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From Sweden, With Love
Trip report - September 2024
Sweden is often overlooked as an investment destination. The country has a total population of around 10.5 million people, which is barely double the number of people in the country at the end of the 19th century and less than the population of Paris (which is over 11.2 million people).1 Only 5% of companies in the MSCI Europe Index are Swedish.2 But when we visited Stockholm in September to meet companies as part of our investment research, we felt confident that we would find high quality ideas, products and people.
Good Swedish ideas have historical roots but continue to evolve and remain very relevant today. Below we provide some examples of this from the companies we met.
Bergman & Beving was founded in 1906 and in the 1980s developed a business model of buying companies that offered niche products. This is known as a serial acquirer model. Each business acquired by Bergman & Beving was run by their own management teams and any money made was used to buy other businesses. In 2001, two of their businesses, Addtech and Lagercrantz, separated from the parent and became independent (an example of what is known as a spin-off). Today they both operate the same serial acquirer business model as do many other Swedish industrial companies including Indutrade, Instalco, and Lifco.
Other examples of this type of business model in different sectors include Vitec Software in technology and Handelsbanken in financials. Vitec Software acquires niche, specialised software businesses, such as Ecclesia, which provides software as a service (SaaS) for the administration of Norwegian cemeteries and crematoria. Similarly, Handelsbanken, founded in 1871, continues to operate decentralised branches (each branch works directly with customers, making key decisions and handling all aspects of their banking locally) which only cover as far as one can see from the nearest church spire. This may seem an unusual banking model but the company recently received visitors from a South Korean banking company eager to learn about it.
Even when Swedish decentralisation and serial acquisition business models have been successfully adopted elsewhere, there is still something to learn from the original creators. In fact, the Chief Executive Officer of a successful Canadian software acquirer, Constellation Software, had been visiting many of these types of businesses in Stockholm the week before we visited.
Having a product range of tools and equipment which can be exported internationally has helped build the success of Swedish industrial Atlas Copco. Over 70% of the company’s sales come from outside Europe.3 In the 1950s, the company developed the ‘Swedish method’ of drilling – a more comfortable design and efficient pneumatic mining drill – which allowed one person to operate a drilling machine instead of many people. Today, Atlas has built an impressive range of products including air compressors, vacuum pumps and industrial tools.
On our visit, many of Atlas’s products were on display in their test mine, located 20 metres below the head office in Nacka. They share the test mine with one of their former holding companies, Epiroc. All new products developed by Atlas must be more efficient or more ergonomic (comfortable, easy and safe to use). Examples of their innovations include all-electric air compressors and specially adapted grinding tools to reduce vibrational injuries amongst workers. New and exciting applications also include using oil-free air compressors to construct ‘bubble curtains’. Bubble curtains produce a continuous stream of air bubbles from perforated hoses placed on the seabed, which encircling marine construction sites. These bubbles rise to the surface, forming a vertical barrier that disrupts the transmission of sound waves and improve water quality. They can be used around offshore wind developments helping to reduce noise by over 90% and protect marine wildlife.4
The range and depth of opportunities that lie ahead of Atlas Copco differ from its origins in Sweden’s 19th century railway system. This is testament to its employees’ capacity to think and act for the very long term. Evidence of this includes the Chief Financial Officer, Peter Kinnart, who has spent 31 years with the company in nine different roles and the ownership and stewardship from the Wallenberg family owners for the past 151 years.
Responsible leadership are is behind the success of many Swedish companies. Retailer Axfood for example, is majority-owned by the family-run Axel Johnson Group, and access systems provider Assa Abloy is governed by the Douglas and Schörling families who are large shareholders. Engaged and informed stewardship has allowed long-tenured management teams to operate autonomously and effectively within a high-trust environment, for the benefit of all stakeholders.
Admittedly, there is no one element of the above – long-term management teams and stewards, world-class products or interesting ideas – that one can describe as uniquely Swedish. But their lasting and dynamic combination within Sweden has been, and continues to be, a potent force in shaping our world.
Sarah Sheard
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