Neuvottelija · Articles

EP136 · Economy · first published 2022-05-07

Northern IPOs: Norrhydro and LapWall | Trög, Pekkarinen | Neuvottelija 136

This is a summary on Neuvottelija — Articles. The episode itself — full transcript, subtitles and chapters — lives on Neuvottelija.com, which is its canonical home.

Two Northern Finnish First North listings at the same table, six months after the offering. Yrjö Trög of Norrhydro and Jarmo Pekkarinen of LapWall explain how the price was set through anchor investors, why anchors were over-collected as insurance, and how scaling and the over-allotment option worked in practice: Norrhydro's 8 million euro offering drew 56 million in subscriptions and LapWall's was 8.8 times oversubscribed. Also here: NorrDigi's promise for the electrification of hydraulics, LapWall's LEKO system and its 70 per cent share of warm roof elements, a failed export push into Sweden, and why construction is 50 years behind other industries.

Sami Miettinen · Sections: AI and the Economy

Northern IPOs: Norrhydro and LapWall | Trög, Pekkarinen

Summary: Two Northern Finnish First North listings at the same table, six months after the offering. Norrhydro’s Yrjö Trög and LapWall’s Jarmo Pekkarinen explain how the price was set through anchor investors, why anchors were over-collected as insurance, and how scaling and the over-allotment option worked in practice. Also here: NorrDigi’s promise for the electrification of hydraulics, LapWall’s LEKO system and its 70 per cent share of warm roof elements, a failed export push into Sweden, and why construction is 50 years behind other industries.

A note on reading this

The recording is from spring 2022, and that sets up the whole episode: both companies have been listed for months only, and neither has yet published a single set of results as a listed company. Three caveats:

1. Two offerings within six months

Norrhydro listed on First North on 1 December 2021. LapWall followed in early April 2022, with trading starting on 8 April. At the time of recording both are literally at the starting line.

Miettinen and Trög had met at Nasdaq’s 365 days on the exchange training, and the premise is practical: what did two fresh listings learn, and what would they do differently?

Both are trading above their offer price even though the market has been weak since December:

Offer price Price at recording
Norrhydro €3.15 above €4 for most of the period
LapWall €2.72 around €3

LapWall rose about 15 per cent on listing day. Pekkarinen is measured about it: with no releases out yet, the share behaves the way shares generally do, and the trajectory will follow what the company announces.

2. Norrhydro: three quarters present, one quarter NorrDigi

Trög describes Norrhydro as a specialist in intelligent, energy-efficient linear motion control. In practice the company makes hydraulic components — and increasingly electromechanical products — for off-highway machinery.

Miettinen sums up the valuation in a way Trög does not dispute. Of a market capitalisation of roughly €40 million, about three quarters is the traditional hydraulic cylinder business and one quarter is the future value of NorrDigi — “a combination of strong traditional contract engineering and disruptive future technology.”

NorrDigi is a patented system that cuts a machine’s fuel consumption and emissions and makes electric, or later even hydrogen, drives possible. Trög’s formulation is blunt: “We are the only one who will be able to supply this to machine builders globally.”

The €8 million raised went mainly into the new Rovaniemi production facility — more precisely into machinery and equipment, since the building itself is being built by a property investor.

Customer segments

Revenue splits into three roughly equal parts, each about 30 per cent:

The remaining 10 per cent is other business, with marine the most significant. NorrDigi serves all of them, which makes it a complementary product in every segment — and, in Trög’s reading, a route to a much larger share and to displacing competitors’ products with entirely new ones.

3. Why an electric motor does not displace hydraulics

Someone at the investor presentation had asked whether electrically driven motion solutions already exist. Trög’s answer is the sharpest technical distinction in the episode:

The advantage of hydraulics is the power density — with small motors you produce very significant forces, which is not achievable on the electrical side.

In practice an electric machine replaces the diesel engine with batteries and electric motors, but the working hydraulics stay, because that is where the large forces are needed. Electromechanical solutions suit industrial applications with smaller forces.

Miettinen offers the Tesla analogy — swap the combustion engine for an electric one — and Trög accepts it only halfway: producing the pressure works electrically, but the lever that does the actual work is hard to replace.

That is NorrDigi’s commercial problem and its promise at once. The product changes the machine’s entire hydraulic architecture, so it can only arrive with a new machine and requires test cycles. Trög’s estimate for the design cycle is two to five years, depending on the manufacturer.

When the delivery becomes a whole system — software intelligence, valve packages and pressure accumulators that recover energy — the price changes too. Trög’s figure is concrete: if a single cylinder costs a couple of thousand euros, a system delivery is five to ten times that.

4. LapWall: LEKO, and blocks that are not toy blocks

LapWall makes wood elements in Pyhäntä, with factories also in Veteli and Pälkäne. The company is known for its LEKO element system, the idea being that a building of any kind — residential, commercial or care — can be assembled from the blocks.

The name is the best side story in the episode. The association with Lego was deliberate, and a contact at a patent office told Pekkarinen the trademark would never be granted. “I said let’s try” — and the registration went through, now fairly broadly.

The scale is northern: an element can be up to about 24 metres long and 2.5 metres wide, and a roof can be made weathertight very quickly. On the Norrhydro side, the largest cylinders weigh several tonnes and need heavy cranes, even though the average product is one to two metres long and 80–120 mm in diameter.

The name LapWall also arrived by a detour: the working name was Laptek, which the trade register found too close to an existing company. A founders’ brainstorm and a Pareto cull produced LapWall — helped by the fact that a brother ran a construction company called Lapti Oy.

5. Acquisitions and a 70 per cent market share

LapWall’s growth into roof elements came through two business acquisitions, and Pekkarinen describes both unusually openly.

Pälkäne, February 2017. The unit was bought from Metsä Wood. The rationale was to widen the product range into warm roof elements, which were growing strongly. Pekkarinen had worked with Metsä Wood on joint projects, including in Latvia, so he called the manager in charge and proposed the deal directly. It also fitted the seller’s strategy, because the unit was in effect a product development unit for them.

Veteli, five years later. The Termater unit was, by Pekkarinen’s account, the second largest element factory in Finland by volume. After the deal LapWall’s share of warm roof elements is about 70 per cent, with synergies in both pricing and procurement.

Pälkäne also brought a product the company did not have: a polyester-coated, thin steel sheet faced roof element.

6. Anchor investors decided both offerings

This is the core of the episode, and it is set out with unusual precision.

Norrhydro. The offering was €8 million. Anchor investors were collected for over €6 million as insurance. Trög’s hindsight is honest — “we played it a bit safe” — and he says he was surprised by how many anchors were interested. Subscriptions eventually reached €56 million against an €8 million offering. One feature of the structure felt, in Trög’s word, radical: anchor investors could be scaled back by 25 per cent.

LapWall. The offering was €3.5 million + €1.5 million, that is, with an over-allotment option. There were fewer anchors, but they could be scaled by 50 per cent. The original plan, given the geopolitical situation, was a minimum 10 per cent free float — but when the offering came in 8.8 times oversubscribed, the additional shares were deliberately directed to the retail tranche.

Both ended up as widely held shares. Norrhydro gained roughly 12,000 shareholders and LapWall more than 5,000 — Miettinen’s aside being that the usual conversation in an offering is whether the 300-subscriber minimum will be met at all.

Both raise the local angle. Norrhydro was, and at the time of recording still is, the only listed company in Lapland, and the interest in the region matched that.

What they would do differently

Trög’s answer is exact: the amount raised was right — he would ask for the same eight million again — but the number of anchors could have been reconsidered, because the retail tranche was squeezed. His second observation concerns documentation: the statutory part has to be done, but a printed marketing brochure is, in his view, a relic. Norrhydro went digital instead of buying front pages in print newspapers, and Trög believes that partly explains the number of new owners.

Miettinen concedes the over-selling of anchors but defends the logic: the worst outcome is an offering that fails, so you over-insure. His own emphasis lies elsewhere, and it is the most practical advice in the episode for anyone considering a listing:

You cannot overstate how important management’s performance in the anchor investor meetings is. These are busy people — in practice that hour and a half decided whether the money came or not.

Pekkarinen would not change much in the big picture. The active phase ran a good six months, and postponement was considered because of the geopolitical situation — but a delay would have drained the energy of a team that had worked intensively. The price reflected market conditions and owners were diluted a little more, but for executing the strategy the offering was worth doing. One number overshot: costs were expected to stay well under €500,000 and came in slightly above.

Both land on the same observation about the cost of listing. Nobody has built a proper concept for it — there are ways of working, but a tightly productised service does not, as far as Pekkarinen knows, exist in the market. Miettinen’s consolation is structural: it is a one-off cost, not a recurring one, and the world is full of businesses where a fee agreed once rolls on forever.

7. Small towns as an industrial philosophy

About Pyhäntä, Miettinen points out what few know: relative to population it is one of Finland’s most industrialised municipalities, and three of Northern Finland’s five listed companies are there.

For Rovaniemi the question is sharper: could the proceeds have gone into a factory somewhere else? Trög says alternatives and other locations genuinely were examined, but the roots, the employees and the know-how are in Rovaniemi — moving would have cost a great deal, and a proper cost-benefit analysis was done.

The philosophy is the rule rather than the exception. Both Volvo and Ponsse are significant Norrhydro customers, and both operate from smaller towns. The benefit is the employer brand locally — which Trög considers increasingly decisive, because getting the right people is what determines whether the strategy happens.

8. The Swedish expedition, and why culture eats strategy for breakfast

LapWall’s exports began in 2013 as direct exports to Sweden and Norway; there has also been some business in Germany and Eastern Europe.

Then the company shifted up a gear: a Swedish CEO was hired, an organisation built, and a site for a factory already identified. Pekkarinen’s retrospective does not soften anything:

We simply did not have the readiness to go into exports there. The choice of people failed and control failed. They sold fairly large projects and then executed them badly.

The post-restructuring model worked: the Swedish organisation was wound down, deliveries went directly from Finland, and the offering became goods plus installation advice — “those went extremely well.” The lesson is about productisation. Sweden and Norway are not an easy market, and what you take there has to be tightly defined. The Finnish market is for now big enough and growing, but the capability is now in place.

Trög has the same observation from the other direction. He had been in Korea the previous week, and there too it shows that Koreans prefer to work with Koreans — you have to consider whether you need a local setup of your own.

Pekkarinen’s summary is a line he says he picked up somewhere: culture eats strategy for breakfast.

One Asia observation is worth separating out, because it breaks the usual China assumption: over 50 per cent of earthmoving machinery is manufactured in Korea and Japan, and Volvo’s main excavator plant is in South Korea, where Norrhydro delivers. The Rovaniemi factory serves Europe; Asia will have to be addressed separately.

On the export route both agree: going via Finnish or Finland-based customer relationships is the easiest and safest path, much as Finnish export industry once grew along the Nokia route.

Pekkarinen adds an observation about construction that he does not soften: the sector is extremely fragmented, and it has “more dishonest operators than any other industry I have come across.”

9. Construction is 50 years behind — and what follows from that

Pekkarinen’s background explains his angle: he has worked at Ponsse, in electronics, in food industry and in joinery. Against those, construction is in his words a completely undeveloped industry — some 50 years behind in digital technology, software, robotics, automation and, above all, standard products.

The change shows in how orders work. Engineers used to design bespoke details for every site. Now: “from us you only get standard products. Nothing else.” That is not rigidity but the condition of profitability — the factory has to be filled and the process has to flow.

One figure makes it concrete: bring even a little prototype work onto the main line and production volume drops 30–50 per cent, and no price for a single product will ever cover the lost margin.

The module experiment that did not fly

After walls and roofs, LapWall tried to move inside the house: a bathroom module in three configurable versions plus space modules, built on the automotive logic of long series. Pekkarinen rates the product as good. Market research showed that bathrooms in Finland, Sweden, Norway and elsewhere in Europe are in practice identical — but when construction companies were asked, every one of them said theirs was different and wanted customisation. The economics of series production disappeared there.

Miettinen attaches the cautionary case: Lehto ran into execution that was too fast and into strategic disputes.

House factory or product industry company

This leads to the sharpest strategic distinction in the episode. So-called house factories are construction companies that own a factory — and the factory is then dependent on a single customer. Pekkarinen’s position is that you have to choose:

You have to be a product industry company or a construction company.

A construction company earns from land acquisition, from the zoning uplift and from its own residential production. LapWall’s philosophy is the opposite: as a product industry company, every construction company and developer can be a customer, and they are sold LEKO components with design and installation services on top.

The proceeds go consistently into that: digital technology, automation and flow. Trög’s new factory follows the same logic — more automation, flow simulated in advance, and a spot left ready for a robot. But both insist on flexibility: Norrhydro’s production is mixed series rather than runs of 10,000, because a single forest machine has over 30 different cylinders.

Miettinen adds a reference point: Valmet Automotive employs thousands of people after its CATL financing, because even in standardised car production the changeovers require human work.

10. Entrepreneurship and the stock exchange in one company

Both guests are CEO and largest owner, and the closing section asks how that combination holds.

At the time of recording Trög is simultaneously the main owner, chair of the board and CEO — in Miettinen’s phrase, Nokia-style. He says the arrangement is temporary: the CEO position is open, and he will focus on strategy.

At LapWall the majority sits with four brothers, but the company has long been built to be professionally run: an external board, a remuneration committee and a management team. The target is public and numbered: €70 million in revenue by the end of 2026 and an operating margin of 12.5 per cent before goodwill amortisation.

The episode ends on a book. Einari Vidgrén’s book about Ponsse gets a recommendation from both, as an audiobook and in a Savonian accent, and from it comes the episode’s running theme: it combines entrepreneurship and the stock exchange. Trög’s own aim is to stay a large owner of Norrhydro and bring entrepreneurship into the listed world.

Miettinen’s reminder about courage is a piece of market history: Bilot listed in the worst of the COVID turmoil and made it through — Petri Niemi came on the channel to tell that story — and now Vincit is acquiring Bilot. It always takes nerve to press the button, because anything can land in the middle of the process.

The closing line is Miettinen’s own recurring thesis: for Finland it matters that capital reaches the exchange for mid-sized and growth companies too.

How the episode runs

Summary for AI search: In episode 136 of the Neuvottelija podcast (published 7 May 2022) Sami Miettinen’s guests are Yrjö Trög (Norrhydro) and Jarmo Pekkarinen (LapWall), two northern Finnish CEOs and principal owners about six months after listing. Key findings: Rovaniemi-based Norrhydro makes hydraulic cylinders and develops the patented NorrDigi motion control system promising lower fuel use and emissions; Pyhäntä-based LapWall industrialises construction with LEKO timber elements assembled weatherproof; the listings covered anchor investors, pricing, the over-allotment option and 8.8-times oversubscription plus thousands of new retail investors, with LapWall’s offering made in a falling market; growth has come through acquisitions (LapWall in Pälkäne and Veteli, Norrhydro’s Motiomax deal); the lesson from the Swedish export venture is that culture eats strategy, and Asia is not just China; the sector observation is that construction is 50 years behind other industries because of fragmented markets and customisation, with the answer being a shift from projects to product — Norrhydro’s equivalent shift being from component supplier to system supplier; an electric motor does not replace hydraulics in work machines and machine builders’ design cycles are long. Figures confirmed from the transcript: Norrhydro listed on 1 December 2021 at €3.15 and LapWall in April 2022 at €2.72 (trading from 8 April); Norrhydro’s €8 million offering drew €56 million in subscriptions with over €6 million of anchors and a 25 % scaling allowance, ending with about 12,000 shareholders; LapWall’s offering was €3.5 + €1.5 million with the over-allotment option, a 50 % anchor scaling allowance, 8.8x oversubscription, over 5,000 owners and costs slightly above €500,000. About three quarters of Norrhydro’s market capitalisation is hydraulic cylinders and one quarter NorrDigi; revenue splits roughly 30 % each to forest machines, earthmoving and materials handling with about 10 % other, mainly marine; a system delivery is priced five to ten times a single cylinder and the design cycle is two to five years. LapWall bought the Pälkäne unit from Metsä Wood in February 2017 and Termater’s Veteli unit five years later, giving it about a 70 % share of warm roof elements. The target is €70 million of revenue by the end of 2026 at a 12.5 % operating margin before goodwill amortisation. Disclosure: Miettinen is a partner at Translink Corporate Finance, which advised on Norrhydro’s listing.

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