This is Part 2 of the Nordic Trendspotter 1H18, covering the Finnish and Danish markets. To read Part 1 on the Swedish and Norwegian markets, click here.

Finland: abundance of assets but buyer caution slows processes

Finland’s 1H18 total deal value took a massive tumble of 77.98% to EUR 2.77bn compared to 1H17’s total of EUR 12.58bn. Yet the number of deals increased to 115 compared to 108 for the same period last year, according to Mergermarket data.

While strategic players are taking an increasingly active role in the Finnish M&A market, PE buyouts increased to 19 compared to 14 in 1H17 and nine in the previous six-month period.

At the same time, secondary buyouts are showing signs of a comeback with four deals completed in 2Q18, following none in the previous quarter. Only three were made in the whole of 2017.

The country’s largest deal was the CVC Capital Partners-led consortium’s EUR 1.80bn acquisition of healthcare services provider Mehilainen in May.

“Corporates are clearly more represented on buyside in sale processes, but they are also increasingly looking to divest non-core assets, which is often driven by the need for digital transformation and rebalancing of business portfolios,” Antti Uusitalo, partner at EY Finland, said.

Recent corporate disposals include Orion Corporation’s [HEL:ORNBV] sale of its clinical diagnostics business to Axcel Management for EUR 223m, care services provider Attendo’s [STO:ATT] EUR 233m sale of its Finnish healthcare arm to Terveystalo [HEL:TTALO], and mail service provider Posti’s expected disposal of its IT services subsidiary Opus Capita.

Among notable trade deals are Vaaka Partners’ sale of Sataservice to Swedish industrial maintenance provider Quant, Colliers International Group’s [NASDAQ and TSX:CIGI] acquisition of Ovenia Group, and Intera Partner’s sale of restaurants and hotels operator Royal Ravintolat to Restamax [HEL:RESTA] in a EUR 90m deal (including debt).

Despite the dip in the total deal value, sentiment on the Finnish M&A market remains optimistic. “The market has been even busier this year than last year,” Erkki Nikoskelainen, Managing Partner at HLP Corporate Finance, said.

Uusitalo echoed this view. “Driven by healthy economic growth and the digital transformation of virtually all sectors, the M&A market is even stronger than last year,” he said.

Companies mooted to be sold or listed include housing provider DEN Group, Kamp Hotels, clinical assessment tools firm CRF Health,  digital locking provider iLOQ, construction firm Lapti, and crane services specialist Havator, while corporates including mobile network operator Elisa [HEL:ELISA] and power engine firm Wartsila [HEL:WRT1V] are expected to make acquisitions.

However, while the pipeline is extremely strong, many less attractive assets are being put up for sale, Nikoskelainen said. This is the result of vendors trying to take advantage of favourable market conditions, mainly driven by the availability of cheap financing and both PEs’ and strategic buyers’ appetite for investments. At the same time, buyers are more cautious than in previous years, choosing carefully which assets to spend time on, he added. Therefore, many deals are taking longer than usual to complete, with some not completing at all.

The ECM market’s performance has remained strong, a trend likely to carry on throughout the year, Uusitalo said.

Yet, while many assets are being prepared for both the M&A and IPO tracks, the former is slightly outperforming the latter as an exit option, a trend also seen in the Swedish market. Mehilainen, eventually acquired by CVC, is a prime example of this.

The biggest Finnish IPOs so far this year have included rental property provider Kojamo [HEL:KOJAMO] and government-controlled alcohol producer Altia [HEL:ALTIA].

While the healthcare sector has been one of the most active in Finnish M&A over recent years, the sector is likely to see only smaller deals in the next six to 12 months, Uusitalo said. Meanwhile, sectors including IT services and software, as well as the circular economy are likely to be among active sectors in 2H18 and beyond, he said.

Denmark: Early signs of slowdown, increased focus on non-cyclical plays

Danish M&A volumes and values declined in 1H18 to 103 transactions worth EUR 14.72bn, compared to 119 deals registered in 2H17 worth EUR 22.96bn. The first half of the year also showed a decline of 59 deals compared to the same period last year, but the value of transactions rose by 223%, according to Mergermarket data.

TDC’s acquisition by DK Telekommunikation for EUR 8.55bn accounted for a large part of the transaction value in 1H18. The second largest transaction was 3i’s sale of Scandlines to First State Investments and Hermes Investment Management for EUR 2.56bn.

Although the number of transactions so far this year is below last year’s levels, activity and valuations remain high, Kasper Dichow, head of corporate finance at Nordea, said.

One area that has enjoyed particularly high multiples in recent months is the Danish high-end, premium designer brands segment, and the trend is likely to continue into 2H18, Dichow said.

Notable deals include the sale by IC Group [CPH:IC] of its Peak Performance brand to Amer Group [AMEAS:HEL] for DKK 1.90bn (EUR 255m), representing an 2017 EBITDA multiple of 15.9x; and Muuto, which was acquired by US-based firm Knoll [NYSE:KNL] for USD 300m (EUR 257m), for a 2016 EBITDA multiple of 26.6x, according to Mergermarket data. Other deals in the space included L Catterton’s strategic investment in Ganni, Herman Miller’s acquisition of a 33% in Nine United Denmark (Hay), and Axcel’s and Chr. Augustinus Fabrikker’s acquisition of a majority stake in Gubi, all for undisclosed sums.

Christian Schmidt-Jacobsen, managing partner at private equity fund Axcel, echoed the optimistic outlook for the second half of the year, adding his firm regularly receives a lot of calls from interested sellers. “Several new processes will be initiated after the summer”, he said.

Among deals in the pipeline are EQT’s exits from retail chain Flying Tiger and from residential builder Huscompagniet, and Riverside 's exit from DPA Microphones.

The drop in 1H18 activity levels could, however, be a first sign of a more acute slowdown to come, with investors increasingly turning to non-cyclical, stable plays and price tags likely to have peaked for now. “Investors are becoming more cautious and focused on quality, and less willing to pay the high prices being asked for. This will eventually translate in more processes being dropped”, Dichow said.

The auction process of Huscompagniet is a case on point, with EQT’s asking price of DKK 4bn (EUR 537m) reportedly proving too high for interested bidders.

Going forward, technology players will continue to attract attention, but those without a strong digital platform or strategy, particularly retailers, will struggle to lure investors.

The recent IPO of IT services firm NetCompany [CPH:NETC] shows investors’ appetite for technology plays. The company listed at the upper end of the offer price range of DKK 135-165, giving it a market capitalisation of DKK 7.75bn (EUR 1.04bn). Its peer, EG A/S, is expected to launch a sale process in September. Its owner, Axcel, is assessing the possibility of splitting the business into a software and a service division and sell them separately.

Better Collective [STO:BETCO], Nuevolution [STO:NUE] and ViroGates [CPH:VIRO] all listed in June. The second half of 2018 may see further listings, with agricultural group Goodvalley, formerly Axzon, expected to list in October. Other IPO candidates include biotech firm Symphogen and Abacus Medicine.

by Auri Aittokallio in London and Karin Jensen in Copenhagen, with analytics by Frederik Pedersen

Auri Aittokallio Nordics Reporter Mergermarket

Auri is Nordic Correspondent at Mergermarket. She joined the company in December 2016, having previously worked as financial reporter for TMT Finance, where she tracked deal activity in the telecom, media and tech sectors across Europe.

Prior to this, Auri covered the IT and telecoms sectors for many years as a reporter and researcher, and the TMT sector remains her special area of interest.

Auri, originally from Finland, holds a BA in Journalism from the University of West London.