Despite suffering its slowest start to a year since 2013, dealmakers at the tenth Mergermarket Nordic M&A and Private Equity Forum in Stockholm are confident that a strong year of Nordic M&A lies ahead, Hanna Gezelius and Jonathan Klonowski report.
As the global economy begins to stutter and geo-political tensions show few signs of easing, the Nordics is not immune to such external pressures. But panellists claimed how lower levels of organic growth, an abundance of cash reserves and dry powder needed to be deployed and a possible return of more buoyant ECM activity should spur greater degrees of activity.
Having secured 250 deals across the Nordics for a combined EUR 10.3bn, 1Q19 generated the least amount of spending since 3Q16 across the fewest number of transactions for six quarters, according to Mergermarket data.
This downward trend mirrors that of wider global trends. Only 3,558 transactions worth a combined USD 801.5bn were registered in 1Q19, a 15% dip in value compared with 1Q18 and almost 1,500 fewer deals. Global deal activity has been weighed down by greater market volatility, tensions between the US and China, Brexit anxiety in Europe, as well as strengthening economic headwinds, according to Mergermarket’s Global & Regional M&A Report.
Nordic M&A has experienced “a fantastic few years” but does rely heavily on the rest of the world. The Nordic region is dependent on foreign trade and the turbulent macroeconomic and geopolitical issues are taking its toll on the region, former Sweden Prime Minster and Foreign Minister Carl Bildt said.
Such heightened levels of anxiety should create further M&A opportunities, not thwart it, a dealmaker at the forum argued. When the market is down, corporates need to create opportunities. Domestic corporates should up their game and be more aggressive in their regional M&A efforts, and international buyers could take the opportunity to buy attractive, inexpensive Nordic targets. With a cheap krona and Nordic corporates generally valued below US peers, there should be ample opportunities for western cash rich buyers entering the region.
One dealmaker went as far as to suggest buyers need to be less risk-averse and go against the market to seek opportunities.
Go contrary
Despite attractive targets and large funds available, there are few ongoing big-ticket situations in the region, dealmakers said.
Yet in such a changeable market, alternative M&A routes may become more viable, with an uptick in minority stake sales, such as Finland’s DNA, which this week announced a 15% stake sale to Norwegian Telenor, and Anticimex, which sold 19% in 2017 to an investor consortium, as well as take-private deals, such as Ahlsell [STO: AHSL], dealmakers argued.
Take-private deals are on the rise globally. Such transactions conducted by private equity firms reached their highest first quarter value and volume since 2013 - USD 40.4bn across 22 deals.
Corporates evaluating options to streamline businesses is becoming more commonplace in an effort to beat slowing market growth, dealmakers noted. The Nordics is already seeing several processes related to this trend; from Atlas Copco’s [STO:ATCO] Epiroc [STO:EPI] spin-off and that of APMoller Maersk’s [CPH:MAERSK] Maersk Drilling, to activist support in the telecom sector such as spinning off Telenor’s [OSL:TEL] mast business and to separate the network-infrastructure assets of Telia [STO:TELIA], opportunities are being more often explored. Other big names looking to unlock value include Electrolux [STO:ELUX], Munters [STO:MTRS] and NCC [STO:NCC].
Nordic cross-border deal activity has remained at a reasonable pace, beating the slowing global trend.
Several high-quality Nordic companies could generate outside interest in tech and gaming sectors. Danish computer company EG was recently acquired by Fransisco Partners and Swedish gaming company Mr Green [STO: MRG] was bought by UK based William Hill [LON: WMH] earlier this year.
The largest outbound deal in the Nordics this year to date has been China’s Evergrande Health Industry Group’s acquisitions of Sweden’s National Electric Vehicle’s valued at EUR 813m, closely followed by Japan’s Fujifilm [TYO:4901] EUR 789m takeover of Danish biotech company Biogen [NASDAQ:BIIB]. Norway’s Oslo Bors’ EUR 687m sale to Nasdaq came in third at a value of, according to Mergermarket analytics.
Other deals include Danish industrial group Harold Topse acquired by Singapore’s Temasek Holdings, and Danish payment solutions provider Nets [CPH:NETS], which merged with German peer Concardis Payment Group earlier this year, in a deal that was backed by Hellman & Friedman, Advent International and Bain Capital.
Deal flow from China into Europe could be further hit in the coming months by the recent announcement the EU will establish a new foreign direct investment screening framework to protect strategic sectors.
However, protectionism does not seem to be a burning issue in the Nordic region just yet. Sweden is like Germany five to ten years ago, one dealmaker said. Despite that there are more discussions about the issue, it simply does not come up during deal discussions, one dealmaker argued.
IPO window provides pocket of light
The IPO window has open again and the ECM market could make a quick recovery, a dealmaker said. Danish/Swedish service group Karnov was covered on the maximum deal size the first day of bookbuild on 1 April. Karnov’s float is the first major Stockholm listing since the pre-Christmas IPO window closed last year, and market participants are monitoring its progress closely. Its success could potentially pave the way for further dual track process and more sizeable Nordic IPOs, such as CVC’s packaging company AR Packaging and payment solutions group Klarna.
Hanna Gezelius is a senior reporter at Mergermarket, where she covers the Nordic region and the Chemistry sector. She joined mergermarket in February 2008. Before this, she worked at the pension investment news service Mandatewire, FT Group.
Previously, she has worked as a journalist at a magazine in India, Tamil Nadu, and as a reporter for a local Swedish television channel.
Hanna holds a BA in Journalism from West London University and an MA in Asia Studies from Lund University, Sweden.
Hanna Gezelius is a senior reporter at Mergermarket, where she covers the Nordic region and the Chemistry sector. She joined mergermarket in February 2008. Before this, she worked at the pension investment news service Mandatewire, FT Group.
Previously, she has worked as a journalist at a magazine in India, Tamil Nadu, and as a reporter for a local Swedish television channel.
Hanna holds a BA in Journalism from West London University and an MA in Asia Studies from Lund University, Sweden.
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