EQT: From Nordic Roots to Global Dominance

In 1993, the idea to start a private equity firm was born during a dinner in Gamla Stan (Old Town) in Stockholm. At the table sat Conni Jonsson, a previous employee of the Wallenberg family's investment company, Investor, and Claes Dahlbäck, CEO of the same company from 1978 to 1999. With inspiration from the Wallenbergs' philosophy of responsible ownership, Conni Jonsson was given the opportunity to start EQT in 1994, with support from Investor and the Wallenberg family-founded bank SEB. In the following years, EQT launched its first fund, focusing on industrial companies in Sweden and its neighboring countries. As of 2024, 30 years in the making, the company has offices in over 25 countries, almost 2,000 employees, more than €230 billion in assets under management (AUM), and investors in its IPO have received a 470% return since.

• Global expansion: EQT has grown from a Nordic-focused firm to a global investment leader, managing over €230 billion in assets across over 25 countries.

• Diverse portfolio: EQT's investments span various sectors, including technology, healthcare, and infrastructure, showcasing its versatile and adaptive investment approach.

• Long-term vision: Founded on the Wallenberg family's principles, EQT prioritizes responsible ownership and long-term value creation.

The history of this leading Swedish private equity firm is deeply intertwined with the legacy of the Wallenberg family and its inclination towards responsible ownership and long-term value creation. The idea to establish EQT emerged during a dinner in Stockholm’s Gamla Stan (Old Town) in 1993, where Conni Jonsson, then an employee at the Wallenberg family’s investment company Investor, and Claes Dahlbäck, the CEO of Investor, discussed creating a new kind of investment firm. This discussion marked the beginning of what would become EQT.

Founded in 1994 with the backing of Investor, AEA Investors, and the Wallenberg family-founded bank SEB, EQT was built on the principles of responsible ownership that had been championed by the Wallenberg family through Investor ever since its founding in 1916. EQT’s first fund, launched in 1995, focused on industrial companies in Sweden and its neighboring countries.

EQT quickly established a strong track record in the Nordics, which set the stage for its first international expansion in 1999 with the opening of an office in Munich. This expansion came despite various critics’ advice to focus solely on the home market. By 2006, EQT continued its growth by opening an office in Hong Kong, further solidifying its global presence.

2007 then, was a pivotal year for EQT as it formally articulated its core values. The company showcased that it didn’t just care about results, but also ethically achieving them. This was also a time when EQT began exploring strategic initiatives that complemented the traditional private equity model, aiming to create a scalable platform where different investment departments could share expertise, networks, and resources. Eventually, this led to the formal launch of its infrastructure business line in 2008.

Further reading: The Wallenberg Family: From Swedish Banking to Global Industrial Dominance

To understand a company like EQT, there are some things that we have to walk through beforehand. Private equity (PE) firms, such as EQT, operate by investing in companies with the goal of increasing their value over time before eventually selling them for a profit. This process involves several key strategies and activities:

1. Acquisition and ownership: Private equity firms typically acquire significant or majority stakes in companies. This allows them to exert control and influence over the company’s operations and strategic direction. For example, EQT acquired Zeus, a global leader in advanced polymer components, to enhance its growth and operational efficiency​.

2. Operational improvement: Once a PE firm acquires a company, it works on improving the company’s operations, often through strategic changes, cost optimization, and efficiency improvements. This could involve anything from streamlining supply chains to implementing new technologies. EQT’s investment in Anticimex in 2012, a leader in digital pest control, is a prime example where Anticimex’s SMART technology was leveraged to drive operational efficiencies and sustainable practices.

3. Growth and expansion: PE firms often help their portfolio companies grow by providing capital for expansion, entering new markets, or acquiring other companies. EQT, for instance, supports its portfolio companies in their international expansion and market growth, as seen with Anticimex’s expansion across Europe, North America, and Asia-Pacific​​.

4. Value-creation and exit: The ultimate goal of a PE firm is to increase the value of the companies in its portfolio and then sell them at a higher value. This exit could be through an initial public offering (IPO), a sale to another company, or another investor. For example, EQT facilitated the growth and eventual IPO of companies like Galderma, a dermatology company.

5. Sector expertise: PE firms like EQT leverage their sector expertise to identify and invest in companies with strong potential. EQT’s sector-based approach allows it to deeply analyze companies and markets, making informed investment decisions that align with their strategic goals.

Private equity firms generate revenue primarily through management fees and performance fees. Management fees are calculated as a percentage of the assets under management, typically around 2%, while performance fees are calculated as a percentage of the profits from investments, usually around 20%.

A leveraged buyout (LBO) is also something we should know about when looking at these types of companies. Private equity firms use this strategy to acquire companies using a significant amount of borrowed funds, with the assets of the acquired company often serving as collateral for the loans. This method allows PE firms to amplify their potential returns by using less of their own equity and more debt. Here’s a look at how LBOs work, with specific examples from EQT:

1. Acquisition financing: In an LBO, the majority of the purchase price is financed through debt. Typically, 50-80% of the acquisition cost is covered by borrowing, while the rest is funded by the equity from the private equity firm. This with the goal of improving returns on equity.

2. Debt servicing: Post-acquisition, the acquired company’s cash flows are used to service the debt. This involves paying off interest and principal amounts over time. The success of an LBO largely depends on the company’s ability to generate steady cash flows to cover these debt obligations.

3. Operational improvements: The private equity firm works on improving the company’s operations, increasing efficiency, and sometimes restructuring the business. These efforts aim to boost the company’s profitability and, consequently, its value.

4. Exit strategy: After improving the company’s value, the PE firm seeks to exit the investment, typically within 5-7 years, through an IPO, selling to another company, or another investor. The internal rate of return (IRR) goal for LBOs typically ranges between 20% and 30%.

In 2021, EQT Infrastructure completed the acquisition of Covanta, a leader in sustainable waste management, for $5.3 billion. This acquisition was notable for being the first sustainability-linked LBO in the U.S. The transaction included specific environmental targets to be achieved by 2025, such as increasing sustainably processed waste by 2.5% and boosting waste recycling by 25%. These targets are tied to financial incentives and penalties, aligning Covanta’s sustainability strategy with its financial goals​​.

EQT is as of 2024 a global investment organization that focuses on active ownership strategies. With a heritage rooted in the Nordic region and a global mindset, EQT has developed companies across various geographies, sectors, and strategies for nearly three decades. The organization operates through two main business segments: Private Capital and Real Assets, managing more than €230 billion in assets, of which EUR 130 billion are fee-generating assets.

EQT’s investment strategies cover all phases of a business’s development, from start-up to maturity. The firm is guided by a set of strong values and a distinct corporate culture, influenced by the Wallenberg family’s entrepreneurial mindset and philosophy of long-term thinking. EQT’s mission is to future-proof companies, generate attractive returns, and make a positive impact in all its endeavors.

The company has a significant presence in the private markets industry, being ranked top 3 globally in Private Equity (based on private equity capital raised over the five years ending in March 2023), top 5 in Infrastructure (based on direct investment capital raised between January 2018 and August 2023), number 1 in Value-Add Infrastructure (based on direct capital raised over the last five years ending in 2023), and top 10 in Private Real Estate (based on private real estate direct investment capital raised between January 2018 and March 2023). EQT aims to maintain and improve these positions by applying a cutting-edge value-creation approach and focusing on themes such as climate and AI.

EQT’s strategic objectives include becoming the global leader in Private Equity, maintaining its top position in Value-Add Infrastructure, and joining the top 3 in Private Real Estate. The firm has shown strong financial performance since its listing in 2019, with total revenues growing fourfold, an adjusted EBITDA margin expanding from 46% to 58%, and a market cap increase of approximately 470%.

EQT’s management fees are expected to grow faster than the private markets industry, and the firm anticipates substantial carried interest from continued value creation and increased exit activity. The adjusted EBITDA margin target is set at 55-65%, with the potential to exceed this range in years of significant carried interest. Additionally, EQT aims to generate a steadily increasing annual dividend, complemented by potential further cash distributions or share buy-backs.

Its newest funds EQT X and EQT Future, held its final closes in early March 2024, raising a record $27 billion in the EQT Private Equity platform. How this enormous sum will be put to work remains to be seen, but EQT X will predominantly build on EQT Private Equity’s 30-year track record of strong performance and invest in Europe’s and North America’s healthcare, technology, and tech-enabled services sectors. EQT Future, on the other hand, will mainly invest in two themes: climate and nature, and health and well-being.

EQT’s rise from a dinner discussion in Stockholm’s Gamla Stan in 1993 to a global investment leader by 2024 exemplifies its dedication to responsible ownership and value creation. Founded in 1994 with support from Investor AB and the Wallenberg family, EQT initially focused on industrial companies in the Nordics.

The firm’s strategy of leveraging advanced investment techniques like leveraged buyouts (LBOs) is evident in its acquisition of Covanta, the first sustainability-linked LBO in the U.S. This deal highlights EQT’s ability to blend financial goals with sustainability, achieving substantial returns while meeting environmental targets.

Today, as of 2024, EQT manages over €230 billion in assets across more than 25 countries, maintaining leadership in private equity and infrastructure. The firm’s sector-based approach and focus on themes such as climate and AI ensure it remains at the forefront of investment innovation and value creation. EQT’s strategic objectives and robust performance since its IPO in 2019 position it for continued success and impact in the global market.