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Sweden's subdued half-year performance drives Nordic M&A values down 34%

M&A numbers decline due to plummeting Swedish figures, Denmark remains robust, Norway and Finland report growth

Sweden's worst half-year performance since 2013 has been instrumental in driving down Nordic M&A values 34% during H1, Mergermarket's 1H19 Trend Summary shows. Just EUR 33.1bn was spent across 548 deals, which represented a further fall when compared against the 624 transactions last year.

Where Sweden stumbled, Norway and Finland reported growth on last year's record H1. Norwegian deal value rose to EUR 9.7bn from EUR 6bn, while Finland registered EUR 6.8bn, up from EUR 2.9bn. In the meantime, Denmark failed to live up to last year's bumper EUR 15.1bn, seeing total deal value drop to EUR 6.4bn.

In isolation, Sweden and Denmark registered underwhelming figures, yet some comfort may be taken when pitched in the context of a global 11% drop in M&A.

Outbound spending, however, showed a clear uptick. Generating EUR 36.8bn across 153 deals, this is the highest YTD figure on Mergermarket record, comfortably beating 2015's previous record of EUR 16.7bn spread across 92 deals. Some of the largest outbound deals included Danish investment firm Kirkbi's offer to buy UK-based Merlin Entertainment for GBP 4.5bn and Danish logistics firm DSV's GBP 3.6bn offer for Swiss peer Panalpina Welttransport Holding.

While Chinese investment into Europe has fallen drastically to a mere EUR 3.2bn from EUR 8.2bn during 1H18 and EUR 20.8bn in 1H17, the Nordic region has instead significantly increased.

Chinese investors have injected EUR 1.1bn into the Nordics across nine deals, up from EUR 644m and three deals in 1H18, and EUR 797m and four deals in 1H17. Evergrande Health Industry Group’s USD 930m acquisition of a 51% stake in Swedish National Electric Vehicle was the biggest inbound Chinese deal. Other sizeable deals included Lingyi iTech's pending GBP 78m acquisition of Finnish Salcomp, which manufactures chargers and adapters for mobile phone and tablets; and Tencent Holdings' GBP 44m takeover of Swedish video games producer Fatshark. A total of EUR 12.9bn was recorded across 149 inbound deals during 1H19.

Other buyers came from France, Switzerland, Japan and Canada – Loxam’s bid for Ramirent, Partner’s Group‘s acquisition of CapeOmega, Fujifilm Corporation’s acquisition of Biogen, and Hg and Canada Pension Plan’s part acquisition of Visma, respectively.

Relative macro-economic stability remains a core characteristic of the Nordics. While the rest of Europe has experienced high levels of uncertainty due to political factors including Brexit, US and Chinese trade, and southern European instability, the Nordics provide a stable and attractive economic environment, Staffan Melinder, Managing Partner at Nordic Capital, said.

The region saw a distinct lack of big-ticket deals during 1H19. Denmark's Maersk spin-off of The Drilling Company and Norway-based Telenor’s acquisition of Finnish DNA were the two biggest deals, coming in at EUR 3.2bn and EUR 3.1bn respectively. Apax‘s sale of Norwegian EVRY to Finnish Tieto came third - EUR 2bn.

Private equity buyouts and exits are also down, although both saw a slight upswing during Q2 from their exceptionally low Q1 and recorded EUR 462m and EUR 839m respectively. The total Nordic buyout market was valued at EUR 6.4bn spread across 85 deals in H1, compared to EUR 7.8bn across 108 deals in 1H18, while the exits totalled EUR 12bn spread across 70 deals, compared to EUR 9.8bn over 73 deals.

Sweden: strong underlying market and optimism despite falling numbers

With 182 deals totalling EUR 9.8bn, Sweden reported its lowest deal volume for five years, and deal value edged to its lowest point since 2013. The figures look especially low next to last year’s 227 deals and EUR 26.3bn value, but 1H18 – and indeed 1H17 – was always going to be hard to beat.

After several years of very strong activity in Sweden, there are signs the market is reaching the end of its business cycle, Kristoffer Melinder, managing partner at Nordic Capital, and Niklas Karnros, director at PwC Corporate Finance Sweden, said.

Sweden relies heavily on exports, which impacts M&A, Karnros said, adding that the macro-political and economic backstory of Trump remains alongside China and Brexit, but there is no specific event or issue that could explain the drop single-handedly.

The economy is still running at a high, but not at full capacity, Melinder said, and there is a natural wariness around highly cyclical businesses. Private equity investors have become quite cautious after a long and strong run in the Nordics, he said.

Corporates and sponsors have still been eager to engage in M&A this year, and many companies are reporting solid balance sheets, interest rates remains low, and private equity firms are managing to raise new and larger funds, which suggests the underlying M&A market is strong, Karnros said. There is an abundance of capital in the market, with low interest rates and willing debt financing, Melinder said, adding that valuations continue being toppy while general economic growth remains relatively low.

Active buyers include technical consultancy firm, ÅF [STO:AF], Stark-owned construction group Beijer Byggmaterial, industrial group Beijer Alma [STO:BEIA], and cash-handling company Loomis [STO:LOOM], as reported.

Sponsor-led M&A will likely be sought in sectors that ride mega trends and/or are non-cyclical, particularly in TMT, Karnros said. And there is continued high M&A activity in owner-managed companies driven by succession.

Corporates in cyclical sectors are opportunistic, looking for consolidation rather than entering new markets or product segments, Karnros said. The streamlining trend has continued and corporates also have started to divest less sizeable non-core assets, Karnros said. Companies including construction firm NCC [STO:NCC], mining machinery and service group Epiroc [STO:EPI], and industrial groups Sandvik [STO:SAND] and Electrolux [ELUX:STO] have been or are streamlining, as reported.

Sectors that benefit from demographic trends, such as healthcare, financial services, technology and payments, are likely to be active, Melinder said. There is likely to be less activity in retail and construction, Karnos said. Retail and cyclical industrials are also likely to see less activity due to diverging valuation expectations, Melinder said.

On the ECM side, Sweden has not rebounded from last year’s decline. Stockholm reported 12 IPOs with a total offering size of EUR 530m, compared to EUR 933m and 24 listing in 1H18. Ongoing dual-track processes for Synsam, owned by CVC, and Bridgepoint’s renal care company Diaverum, are seeing an increasingly strong pull towards trade sales, as reported.

The window is not totally shut, however, and Stockholm Nasdaq saw successful listings, including those of service group Karnov, real estate company John Mattson Fastighet, and medtech firm Mentice during 1H19. EQT Partners and payments company Klarna could also pull off listings in a less favourable climate. EQT has announced its intention to float in September.

Finland sees upswing in both in- and outbound M&A

With a total value of EUR 6.8bn across 111 deals, Finland comfortably topped 1H18’s numbers. However, it was not a tough competition; although FY18 was strong, its first six months brought a record low, EUR 2.8bn in total deal value, far behind 1H16 (EUR 10.5bn) and 1H17 (EUR 12.6bn).

Overall, Finnish M&A remains strong and 1H19 saw a few big corporate deals, Tommi Kaltio, Head of Carnegie Investment Banking Finland said. These include French equipment-rental group Loxam’s bid for Ramirent[HEL:RAMI], IT service provider Tieto’s bid for Norwegian peer EVRY and Telenor’s [OSE:TELE] acquisition of DNA [DNA:HEL], he said.

Inbound M&A activity has increased slightly this spring, Jouni Salmi, partner at Roschier, said. Stability and continuing low interest rates will attract investment and M&A activity, Salmi said.

Finnish companies are in good shape and operate in a stable, growing economy, making it an attractive M&A environment for foreign financial investors and corporates, Kaltio said. 

The Finnish software and mobile gaming sectors are attractive to foreign players, Kaltio said. California-based software company Tradeshift showed interest in Basware [HEL:BAS1V], but later terminated talks.

Finnish corporates have also looked abroad during 1H19. Strong share prices, confident management and boards, strong balance sheets and cheap funding create opportunities for Finnish companies to look beyond the country’s borders, Kaltio said. A relatively cheap Swedish krona could also represent opportunities, Kaltio said. Corporations with strong balance sheets and clear growth strategies will continue to pursue an international add-on growth strategy, Olli Klemola, managing partner at Aventum Partners, said.

Among the acquisitive are confectionary producer Fazer Group, bakery group Lantmännen Unibake, industrial equipment and services company Metso [HEL:METSO], telco Elisa [HEL:ELISA], and equipment-rental company Cramo [HEL:CRA1V].

Finland held parliamentary elections in April, resulting in a new left-of-centre government led by the Social Democrat Antti Rinne. The new government is expected to take a positive view on foreign investment and M&A, Salmi said. 

The new government has indicated planned investment into infrastructure, especially road and railways. However, it may also introduce a tax at source for dividend and other asset distribution to foreign investors, and could also further tighten interest-deductibility rules, which may affect sponsors’ and infrastructure investors' ability to deduct interest cost on debt used during a transaction, Salmi said.

The government has also indicated a focus on social welfare and healthcare reform, creating uncertainty about M&A in that sector, which could cool down activity somewhat, Salmi said. New requirements regarding increased nurse-patient ratios will have a short-term adverse effect on companies’ profitability, Klemola said, likely to push M&A in the care sector to its lowest level in years.

ICG’s [LON:ICOP] disposal of care-home operator Esperi is already on indefinite hold since issues emerged at one of its facilities this spring.

While the IPO market is expected to remain inactive for a while, some listings are being prepared, and public-to-private activity is expected to continue, Klemola said. Companies on sale or considering an IPO include EQT-owned pet care group Musti Group, CapMan-owned [HEL:CAPMAN] industrial machinery contractor Fortaco, Korona Invest day-care centre operator Pilke päiväkodit, as well as Jussi Capital and Sievi Capital-owned smart-lock maker, iLoq.

Kaltio said he expects the M&A market to remain active going forward this year, while Salmi said he expects this year to be better than 2018.

by Hanna Gezelius in London, analytics by Jonathan Klonowski

Hanna Gezelius Senior Journalist Mergermarket

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 Senior Journalist Mergermarket

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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