company, Herkules Capital, PWC and Capillar.
“There are a number of listed investment companies in Sweden that have delivered strong growth and attractive shareholder returns over time by pursuing a similar buy-and-build strategy as Inin Group. The opportunity to build up something similar in Norway is an exciting opportunity that I am looking forward to being part of” says Patrik Egeland.
Incentivised management agreement
The new management structure is based on proven private equity incentive models. Going forward, Inin Group will pay a management fee to Inin Capital Partners based on the consolidated revenue of Inin Group’s portfolio companies, a fee related to acquisitions, plus a potential success fee linked to the realized value creation for Inin Group upon exit of investments.
“The board has sought to achieve a fee model, that truly incentivizes the investment team to generate a strong return for Inin Group, while reducing the operational cost and risk for Inin Group. This is a common structure for private equity-companies that in many cases has yielded excellent returns to the investors,” says, Leif Christian Salomonsen, chairman of Inin Group AS.
Under the management agreement Inin Capital Partners will be entitled to a performance bonus on investments that, upon exit, have generated a yearly IRR of 8% to Inin Group. Above this hurdle threshold, value creation will be split between Inin Capital Partners and Inin Group with 20% to Inin Capital Partners and 80% to Inin Group. The performance bonus is only applicable for excess returns generated after the date of entering into the agreement between Inin Group and Inin Capital Partners. As such no bonus or fees will be incurred by Inin Group related to the announced potential sale of Elop Technology.
In order to ensure alignment of interests between Inin Capital Partners and the shareholders of Inin Group, Inin Capital Partners will, subject to approval by the shareholder meeting of Inin Group, receive share options in Inin Group equal to 7,5% of the total outstanding shares in Inin Group. The options are vested over a period of 3 years. The strike price will be equal to the volume weighted average trading price in the 30 trading days preceding the issue date.
Related party transaction
Inin Capital Partners is (indirectly) owned by Øivind Horpestad, Patrik Egeland and Kristian Lundkvist. Other employees of Inin Capital Partners will also become owners. As Horpestad and Lundkvist are shareholders in Inin Group, they have not participated in any of the board meetings discussing the management agreement. Kristian Lundkvist will resign from Inin Group Board of directors at the next ordinary general assembly. The agreement is also subject to the provisions set out in the Norwegian private limited companies act section 3-8. The board has therefore ensured that the terms of the management agreement are in line with market terms and prepared a declaration to this effect in line with the provisions of section 3-8. KWC, an independent valuation service provider (https://www.kw-c.no), have reviewed the boards statement and made a report confirming the boards declaration in accordance with section 2-6 of the companies act. The declaration and the report will be distributed to alle shareholders and to the Norwegian Register of Business Enterprises.
Today, Inin Group consists of the Nordic Infrastructure Group (100% ownership), Hadeland Elektro (65%), and Nordic Inspekt Group AB (65%). These three companies will be used as platforms for bolt-on acquisitions within their respective industry segments, as exemplified by Nordic Infrastructure Group’s planned investment in Team 1435 AS (see stock exchange announcement dated 16 January 2023), and Nordic Inspekt Group AB’s planned acquisition of NSK Sweden (see stock exchange announcement dated 20 December 2022).
On 21 February, Inin Group announced that it had received a USD 30 million non-binding offer for the potential sale of wholly-owned subsidiary Elop Technology AS.