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Norway and Finland drive Nordic regional M&A activity while Sweden and Denmark tumble

  • Public deals compensate for lack of large cap transactions in Sweden
  • Small to mid-size market deals dominate Norway’s pipeline driven by inbound interest

Despite a tougher 2019, the underlying fundamentals of the economy across the Nordic markets remain strong and the pace of activity should somehow recover in 2020, dealmakers polled by this news service said.

This year has seen the Nordic region split in half in terms of deal activity, and where Sweden and Denmark have plunged, Finland, and specifically Norway, report rising figures. Overall, the region banked EUR 70bn worth of deals across a neat 1,000 deals YTD, which equals a fall in values by 20.4% and 217 fewer deals compared to 2018, according to Mergermarket data.

However, 2018’s EUR 88.5bn worth of deals, and indeed 2017’s whopping EUR 104.8bn, would always be a tall order to beat. Looking further back, 2019 deal values are still significantly higher than 2014 (EUR 62.3bn), 2015 (EUR 50.9bn) and 2016 (EUR 59.3bn).

“2019 has not seen the biggest of deals, but the pace of the market is overall good”, Jan Olsson, CEO Nordic Region at Deutsche Bank, said.

There were two deals that clocked valuations above EUR 4bn. The biggest YTD deal in the region was Swedish property company SBB I Norden’s [STO:SBB] offer for domestic peer Hemfosa [STO:HEMF] for EUR 4.3bn, closely followed by US-based Exxon Mobil Corporation’s [NYSE:XOM] sale of Norwegian upstream assets to Norway’s Var Energi for EUR 4.1bn.

The Nordic private equity buyout market has fallen significantly compared to strong previous years. 2019 saw 155 buyout deals clocking a combined value of EUR 9.3bn, compared to 2018’s EUR 23.2bn across 232 deals, and 2017’s EUR 28.8bn across 186 deals. However, the exit market remains strong, with EUR 17.6bn worth of deals across 116 exits, compared to EUR 15.0bn and 129 deals the year before.

Nordic cross-border activity has seen an increase in outbound value, reporting EUR 47.7bn worth of deals, compared to EUR 19.6bn and EUR 25.7bn in 2018 and 2017, respectively. In fact, outbound value was the highest ever recorded on Mergermarket. Conversely, inbound value has fallen, reporting EUR 26.3bn worth of deals this year, compared to EUR 35.7bn and EUR 34.2bn during the previous two years.

The Nordic region keeps enjoying low interest rates, strong consumerism - including travel -, and low unemployment rates. Its strong tech ecosystem also continues to breed new successful start-ups and its venture capital environment works well. With these fundamentals in place, the region is in a good position to pick up the M&A pace in 2020 and further grow its local talent into big international players.

Sweden: deal values tumble from 2018 heights

Sweden’s 2019 deal value has plummeted to almost half of last year’s value. YTD19 Sweden has registered EUR 22bn spread across 337 deals, compared to a strong FY18 with EUR 42bn across 414 deals, according to Mergermarket data. This year’s values and volumes are instead more in line with 2015 (EUR 21.4bn across 316 deals) and 2016 (EUR 24.4bn across 347 deals).

The Swedish M&A market has been very strong during the last few years, Jonas Bergstrom, partner and head of M&A at Vinge law firm, said. 1H19 was also strong, but the region has experienced reduced M&A activity in the private markets in 2H19, particularly in 4Q19, with fewer large cap deals. Early signs of a downturn appear to have made certain investors hesitant to engage in M&A for cyclical businesses, Bergstrom added.

There will always be quarterly dips, Olsson said, but M&A is equally important in downturns, “hence I think 2020 will be good for M&A”, he added.

Bilateral processes as well as minority stake acquisitions have seen an uptick this year and both trends are expected to continue in 2020, Bergstrom said. Swedish EQT sold 9.9% of its pest control company Anticimex to GIC, in a deal that valued the company at EUR 3.6bn, while Axel Johnson acquired a 30% stake in food industry supplier Martin & Servera from the Oldmark family.

The low levels of activity in the private M&A arena during 4Q19 were somehow compensated by more activity on the public side, and this expected to continue into the new year, Bergstrom said. Among the most recent examples is the takeover offer received in early December by manufacturer of testing and measuring equipment for the automobile industry Opus Group [STO:OPUS] from Searchlight Capital Partners together with Opus CEO, Lothar Geilen.

The real estate sector in Sweden has also seen a couple of sizeable public deals. Apart from SBB I Norden’s offer of Hemfosa, German residential property Vonovia’s put in a EUR 3.4bn offer on property company Hembla.

A weak Swedish currency has led to increased interest for Swedish targets from foreign corporates and private equity firms, Bergstrom said. Earlier in the year, KKR acquired a minority stake in private banking services and insurance advisory Soderberg & Partners in a deal that valued the company at USD 1bn (EUR 890m). However, the weak Swedish currency has not yet translated into an influx of foreign buyers, Olsson said. If the krona decreases even further, there could be scope for more buyers entering the region, he added.

Pension funds and similar institutions are also increasingly looking at more complex deals in the region in a hunt for yield, Bergstrom said. BillerudKorsnäs [STO:BILL], for instance, sold a majority stake in Bergvik Skog Öst to Swedish pension company AMF for an enterprise value of SEK 12.2bn (EUR 1.1bn).

Access to financing is still good for both corporates and private equity firms but we see indications of declining interest for certain sensitive sectors from certain banks, Bergstrom said. But activity in the IT and technology, healthcare, energy and renewables, finance and financial regulatory (including fintech and insurance), infrastructure and gaming is likely to remain strong in 2020.

Norway: shining beacon of M&A

Norway is bucking declining M&A trends across the globe and with some good margins to boot. 2019’s deal value of EUR 19.4bn across 243 deals represents a solid increase from last year’s EUR 12.1bn, albeit last year closed 39 more deals.

“We can’t complain, and I think 2020 will be similar to 2019,” head of Corporate Finance at Arctic Securities, Bjørn Løvenskiold, said. “While Europe and the Nordics in general have experienced downward M&A trends this year, Norway’s M&A market has remained very strong”, Christian Grüner Sagstad, partner and head of M&A and ECM at law firm Thommessen, agreed.

Going into 2020, the M&A pipeline looks very promising, Grüner Sagstad said. Access to finance remains favourable, existing PE firms have raised bigger funds, and there is good appetite on the bond market too, he added.

A handful of big-ticket situations have driven deal value this year. Four out of the top 10 Nordic deals included a Norwegian player. The biggest Norwegian deal was US-based Exxon Mobil Corporation’s [NYSE:XOM] sale of its Norwegian oil and gas assets to Norway’s Var Energi for EUR 4.1bn. Other big situations included Telenor’s [OSL:TEL] acquisition of Finnish DNA [HEL:DNA] for EUR 3.1bn, Hafslund E-CO’s [OSL:HNA] merger with Eidsiva Energi for EUR 3bn, Apax exit from EVRY [FRA:EDZ] and its merger with Tieto [FRA:TTEB] for EUR 1.9bn, and Schibsted’s [OSL:SCHA] spin-off of online classifieds business Adevinta to its shareholders also for EUR 1.9bn.

Despite some sizeable deals, the bulk of the activity has been in the small and mid-market segments, Løvenskiold said. The volume is partly driven by increasing inbound interest, Grüner Sagstad said, adding the large international private equity firms have increased their attention on Norwegian targets. KKR [NYSE:KKR], for instance, acquired a 30% stake in security company Sector Alarm, while THL Partners acquired EQT’s modular storage firm Autostore.

Several PE-led deals have also featured sponsors that are relatively new to the Norwegian market such as Swedish Priveq, which invested in pilot school Pilot Flight Academy; UK-based Volpi, which acquired field services management solutions provider Asolvi, and Oakley Capital, which acquired seafarer training provider Seagull; and US-based Corsair, which acquired a majority stake in financial services products distributor Axo.

Many of these PE-led processes have also centred around minority stake acquisitions as many PE funds have broadened their investment mandates, Løvenskiold said. Examples include Nordic Capital and Sampo’s 17.47% stake acquisition in Norwegian Finans Holding and Altor’s minority position in sports retailer XXL.

Activity has been characterised by an increasing polarisation between “what is hot and what is not”, Løvenskiold said. Attractive assets are being sold at very high multiples, such as Autostore, which went for a reported NOK 16bn (EUR 1.6bn), while many companies operating in less favoured sectors remain unsold. Failed auctions are often caused by significant price gaps where buyers want to count in a possible cyclical downturn during their ownership period whereas sellers are extrapolating the good historical performance of their companies, he explained.

Unconcluded deals include forestry and biofuels NEG Gruppen, which was reportedly in the early stages of a sale process during the spring.

Trends that have featured strongly in European M&A, like carve-outs, have not yet fully blossomed in Norway, although a number of players have started to consider options, Grüner Sagstad said. Among them are chemicals company Yara [OTCMKTS:YARIY] and construction group Veidekke, which have announced streamlining plans for 2020.

Similarly, the volume of public-to-private transactions in Norway continues to be relatively low compared to other markets, Grüner Sagstad and Løvenskiold agreed. Stock prices on the Oslo exchange are generally perceived as quite high and as valuations have increased further during 2019, the scope for an active public-to-private market in Norway is reduced, Grüner Sagstad added.

Oil and gas, aquaculture and seafood, technology, and business services are likely to see strong levels of activity in 2020, Grüner Sagstad said. The oil services space in particular, which has seen few deals this year due to a continued challenging oil market and investors’ focus on ESG, could see a reverse in its fortunes in 2020, Løvenskiold said.

Finland: public deals support deal activity

Finland has registered a healthy YTD19 EUR 13.6bn across 187 deals. This represents a slight increase on last year’s deal value of EUR 12.2bn, whereas volume was higher in 2018 at 229.

M&A activity in Finland has been good, Intera Partner’s CEO Jokke Paananen said. Activity has been spurred on by low interest rates and industrial players seeking consolidation, Mikko Heinonen, partner at law firm Hannes Snellman, added.

The overriding theme in the market has been the many large public tender offers seen this year, and more specifically the volume of public-to-private deals, the dealmakers agreed. Among them are Telenor’s [OSL:TEL] acquisition of DNA [HEL:DNA], Aedifica’s [EBR:AED; AMS:AED] offer for Hoivatilat [HEL:HOIVA], Pihlajalinna’s [HEL:PIHLIS] takeover by Mehiläinen, Cramo’s [HEL:CRA1V] sale to Netherlands-based Boels Rental, Ramirent’s [HEL: RAMI] takeover by Loxam, and Tieto [FRA:TTEB] and Evry’ s [FRA: EDZ] merger.

The public-to-private trend will continue in 2020, Heinonen said, and listed companies on the Helsinki exchange could see a decrease in numbers going forward. Although the IPO window is still open, it is not a bullying market, he added. The issue is lack of sizeable IPO candidates, Paananen said.

Companies that could reportedly be takeover candidates in 2020 include software company Tecnotree [HEL:TEM1V], road haulage firm Ahola Transport [HEL:AHOLA], fishing lures manufacturer Rapala [HEL:RAP1V], gaming group Rovio Entertainment [HEL:ROVIO], and Honkarakenne [HEL:HONBS], a log cabin builder.

The Finnish M&A landscape in 2020 could also see an increase in private equity activity as sponsors look to put their large amounts of dry powder to use. There is, however, more money to be deployed than attractive targets, Heinonen said. PE firms are increasingly willing to team up with industrials if needed, he added.

The number of companies in the hands of venture capitalist funds that are sizeable enough for private equity firms or M&A transactions is, however, increasing, Sten Olsson, another partner at Hannes Snellman, said.

Family offices are also starting to become more active and are taking more of a front seat in the Finnish M&A landscape, Olsson said. Finnish long-term investor DevCo recently raised EUR 180m this year and announced the bolt-on acquisition of Lee Biosolutions via its second investment, Medix Biochemica, in November.

The likes of childcare operator Pilke, car parts wholesaler Relais, beauty brand Lumene, Stockman-owned [HEL:STCBV] fashion chain Lindex, and leisure group Airiston Helmi could all see a change of ownership in 2020.

Sectors likely to remain active include infrastructure and energy, real estate, financial services and fintech, Olsson said. Meanwhile, the elderly care sector has had a challenging 2019, Olsson said. Levels of activity in the healthcare sector may be affected in 2020 by the suggested healthcare reforms having been suspended, Olsson said.

Another political issue is state-owned postal service Posti Group, which has made headlines this year. The government is struggling to form a long-term strategy and initial IPO plans have been put on hold. Finland’s Prime Minister Antti Rinne announced he was stepping down earlier this month. The Finnish Center Party lost confidence in the PM after he came under pressure following a two-week postal strike. 34-year old Sanna Marin took up the PM position on Tuesday, becoming the youngest head of government in the world.  

Denmark: 1H20 pipeline looks promising after 2H19 dive

Deals values and volumes in Denmark have plunged in 2019. YTD19 Denmark has seen 227 deals for a total value of EUR 14.7bn compared to 289 deals and a total value of EUR 21.6bn in 2018, according to Mergermarket data. The decline in deal volumes has been particularly stark in 2H19, with only 83 deals compared to 151 in the same period of last year, although values were up, from EUR 6.5bn in 2H18 to EUR 8.5bn in 2H19.

A few large transactions at the start of 2H19 weighted heavily on the period’s total value. In August, Nets sold a majority stake in its Corporate Services business to Mastercard [NYSE:MA] for EUR 2.8bn, and in September Orsted [CPH:ORSTED] sold its power distribution, residential customer and City Light business to SEAS-NVE, also for EUR 2.8bn.

“In 3Q19 we saw a lot of activity and a few very large transactions, but since then it has mainly been small and mid-cap deals,” Christian Lundgren, partner and head of Capital Markets at Kromann Reumert law firm said.

So far in 4Q19, a mere 31 deals have taken place at a value of EUR 1.6bn, significantly lower than the 90 deals worth EUR 4.0bn seen in the same quarter of 2018. Fears of an imminent recession, not least in Germany, have put a damper on activity and caused investors to seek out more non-cyclical sectors, such as healthcare, whereas industries with a high level of cyclicality have fared less well this year, Sebastian Hougaard, Managing Partner at Alantra, said.

“2018 was a very strong year and we have seen somewhat reduced activity this year, but my feeling is that things are picking up again and several processes are lined up for 2020. Overall, 2019 will be below 2018, and 2020 will be on par with this year,” Hougaard said.

An abundance of capital, particularly from sponsors which have raised new funds over the past 12 to 18 months, and low interest rates will continue to fuel M&A in the Danish market. Deal valuations have also become more realistic following years of inflated price levels, which will further support a positive sentiment in the market.

Several processes in the pipeline and expected to kick off in early 2020 provide reason for optimism. Food service company Euro Cater, which has mandated Carnegie to find a buyer for Intermediate Capital Group’s 35% stake, is likely to attract investors’ attention. The stake could fetch DKK 2bn (EUR 260m). Carnegie is also advising on the sale of producer of black boxes for the maritime industry Danelec Marine, while PwC has been mandated to advice Maj Invest on its exit from dental chain Godt Smil, and Deloitte is working on the sale of wheelchair component manufacturer MBL.

Brewery Mikkeller, biotech Glycom, and translation services firm Languagewire could also see ownership changes, as reported.

Sectors expected to be active in 2020 include software, consumer foods, healthcare and renewables, while retail, and construction and building-related sectors are out of favour. Among retailers, which have failed to attract buyers this year, is women's wear company Mos Mosh.

Impact investment, on the other hand, is an upcoming trend, Lundgren said. Globally, the focus is on sustainable growth and green tech and this will feed into the M&A market, he added, with both strategic players and sponsors driving activity.

The Danish IPO market remained quiet in 2019 and this is unlikely to change in 2020. A couple of failed IPOs such as IT-group Adform at the end of 2018 have left a mark and scared many company owners. Not only is an IPO a wear and tear process, but the media attention is also deterring many company owners.

No large-cap IPO is expected on the main market, Nasdaq OMX Copenhagen, in 2020. A couple of mid-cap listings may see the light of day, including biotech group ReApplix.

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