How to make a 9x return in 2.5 years – An interview with Jouni Heinonen of HVD Partners

Humatica recently interviewed Jouni Heinonen, the managing partner of HVD Partners on their sale of Solifos AG to NBG GmbH. HVD Partners carved out the business from Brugg Cables in 2018, implemented an ambitious turnaround-plan and realized a 9x multiple in 2.5 years.

Humatica: What does HVD Partners do?

Jouni Heinonen: We are a transformation and divestiture consultant. We help asset owners improve the performance of their non-core businesses and optimally divest them. This helps all stakeholders as orphan businesses and their employees normally don’t get the attention and investment needed to fulfil their potential. They normally struggle financially and its no fun for anyone. HVD Partners will invest in the joint success and is compensated primarily by the value we generate. If external financing is needed, we will turn to one of our banking or private equity partners.

Humatica: You recently sold Solifos AG after a two and half year ownership period and realised a 9x return on the invested equity. How did you do this?

Jouni Heinonen: First of all, the underperforming companies HVD focuses on are under-valued to begin with. However, the transformation process has a set of common steps. Most important is HVD’s governance which is not constrained by past decisions and conventional wisdom. Financial transparency was the first order of business. This was followed by looking broadly into the future, connecting the dots on megatrends to identify where Solifos’ unique technology could add most value. This turned out to be in the area of distributed fiber optic sensing, which made-up only 15% of sales at the time. Based on an outside-in, market driven strategy, the organisation was aligned to focus resources on the highest value areas. We could reverse the sales mix from loss-making to profitable, future-proof products.

Humatica: What role did organizational performance and culture play in the success of Solifos?

Jouni Heinonen: It was central to realizing superior value growth. There were significant changes made in the senior leadership with the addition of a CFO and hiring a new CEO. However, beyond this, the immediate change in governance rhythm with monthly board meetings, new sales management processes and improvement in production planning and inventory management was critical.

Humatica: You worked with Humatica to accelerate organisational change. What role did they play.

Jouni Heinonen: Humatica was critical for carving out Solifos from its parent company and establishing best-practice governance processes. Their skills were also utilised to define a value growth strategy and rapidly align the organization to deliver on it. Part of the formula was to implement rigorous individual performance management to provide objective employee feedback and development. In addition, a profit sharing approach was implemented for all employees down to the shop floor.

Humatica: What changes did you notice in the culture?

Jouni Heinonen: When we first met the Solifos team, they had been losing money for the previous five years, were under constant cost reduction pressure and promised bonuses were never paid. It was a beaten-down team, lacking pride. However, over the course of the 2.5 year turn-around, employees and managers mastered new challenges, learned new skills and pulled-off a dramatic turn-around. When HVD left the company it had a newly-found pride that was immediately evident when you walked the halls.

Humatica: Are there any new projects in the pipeline?

Jouni Heinonen: We are constantly looking for new opportunities. Currently, we are working on three interesting cases across Europe, one of them in the final stages. We are working hard to finalise it and hopefully have more details to report shortly.

Humatica: Thanks for the interview, Jouni.