Low profile, high returns: a rare talk with Triton's Peder Prahl

Photo: Alex Griffiths

Ask investors about one of the most influential and longest-serving figures in European private equity and they explain he rarely speaks at industry conferences and has not done many interviews. People who know him say he is a very private individual.

Two anecdotes tend to be mentioned – that he owns an island near Stockholm and has a summer house there, and that he broke his back in a skiing accident. In a rare interview with Financial News, Prahl, 51, immediately played down both stories. About the skiing accident, he simply said: “That was a long time ago.” On having a house on an island off the coast from Stockholm, he said: “Yes, but don’t exaggerate that because there are about 10,000 of them. So that’s probably as common as biking in Holland.”

Yet onlookers would be wrong to associate Prahl’s intense dislike of attention with any sort of passivity. His desire to compete – and win – is evident. Prahl, who enjoys kayaking, cycling, skiing and running in his spare time to keep fit, made numerous comparisons between Triton and engaging in team sports. “This is a sport where we want to win every time,” he said. “And at least make it to the final or the semi-final of the Champions League, or the World Cup, or the Stanley Cup, or whatever you want to call it.”

Winning is something that Triton has certainly done over the years. Prahl co-founded Triton in 1997 after previously working as a partner at London-based buyout firm Doughty Hanson. He is now one of Europe’s most respected dealmakers. Triton, which backs industrial companies, business services and consumer-focused businesses, is currently investing from its fourth fund, a €3.5 billion vehicle raised in 2013. The firm is known for acquiring neglected divisions from large corporates, brushing them up and nurturing them back to life – making a lot of money in the process.

The firm aims to earn its investors a return of 2.5 times their money and a 30% internal rate of return – the amount made on investments per year. Triton’s debut fund, which was raised in 1999, had a net return of 2.2x and a 24% net internal rate of return, according to a spokesman for Triton. The firm’s follow-on fund Triton 1A, which was raised in 2002, had a net return of 3.4x and a net internal rate of return of 61%, while its 2006 Triton II fund, an era in which many peers struggled, had a net return of 2.5x and an internal rate of return of 20%.

Big wins

One high-profile Triton deal was the firm’s investment in Dematic, a business that manufactures and installs conveyors, stacker cranes and distribution software for distribution centres, which it bought from Siemens in 2006. At the time, the company was making a loss of around €80 million a year. When Triton sold it to Teachers’ Private Capital – the private equity arm of Canadian pension fund Ontario Teachers’ Pension Plan – and US private equity firm AEA Investors six years later, the business was making a €100 million in profit a year. “That was really a very serious turnaround,” recalled Prahl. “We made a substantial gain for our investors. This company would have died if we hadn’t taken it over.”

Another successful Triton deal was Stabilus, a German business that designs, manufactures and distributes spring systems for the automotive, industrial and office furniture industries and electromechanical opening-and-closing systems. When Triton bought the business in April 2010, it was underinvested and hugely overleveraged, according to Prahl. Triton acquired some of the company’s debt and converted that into equity. It also put in fresh money, built more plants in Asia and developed a new product line, before listing it on the Frankfurt Stock Exchange making five times its original investment. It is currently probably worth twice as much, Prahl said, “so we might have listed it a bit too soon”.

Improving struggling companies is something Prahl enjoys. “I really like working with companies and seeing that we are doing a good job for them as owners and put[ting] them into a good future path. For me that’s definitely the kick in the job.”

He believes public companies or family-owned companies are often too risk-averse and reluctant to make changes. “It is uncomfortable, it requires energy, you have to push it through, there [are] always people blocking [it].” The benefit of having a private equity fund is that you can take risks because you have several businesses in the portfolio, according to Prahl.

The key to improving a company is inspiring the management team, Prahl believes. “Our job is to motivate managers so they themselves become positively energised and drive the change… as opposed to [being] Mr Anal.” Complaining in board meetings is the wrong strategy, he said. “What about this number here, it is wrong” – that approach doesn’t work. By adopting a positive attitude, managers will often ask for more help and input from Triton, he said.

In 50% of the cases, Prahl – who has been a dealmaker since 1988 – knows whether to buy a company or not after a few hours of speaking to the management team, he said. “Because you have a good feel for how they talk about products, development of new products, how they treat their customers. How well do they know the numbers? So you can get a very good feeling very quickly whether this is a well-run company or not and whether there’s improvement potential.”

A storm of criticism

But while returns have been good and investors tend to be very complementary about the firm, Triton has not been immune to deals that turn sour. Triton’s investment in Carema, a Swedish care home business, alongside US buyout firm KKR, attracted a storm of criticism in 2011 after the Swedish press wrote a series of articles in which they claimed that the private equity-owned business paid out bonuses while the quality of care was lacking.

As a result, Triton and KKR created a customer ombudsman and set up a whistle-blower function at the business. They also removed the bonus structure at Carema and made a public apology about their delayed response to the criticism, according to a Triton document that was listed on the website of Norwegian asset manager Argentum which invests in Northern European private equity funds and that is wholly owned by the Norwegian Ministry of Trade.

But that wasn’t the end of it. The Carema case triggered a public debate in Sweden about buyouts in general and whether private investments in the public sector should be prohibited. A public inquiry about this question is still going on. The Swedish Private Equity & Venture Capital Association set up a code of conduct following the widespread criticism of private equity, which sets out how buyout firms should behave. A subsequently created independent body is currently able to ‘name and shame’ firms if they don’t stick to the self-imposed rules, which are mainly focused on transparency and accountability.

The incident affected Carema and Triton’s investment in the business, Prahl admitted. “It certainly damaged the company and it damaged the returns of the company, so for us it was very unpleasant and a very bad experience. We probably lost two to three years because of all of that.” Although the money multiple on the investment is now “pretty much on track”, the internal rate of return, which takes into account cashflows over time, has suffered due to the delay in the investment process following the scandal, he said. Some of the press coverage was incorrect, according to Prahl, but he said that “as owners we have to assume responsibility wherever, however. We clearly should have been better prepared.”

Often in business and in life things can go either way, he said. “[Sometimes] very good things happen to you. You get a bit luckier than you deserved or you get a lot luckier than you deserved. Every now and then some s*** happens that [makes] you really think: ‘I didn’t deserve this.’ Then you can just go home and cry, or [you] just move on and fix it.”

The incident turned out to be a “huge learning experience”, he said. Triton has since hired an executive who is focused on responsible investment and has also hired an internal communications manager. It has improved its website and is trying to be more open with the public on how it invests. “It comes with the job to leave every company in a better place than when you found it or bought it. And if it has troubles or challenges, we do believe that we are and should be responsible owners.”

‘I know where the door is’

After achieving so much, what does the future hold for Prahl and his firm?

As well as investing from its main buyout fund, the firm has also expanded into private debt in recent years, and also makes public equity investments. Prahl said that the firm feels comfortable about investing through the balance sheet in a private or a public environment. “[These] are the same companies; it’s just a matter of how you invest in them.”

While Prahl allocates some of his time to consider new strategies, he still spends 80% of his time on investing. His family – he has two children, seven and nine – lives in Stockholm and Prahl is around three days a week at home, usually at the weekends. The rest of the time he travels or spends time in the firm’s Frankfurt office. He doesn’t think about giving up his job yet, although he said he doesn’t consider Triton as “life-time employment for me or anybody else”. He said, as an individual, he assesses his career in five-year perspectives – or funds. “If you sign up for a fund, I think you should stay for the investment of that fund.”

In a rare insight into the firm, Prahl is open to discussing succession. He explains that the firm is currently run by five people, but it has many other people that could lead it as well. “That was not the case five years ago.”

And as for him, he offers a surprisingly transparent response: “I asked investors but also the team: ‘Please, if you think someone else should do this job, or [it’s] better [to] throw me out, then I know where the door is, so there’s no problem.’”

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