How Triton Partners takes an ‘all-weather’ approach to buyouts and transforming companies
Claus von Hermann (left), Managing Partner, and Thomas Hofvenstam (right), Managing Partner, Triton Partners
Triton Partners backs European mid-market companies in business services, industrial tech, healthcare, and consumer. They’re often fundamentally good, but underperforming, less fashionable, or below their full potential.
Triton’s raised more than €18bn and made 80 investments in mid-market European companies since it was founded in 1997. It’s currently raising its sixth private equity fund and announced a €460mn first close of Triton Debt Opportunities Fund III earlier this year.
Thomas Hofvenstam and Claus von Hermann, Managing Partners and Co-Heads of the Triton Mid-Market strategy, told Shaun Beaney, Editor of Preqin First Close, about the firm’s distinctive outlook.
What have been the biggest changes in the private capital market in Triton’s 26 years?
Thomas: The industry is always emerging and maturing, so, like any business, it’s becoming more differentiated in terms of where people invest, as well as sector-wise and geographically, and also in terms of different types of investments. The same goes for value creation. So, things are getting more specialized. You need people who can really drive change and value in the companies they acquire.
How is your strategy differentiated?
Thomas: Triton is an operational investor. That means we buy companies that are positioned in growing markets and attractive profit pools. Those are fundamentals that we like to see. But we also invest in companies where we see opportunities to improve the businesses. There must be some kind of problem or an issue on which we can work together with leadership to improve. I think that’s our unique investment style.
Claus: Today, the job has become significantly more complex and focused on growth than 25 years ago. Leverage is just one of many, many aspects you need to create and drive value. We have eight specialist functions: ESG; digital; procurement; full potential; leadership and culture; communications; financing; and tax and legal. We have added more of these, over time, where you can get the biggest bang for the buck, where value really is at the core.
What's your view on European industry at the moment? There's quite a gloomy atmosphere.
Claus: The answer you would get from Triton might be different from others because we actually like it. We like these slightly more challenging environments because they allow us to be potentially better than others; to help our companies win market share; to help our companies acquire failing and frail competitors; to become larger; to help our companies move into Asia or the US.
We call ourselves an ‘all-weather investor’, so we’re quite comfortable with the type of weather we’re currently seeing because we think we have the right equipment for it. We have the range, with our operational experts who have experience of running companies in difficult times.
We bought an industrial tech business, Ewellix, from SKF, a Swedish bearings manufacturer. For SKF, it was a sub-critical company. It was too small, with too many plants across Western Europe. So, we had a plan to rejig the production footprint in Europe, and gave ourselves roughly two-and-a-half years for that. Then the pandemic came and we actually accelerated. We got it done in one-and-a-half years by closing three smaller plants across central Europe. We used the market weakness as an opportunity to help this company in its value-creation plan, in producing more price-competitive products. And then we also shifted the strategy into higher growth markets.
Thomas: Private equity’s usually seen as short-term, right? But when we build our business plans, we have a five-to-six-year horizon. We basically start with the end in mind. What kind of company are we trying to build? We agree with management very early on: ‘this is the company we’d like to build, these are the changes we’ll pursue’. And then we march on.
On the manufacturing side, what's your view about the rise of all things digital, including AI and big data?
Claus: The companies we invest in supply production processes. Of course, we’re looking at digital and AI to improve these processes, and also working on the companies’ back and front offices. But the core of the businesses – the production of machinery for something – we don’t think is going to be disrupted that much.
How do you utilize technological innovation and data within your own firm?
Thomas: Around four years ago, we moved to DealCloud across the investment and investor relations (IR) teams, with the latter spearheading the use of greater data to build better connections with investors. The IR team use it to monitor our existing and prospect relationships, build and develop our pipeline across all live fundraising processes, launch and organize our investor events, and manage our co-investments jointly led by the IR and deal teams.
It is helpful to have a ‘single source of truth’ in this way, because it provides the transparency for business decisions to be made, the ability to coordinate efforts more efficiently, and allows us to be more effective with how we use the time of our investment professionals for fundraising purposes.
We also have a special unit which collects data, called Portfolio Monitoring & Development. All our portfolio companies report in a certain way. Then we can run the data to compare and contrast between sectors. For example, we know that we have certain companies that are ahead of the macro trends, and we have others that are laggards. So, for example, we track order entry data very carefully as an early indicator.
Claus: We have four industry sectors: industrial tech, services, consumer, and healthcare. We have dedicated teams for each, and within these sectors people who are responsible for sub-sectors, sub-sub-sectors, and sub-sub-sub-sectors. The job of those teams is always to be aware of attractive opportunities in a segment.
We come from 25 years of experience, from having very long-established networks and experts on the payroll who help us understand these sectors. While technology helps us, like our in-house natural language processing tool that helps us find add-on transactions, there’s still a lot of meeting people and really trying to understand what’s going on. Parts can be replaced by AI in the future, but the majority cannot.
Shaun Beaney is Editor of Preqin First Close, the essential daily newsletter for the global alternatives industry. It's quick, free, and easy to subscribe here.
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The opinions and facts included in the above do not constitute investment advice. Professional advice should be sought before making any investment or other decisions. Preqin and Triton Partners accept no liability for any decisions taken in relation to the above.