Mergermarket’s Nordic reporter, Auri Aittokallio and Research Analyst, Thorsten Louie Pedersen, sat down to discuss the market outlook for the Nordic region and explore the impact of the Covid-19 pandemic and the ongoing challenges facing dealmakers.

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Here is a short summary of the key takeaways from their discussion.

Nordic  M&A sees significant slowdown so far in 2020

Before the Covid-19 pandemic began, the Nordic region had started the year with a strong pipeline of expected deals, following a relatively good M&A year in 2019. However, M&A activity was down by 75% in 1Q20 compared with 1Q19. Many deals that had not yet started or were at early stages before the virus hit have been pulled, paused, or seen timelines extended including high profile sales of IFS, Norva 24 and Unifaun all halted.

Inbound activity  falter, but outbound activity strengthens in Q1 

Growing uncertainty around the spread of Covid-19 saw a sharp decline in inbound activity as foreign investors appear to be reluctant to pay the higher premiums often needs for high-quality Nordic assets and are instead looking elsewhere in Europe. However, outbound activity proved to be a bright spot for the region with a total of €10.6bn recorded in 1Q20, the second strongest start on Mergermarket record. Despite this positive star, cross-border activity is likely to remain difficult in 2Q20 and beyond as social distancing and lockdown measures continue.

Private equity  buyouts and exits dwindle

The first quarter of 2020 saw a steep reduction in deal volume and value for both private equity buyouts and exits, with buyouts reaching the lowest quarterly value since 2Q09 and exits at their lowest point since 3Q03. Many private equity firms are using this time to focus on supporting their portfolio companies through this crisis but there are opportunities for those looking to invest in targets at potentially lower valuations.

Pharmaceutical  sector has strong start but technology sectors likely to see resilience  

The pharma, medical and biotech sector received 43.6% of the market share in 1Q20, a result of several large deals including the acquisition of Danish pharmaceutical firm Glycom by Royal DSM for €765m. The Nordic region has an established reputation for high-quality technology businesses and interest is likely to continue as the pandemic leads to increased desire for tech-enabled and digital businesses across all sectors including digital healthcare, entertainment and digital work solutions.

Expectation  that M&A activity will remain subdued for most of 2020

Respondents to a poll asking when we will see a rebound in Nordic M&A were split with 46% expecting to see an improvement in 4Q20 and 46% thinking the situation will improve in 1Q21. Our speakers agreed that the region is likely to see continued slowdown in the short-term whilst many companies focus on assessing their balance sheets as well as their potential eligibility for any government support.

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