ALFA LAVAL – IMPROVING A “WORLD CLASS” STORY
Background
Alfa Laval is a leading global provider of specialised products and engineering solutions based on its key technologies of heat transfer, separation and fluid handling. IK acquired a majority stake in Alfa Laval from Tetra Laval in August 2000. Tetra Laval retained a minority interest in the company.
The Opportunity
IK viewed Alfa Laval as a company with fundamental strength and stability combined with potential for significant cost reduction and profit improvement. As it enjoyed high gross margins, yet had an operating margin which was well below the industry average, Alfa Laval was regarded as an attractive operational improvement case – a world-class specialised process engineering company that could also be developed into a world-class performer.
The Outcome
A multi-year restructuring strategy to improve performance, primarily through reducing Alfa Laval’s cost base together with the sale of real estate and under performing assets, was launched. The results were showing through as early as 2001 with nearly half the SEK1 billion of savings annually, which had been targeted for the end of 2003, being delivered.
Parallel initiatives to enhance top line growth, continue margin expansion and grow shareholder value included focusing increasingly on individual customer segments, expanding Alfa Laval’s after-market sales of parts and services, developing new industry applications and products and making add-on acquisitions and strategic alliances. In late 2001, with all the cost-saving and value creation initiatives performing well ahead of plan, IK felt it was a good time for Alfa Laval to enter the next phase of its development.
During early spring 2002, an exit process with the aim of listing the company was initiated and in May that year Alfa Laval was floated on the Stockholm Exchange through a combination of a primary and secondary offering of shares. IK sold its remaining stake of Alfa Laval shares in February 2005. The fund investors received a solid return on the investment in Alfa Laval, with a multiple of approximately 2 times the original cost.
