A Nordic accent on private equity

Aviator Airport Alliance is the new name for the merged entity in which Accent Equity has acquired a stake. The Alliance comprises a constellation of ground services companies, namely the Swedish company Nordic Aero and the Norwegian companies Røros Flyservice and Norport Ground Handling. The three companies make up the Aviator Airport Alliance in which the Accent Equity 2008 investment fund has acquired a 50% share. The management of the original three companies own the remaining 50%.

The new Group is considerable in size. It has an annual turnover of SEK1 billion and 1,250 employees. Operations are conducted at some 20 or so airports in Sweden, Norway, Denmark and Finland. Customers include Air Baltic, Air France, Amapola, British Airways, Finnair, KLM/AF, Malmö Aviation, NextJet, Norwegian Air Shuttle, Ryanair, Qatar Airways, Skyways and Thomas Cook.

Not only is a merged private equity interest in this sector unusual, it is particularly unusual for cross-border deals of this sort to be put together. The three companies initially included in the group are based in Sweden and Norway, but also have operations in Denmark and Finland. The companies will continue to do business under their current brands, but will share certain functions under the common brand Aviator Airport Alliance.

Accent Equity’s goal is, together with the other owners, to build a strong independent European ground handling services provider. The companies have high expectations of the deal given the global market for ground services is more than SEK 300 billion annually.

Accent Equity itself is not exactly a giant of the private equity world. It is a medium player that focuses its investment efforts on Sweden and Scandinavia generally. “We certainly did not have a fund focused on ground handling but we are always looking for opportunities to invest in growing markets. We were contacted by a company that was supporting the financing of one of these ground handling companies, we did a major survey of the market and we found the business interesting,” says Lindberg.

The interest in these three ground services companies stems from a number of sources. Firstly, Lindberg comments on the upturn in flying as the world comes to terms with global recession. Secondly, there is the shift away from ground handling being an airport or airline activity towards third-party provision. Then there is the opportunity to build a pan-Nordic alternative supplier to the existing dominant player – that has been a driving force.

Lindberg also points out that there is no overlap between the three companies – a further incentive to invest as restructuring is made simpler when intra-group crossovers do not have to be unpicked. He enthuses about the de-icing technologies and processes in use at Nordic Aero – the company has built a glycol recycling and re-usage operation. There is also no overlap between the two Norwegian companies which are located at different airports. Lindberg says that there are no conflicts of interest generally; only opportunities to be gained from a merger.

“In fact the merger will strengthen these companies’ positions in the Nordic region and give them completely different financial resources to grow the businesses,” says Lindberg.

He continues: “From a customer point of view, for the first time we are now able to offer a pan-Nordic player and major customers can benefit from a one stop shop and simplify their operations.” He points out further that many ground handlers that try to establish a business in the Nordic region soon realise that the Nordic region comprises seven countries, seven languages and seven currencies. “But we are experts and we can deliver a good pan-Nordic package,” he adds.

When it comes to organising the three management teams of the three companies alongside the Accent Equity team, Lindberg says the three companies will continue to operate as stand-alone operations within the constellation of ground handlers. “Of course we see the possibility of merging the two Norwegian companies but from an organisational point of view we are looking at one country director in Norway, one in Sweden, one in Finland, one in Denmark and a holding company with a board under which we will consolidate all the operations,” says Lindberg.

Accent Equity and the three management teams are at the beginning of organising that restructuring process; Lindberg expects this to be complete by the summer of 2011. When asked about the position regarding employment, Lindberg responds: “The business is in growth and, as we do not have any overlap whatsoever in Norway and the Swedish business is a standalone operation, there will not be any redundancies whatsoever.”

When asked whether he is heartened by the extent to which private equity participants in Europe and the US have already shown themselves to be interested in the ground handling industry and that there is no longer anything maverick about investment in this way, Lindberg is quite clear that Accent Equity is not influenced by other private equity positions. “The way we play the business is to be more industrial than financial. We are normally fairly involved in the operations. But it is also a good opportunity for these three handling companies because they are in need in capital given that they have very narrow margins. We are the glue that puts this deal together,” he says.

“For us, this is a matter of putting something new together. We are merging companies in four countries, making them more efficient and strengthening them financially. We are also looking for different synergies and then we can strengthen the offer to the customer.”

When asked about the traditional private equity route of planning an exit early on in the restructuring of the businesses acquired, Lindberg is quick to bat away any notion of a fast exit. “We would like to do the job first of all,” he laughs. “We have no exit plan today. We have no commitments in any direction but I do believe that, when we have done our job here which will take some time, this could be a perfect acquisition for a large European or global player.”

For now, Accent Equity and the management teams are engaged in recruiting high level expertise in various functions at the holding company level. These functions comprise: IT, cash management, key account management, procurement and contract negotiation. On the ground, there is work to be done in organising the business more efficiently, taking advantage of synergies and expertise.

To come is perhaps a broader offer from the Aviator Airport Alliance. This could comprise catering, perhaps security, or some other services. What is sure is that there will be no standing still.

Jan Brunstedt, Chief Executive Officer, Nordic Aero: “In order to develop Nordic Aero in a highly competitive sector, where customers expect high quality at a competitive price, I have worked long and hard for a consolidation of the leading ground handling companies. That is why I am so pleased and enthusiastic at the prospect of being a part of a constellation with such exciting future potential as Aviator Airport Alliance.”

Harald Horn, General Manager, Norport handling: “This gives us a fantastic platform for collaboration and guarantees our customers high quality and similar services throughout the Nordic region. This alliance will make us stronger and thereby also contribute to the personal development of our skilled employees.”

Arve Engen, Managing Director, Røros Flyservice: “Besides providing greater financial strength, this alliance will help secure jobs and offer our current and future customers a geographically expanded and broader range of services.”