In this research note we explore the strategic priorities and business activities of Finnish building technology company Caverion, which has been listed on the Nasdaq Helsinki since 2013. In the last month, a consortium led by North Lux Holdco SARL, a vehicle owned and controlled by Bain Capital Private Equity, has proposed a voluntary public cash tender offer for all issued and outstanding shares in Caverion. The firm’s directors unanimously decided to recommend that the shareholders of Caverion accept the tender offer, which would see the firm delisted from the stock-exchange to allow it “to undertake an extensive transformation to sustainably improve its long-term performance.”

With the shareholder decision due before the offer expires on January 12th 2023, we map the Caverion’s route up to this point. Caverion was established in 2013, through the demerger of Building Services and Industrial Services businesses from the 100+ year old YIT Group. As an independent entity, Caverion has become a specialist in smart and sustainable built environments, enabling both energy performance and occupant well-being.

It's offering covers the entire life cycle of buildings, infrastructure or industrial sites and processes: from design & build to projects, technical and industrial maintenance, facility management as well as advisory services. Caverion's more than 14,000 employees serve customers in 10 countries across Northern & Central Europe.

Caverion achieved revenues of €2.14 billion in 2021, continuing a long-term trend of stable revenues, and slight decline. 2017 revenues of €2.28 billion still represents a 5-year high for the firm, and while the last 12-months is a 5-year low, the decline has been minimal. The industrial segment represents the largest share of revenue in 2021 with 33%, followed by the real estate users segment with 25%, while real estate investors and developers make up 13%.

Caverlon’s Adjusted EBITA, meanwhile, achieved a 5-year high of €87.7 million in 2021, representing an almost 30% increase on 2020 and almost double the firm’s EBITA in 2018. The firm’s share price, on the other hand, has presented more concerning trends, over the long-term and especially in 2022. Caverion saw its first sustained period with a share price under €5 from April 2022 until the proposed tender saw the price jump in the last week of October.

On November 3, 2022, the consortium formed by Bain Capital, Security Trading, Fennogens and Corbis, entered into a combination agreement with Caverion through a tender offer for all of the issued and outstanding shares, excluding shares held by its subsidiaries. The offer price under the tender offer is €7.00 in cash for each share, representing a premium of 49% compared to the closing price of €4.69 on November 2nd. The tender offer values Caverion's total equity at approximately €955.3 million.

“The Consortium recognizes that Caverion has been recently undertaking a major effort to enhance its operations and narrow the gap vis-à-vis some of its competitors in terms of operating and financial performance. Although such efforts have yielded some positive results, the deteriorating macro and market conditions are estimated to make it more challenging to continue the repositioning,” reads the official tender statement.

“The Consortium believes that to lock-in the improvements to date and to ensure future development, a step change in Caverion's ongoing transformation is needed. The Consortium believes that under private ownership Caverion will be best placed to accelerate and deliver on the strategic initiatives needed for sustainably improving its long-run performance,” the statement continues.

Caverion’s board of directors, represented by a quorum comprising the non-conflicted members, unanimously decided to recommend that the shareholders of Caverion accept the tender offer. Now, the offer period under the tender offer is expected to commence on or about November 24, 2022, and to expire on or about January 12, 2023. This deal may represent a potential turning point for the Scandinavian smart buildings company to explore its global ambitions, or a risk to the firm’s proven stability.

In recent years a number of strategic acquisitions and partnerships led Caverion’s approach to the smart buildings market, and developed an offering that has attracted interest from Bain Capital and its consortium of investors for this private transformation strategy. Below, we chart those business moves to understand Caverion’s smart building strategy:

Caverion’s business strategy has focused on building automation with a series of relatively high-profile acquisitions and partnerships in the last 18-months.

On April 6th 2020, Caverion entered into a partnership with seven leading Finnish companies that joined forces to co-create an ecosystem for smart building data. Together Caverion, KONE, Nokia, YIT, Halton, Netox and VTT have founded The KEKO ecosystem —which aims to significantly improve the comfort, productivity and sustainability of buildings by integrating the data of all the technical systems in the built environment to a single platform.

On 2 July 2021, Caverion completed the acquisition of Austrian GTS Immobilien GmbH including all its subsidiaries. One of those subsidiaries, GTS Automation, is a well-known company in the Austrian market for building automation. Through the acquisition, Caverion supported its growth strategy and strengthened its market position in smart technologies.

On 15 December 2021, Caverion closed on an agreement to acquire the design and advisory business of the Finnish company Merius Oy, boosting its digital design capabilities. And, in January 2022, the firm announced an academic partnership with Aalto University for the development and education and research of smart building technology and smart buildings.

HVAC

Caverion has bolstered its HVAC portfolio with three acquisitions of smaller companies bringing cooling and cleanroom specific expertise to an already strong building-focused business segment.

In September 2021, Caverion signed an agreement to acquire Felcon GmbH in Austria, a clean room specialist with air filtration expertise. Then, in October 2021, Caverion closed on an agreement to acquire the business of Bott Kälte- und Klimatechnik, a small cooling and air conditioning specialist based in Wiesbaden, Germany. And, in December 2021, Caverion signed an agreement to acquire Frödéns Ventilation AB in Sweden, specialists in maintenance, inspections, and energy optimisations for building ventilation systems.

Energy Efficiency

Caverion prides itself on its energy efficiency capabilities, defining itself as a company that “makes the built environment more smart and sustainable”, two key partnerships represent its business activity in this technology group.

In November 2021, Caverion partnered with the City of Helsinki to improve the energy efficiency of public buildings. The energy efficiency will be improved by replacing building systems, while adding renewable energy generation alongside district heating by building energy wells for cooling and heating. Smart and energy efficient heating and ventilation controls will also be integrated in the pilot properties, and the buildings have been connected to Caverion's remote monitoring for the duration of the contract period.

Then, in September 2022, Caverion and ABB announced an agreement to accelerate the development of energy efficient and sustainable buildings. The aim of the collaboration is to jointly offer customers advanced, smart solutions for achieving carbon-neutral buildings and reaching their sustainability targets.

Security

In July 2021, Caverion announced the acquisition of RPH Linc AB in Sweden, which further strengthened its smart security solutions offering. RPH Linc is a systems integrator, founded in 1999, focusing on high-end security solutions for enterprise and multisite customers and the public sector. The acquisition is a bolt-on acquisition for Caverion in the area of smart technology services, an area in which Caverion has a deep competence.