Insight: Melker Schorling, Sweden's quiet tycoon with the Midas touch

Micro Systemation AB (publ)

24/07/2016 09:00

* MSAB has 6 holdings, including Hexagon, Assa Abloy and 
Securitas 
    * Returns of over 500 percent in 10 years, outperforming 
rivals 
    * Some questions over future of investment group after 
losing CEO 
    * Schorling is lining up his daughters to take over business 
 
    By Mia Shanley and Niklas Pollard 
    STOCKHOLM, July 24 (Reuters) - Business tycoon Melker 
Schorling, one of Sweden's most prominent investors, says he is 
well-positioned to expand his 60 billion crown ($7 billion) 
investment empire even as he prepares to hand over affairs to 
his daughters. 
    MSAB  MSABb.ST , the holding company he set up in 1999 which 
spans a diverse set of companies from measurement technology to 
locks and guards, has consistently outperformed larger rivals. 
    Investors attribute Schorling's success to a knack for 
picking small specialists which go on to become global market 
leaders. 
    In a decade, MSAB has had returns of over 500 percent, 
outperforming rivals such as Wallenberg-backed Investor AB 
 INVEb.ST  and Industrivarden  INDUa.ST  and leading Swedish 
media to dub Schorling "King Midas" of the Stockholm bourse. 
    MSAB investors include H&M chairman Stefan Persson and BP & 
AB Volvo Chairman Carl-Henric Svanberg. 
    But while Schorling's path to success has had few bumps, 
some analysts are beginning to question the future of the group 
which has not made a single new investment in a decade. 
    Schorling turns 70 next year and although his daughters have 
become more involved they have not yet stepped into high-profile 
executive roles, and he recently lost one of his closest team 
members, MSAB CEO Ulrik Svensson, who leaves at year-end to join 
Lufthansa as CFO. 
    Svensson's departure raises some questions about the group's 
direction and stability, analysts say. 
    Schorling, who shies away from media appearances, is not 
planning major changes. 
    "We are very long-term oriented and it is highly likely that 
our holdings will be the same for many years to come," he told 
Reuters in an email. 
    But opportunity may be on the horizon for MSAB which has six 
listed companies like Assa Abloy, the world's biggest maker of 
locks, Securitas  SECUb.ST , the world's second-biggest provider 
of guards, and Hexagon  HEXAb.ST , market leader in precision 
measurement technology. 
    "For the time being we have actually divested a bit from our 
holdings to make sure that we have enough dry powder for future 
investments," he said. "Valuation multiples are high at the 
moment and we believe there could be interesting investment 
opportunities in the future." 
    While Brexit worries have hit shares - the STOXX Europe 
Industrial Goods & Services Index  .SXNP  is down 8.5 percent on 
the year - the S&P 500  .SPX  remains at record highs. 
    Nordea analyst Elias Porse reckons Svensson's departure 
could trigger a "generational renewal" of MSAB, with one of the 
daughters stepping in as CEO, though a CFO from a portfolio 
company could be appointed instead. 
    Both Sofia and Marta are board members for MSAB and its 
investment companies. 
    "Ultimately they will take over but we do not have a 
specific timing for that," Schorling said. 
    Schorling and his CEO proteges are bellwethers for investors 
who will be watching any investment moves closely.  
    Last year, when Schorling and Hexagon CEO Ola Rollen bought 
into fingerprint sensor maker Next Biometrics  NEXT.OL  through 
their high-tech focused Greenbridge Partners, shares nearly 
doubled on the day. Shares in mining gear maker Sandvik 
 SAND.ST  jumped when Assa Abloy's CEO was named chair. 
    Those near Schorling say he has an eye for talent. He 
insists his leaders take large stakes, so they reap the benefits 
or bleed together. 
    Rollen's own wealth has multiplied since taking the job in 
2000, when he took an unsecured loan equal to two years' salary 
to buy options - a large bet by Swedish standards. 
    "Had I been older, wiser and been able to do the math better 
at the time, I would probably never have done it," he said with 
a laugh, reflecting on his financial gamble. 
    Just his Hexagon B shares are now worth almost $50 million. 
    Schorling believes he may have "a good gut feeling for 
people". He looks for entrepreneurship, long-term thinking and a 
"very healthy lack of bureaucracy" in all his CEOs. 
    Unlike the current generation of Wallenbergs who inherited 
vast investment empires, farmer's son Schorling built his 
fortune on a first bet on Securitas for which he took a massive 
bank loan for. 
    Last year, he was the sixth wealthiest Swede, according to 
magazine Veckans Affarer. His group's net asset value falls just 
short of Industrivarden's. It and Investor are the traditional 
investment behemoths of Swedish business. 
    Still, MSAB struggled through the 2008 crisis when debts at 
Hexagon  HEXAb.ST , its crown jewel at over half its portfolio, 
sent shares in both tumbling. Hexagon's net debt-to-equity ratio 
has since more than halved. 
    Instead of transforming cash handling business Loomis early 
on as countries like Sweden moved towards being cashless, MSAB 
whittled down its holding in March this year. 
    Another misstep came when Securitas spun off its hi-tech 
Niscayah unit in 2006 and wound up getting outbid by Stanley 
Black & Decker when it tried to buy it back five years later. 
    MSAB is closely tied to the highs and lows of the industrial 
cycle. Asked about this, Schorling said there were no plans to 
change the asset mix to even things out. 
    "We do not think in diversification terms," he said. "Some 
of the companies are affected by the industrial cycle but they 
have been well tested in the financial crisis." 
    MSAB will likely keep growing through M&A by its holdings. 
    "They do have the benefit of synergies which means it is 
much easier for them to make a good return on an acquisition," 
Schorling said. 
    A senior banker who has worked with some of Schorling's 
companies described his style as highly effective. 
    "It would have to be a really big investment or M&A deal for 
it to be raised up centrally to top management," he said. 
    Schorling may be in the driver's seat for some time to come. 
    Carl Bek-Nielsen, an MSAB board member and chair of United 
International Enterprises - its third biggest shareholder - said 
Schorling was not stepping down anytime soon. 
    "I bet you if he were a car and you opened up his bonnet, 
there would be a fantastic V8 engine well lubricated and ready 
to go another 400,000 kilometers," he told Reuters. 
    ($1 = 8.1262 Swedish crowns) 
 
    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ 
For a link to a graphic showing Swedish investment companies' 
total return:    http://reut.rs/1TRuOBQ 
For a link to a graphic showing MSAB's net asset value premium:  
  http://reut.rs/22A0CeO 
  
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 (Additional reporting by Sven Nordenstam, Johannes Hellstrom 
and Oskar von Bahr; Editing by Alistair Scrutton, Janet McBride) 
 ((mia.shanley@thomsonreuters.com; +4687001004; Reuters 
Messaging: mia.shanley.thomsonreuters.com@reuters.net)) 
 
Keywords: SWEDEN TYCOON/