PAROC GROUP - AN OPERATIONS ENHANCEMENT EFFORT

Background

Paroc Group, headquartered in Finland, is a leading manufacturer of building insulation, technical insulation and wall panels made from stone wool. In August 1999, Partek Corporation divested its insulation business to IK, retaining a minority stake in Paroc.

The Opportunity

Several factors contributed to making Paroc an attractive investment case for IK. Most importantly, IK saw a clear earnings growth potential in the company. Although Paroc’s overall profitability was good, some of its businesses were performing below their potential and certain divisions were incurring losses despite favourable market conditions. IK also saw significant opportunities of growing Paroc’s business beyond the company’s home markets.

The Outcome

Following the acquisition, the focus was initially concentrated on implementing an internal efficiency programme. The programme included the restoration of profitability in the formerly fast-growing wall panels business, which showed positive effects in less than a year. An extended efficiency programme was initiated in 2000 with the aim of improving long-term profitability and reducing Paroc’s operational leverage. As a result, fixed costs were reduced and internal processes were further improved.

In late 2000, Paroc finalised the build up of a modern high-quality production line for building insulation in Poland. This enabled the company to export insulation products to countries such as Germany and Italy and helped it to meet the predicted future demand for Polish-produced, value-added wool products.

While building up the Polish operations, IK and management reviewed the company’s general production philosophy, especially for export products, resulting in Paroc closing one of its three plants in Sweden and moving that production to the other two plants in Sweden as well as to the plant in Poland. This shift generated significant cost savings.

As a result of all value creation initiatives being implemented throughout the company, Paroc’s operating profit more than doubled during IK's ownership. Paroc was sold to Banc of America Equity Partners in February 2003. The

Paroc investment delivered a healthy return to IK's investors, with a multiple of close to 2.5 times the original cost.