Coming to the U.S., a Buyout Shop With Henry Kravis Ambitions

  • Thomas von Koch's EQT Partners makes major global push
  • Swedish firm is mainland Europe's biggest private-equity shop

Dressed in an open-necked shirt and a bit of tobacco snus under his top lip, Thomas von Koch is in his Manhattan office talking about the future of the private-equity firm he leads. He’s no Henry Kravis or Steve Schwarzman at the moment -- but he’d like to be.

Von Koch co-founded the Swedish buyout firm EQT Partners in 1994 when he was just 28. It has since grown into mainland Europe’s biggest private-equity shop with $29 billion in assets and a reputation for nurturing its portfolio companies. Now, the 49-year-old von Koch has Master of Universe ambitions -- to join the global elite of asset managers.

Thomas von Koch
Thomas von Koch
Photographer: Jan Haas/dpa via AP

His first stop is in the U.S., where EQT is expanding, hunting for companies to buy in the $100 million-to-$500 million range. Next month he’ll close on a $1 billion pool to finance those buyouts, said two people familiar with the matter. In Asia, he plans to add staff and expand its debt lending operation to the region. He’s also diversifying into new product lines such as real estate and venture capital.

Fewer Firms

Whether he succeeds will be a test of EQT’s ability to outgrow its Swedish roots. Since the financial crisis, institutions and wealthy families are consolidating their money in fewer firms, selecting those that performed best and that offer investment opportunities around the world. Von Koch says EQT has to be one of those firms to survive long-term, even as the expansion strategy carries risk.

“If we’re going to build the most reputable private-equity firm in the world, that costs money but it’s going to safeguard our long-term survival and allow us to retain and attract the best and brightest,” von Koch said in an interview in Manhattan.

Von Koch started EQT with powerful backers -- Sweden’s dynastic Wallenberg family, which remains a significant investor. He had gone to work for the Wallenberg’s investment vehicle, Investor AB, right out of college two years earlier. Candid and open, save over EQT’s fundraisings, where he cites legal restrictions, he occasionally swears and bangs the table when animated. He’s not unusual in using snus, a smokeless tobacco product -- it’s highly popular in Sweden.

While London-based competitors CVC Capital Partners and Apax Partners LLP have higher profiles in Europe, EQT has produced some of the strongest returns in the industry globally, doubling investors’ money on most of its buyout funds. It has bought and sold a total of 80 companies, focusing on areas including retail, healthcare and technology.

Among the firm’s best-known and most fruitful deals is its 1.6 billion euro purchase of Tognum, a German diesel engine maker, from Daimler in 2006. EQT took the company public less than 18 months later and then sold it back to Daimler, making 40 times its original investment, one of the industry’s highest returns for a large cap buyout.

Yet EQT remains small when compared, for example, with KKR, at around $100 billion in assets under management, or CVC, at about $70 billion.

Taking over as managing partner last year, von Koch moved co-founder Jan Stahlberg to the U.S. to oversee an expansion of the team from 12 to about 40 professionals. EQT had done a handful of infrastructure deals in America previously.

Global Reach

EQT’s targets are mid-sized U.S. companies with intentions to grow internationally. This strategy won’t put it in direct competition with such big firms as KKR or TPG, which tend to buy corporations in the billions of dollars.

Von Koch’s pitch touts EQT’s existing global reach compared with that of a typical small U.S. private-equity firm.

“We can say that we can open every boardroom in Europe, we have a Chinese outfit with Mandarin speakers,” said von Koch. "Who can take your company to the next level -- the local mid-market outfit or us with the global network?"

Von Koch’s push into U.S. venture capital takes a different tack. Rather than setting up a Silicon Valley operation, where von Koch believes incumbents will “never be beaten on home turf,” EQT hopes to be a partner by investing alongside other VC firms. EQT is raising 500 million euros for its venture financing, according to two people familiar with the matter.

‘Friendly Guys’

“What we have told the U.S. firms is that you’re great and have built a business,” he said. “So we’re the friendly guys. We’re so entrenched in Europe we’ll help you here.”

In Asia, von Koch plans to add more staff and eventually a credit operation, which might do such strategies as buying debt in other firm buyouts and lending directly to companies. EQT now has only three partners there.

“If you think 40-50 percent of the global middle class is going to be in Asia in 10-15 years and we are not there, that is not going to benefit the firm,” he said.

The private-equity industry is littered with firms that flopped in their ambitions to go in new directions. Hicks Muse Tate & Furst, for example, went from being one of the industry’s largest firms in 2000 to being dissolved a decade later following losses stemming from poor bets during the 90’s tech bubble.

‘Blinking Red’

“Just because a firm is good at investing in Europe, doesn’t mean they are going to be good at investing in Asia,” said Allen Waldrop, managing director of LP Capital Advisors, speaking generally about private-equity shops.

EQT investors don’t appear worried. The company had to raise the cap on its latest fund, from 6 billion euros ($6.55 billion) to 6.75 billion euros, to satisfy demand from backers, according to a person familiar with the matter. EQT is also attracting senior professionals from bigger firms, including Deutsche Bank AG board member Stephan Leithner and Warburg Pincus healthcare executive Eric Liu. They tend to be offered a lower salary with a larger share of profits from its funds, according to von Koch.

Von Koch concedes his U.S. push comes near the top of the market cycle with macroeconomic indicators “blinking red all over the place.” But having managed the firm through two previous recessions, von Koch remains confident.

“Our firm is OK, or good, in strong environments but we actually excel in hardship,” he said.

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