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Nordic IPO Market Outlook: Valuations normalise as dual-tracks lean towards M&A

Lacklustre aftermarket performance hits valuations.

Equity capital markets in Scandinavia are still very supportive of flotations, but recent disappointing post-IPO trading is likely to affect pricing going forward, said two private equity partners at Mergermarket’s Nordic M&A and Private Equity Forum 2018.

As it stands, the wave of Nordic IPOs shows no signs of cresting, with Finnish state-owned alcoholic beverages company Altia, sauna maker Harvia and building materials chain Bygghemma all in the process of listing. Danish IT firm Netcompany, agricultural company Axzon and Norwegian cruise operator Hurtigruten are reportedly coming to market this year.

So far, the supportive capital markets have allowed assets of lesser quality to list if a buyer was not forthcoming, the first PE partner said. Especially in Finland, several recent IPOs have performed poorly in the aftermarket, he continued.

The starkest recent example is without doubt Angry Birds-owner Rovio, which saw its shares plummet to €4.37 earlier this month from its €11.50 IPO price last October, after missing key earnings targets.

Lacklustre performance is driving a normalisation of pricing in the market, the first PE partner said, adding that valuations are already softening compared to six months ago. Altia’s IPO bookbuild, for example, implies a market cap of €272m-€326m – a modest valuation compared to its peers, as comparables pointed to a potential market cap of €427m before any IPO discount, this news service reported.

Political stability, low interest rates and a strong, benign economic environment have ensured that local capital markets have been wide open, a third PE partner said. The vibrant tech scene has contributed to the overall optimistic investment climate, he said, adding that an IPO is now a credible exit route for tech businesses in the region.

The vibrant private equity market has provided ample supply of assets as many still have portfolios to sell off, while raising large amounts of new funds, a Nordic banker said. The exit curve does appear to be flattening after the PE selling spree in the last couple of years, he said.

Strong IPO markets have created a problem for mid-market PE funds, as smaller Nordic companies can opt for a listing over a sale, the first PE partner said. More and more companies, which would not normally list, have gone public in the last 12 months, he continued.

There is no shortage of small deals on Nordic stock exchanges, with Swedish landscaping business Green Landscaping listed on 12 March, while Harvia is angling for an up-to €104m market cap in its ongoing flotation.

Overall, multiples paid are still very high, which is driving dual-tracks with a strong sales track, the Nordic banker noted.

Dual-tracks are set to shift towards the private market again and away from the public, as newly raised funds have added fresh fire power to PE firms’ arsenal, the first practitioner said. As IPO valuations normalise, the sale option will become increasingly attractive, he added.

Katrien Van Hoof ECM Reporter Acuris
Katrien Van Hoof ECM Reporter Acuris

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