M&A holds the line in the Nordics with robust performance

Corporate deals in the region proved to be more resilient than private equity (PE) as financing costs rose, with exits showing weakness

M&A market activity in the Nordics (Sweden, Denmark, Norway, Finland and Iceland) settled back down in 2022, as it did across the globe, though deal values and volumes in the larger countries in the region remained above historic averages.

Total deal value came to US$105.2 billion in 2022, down 40% year on year, while volume slipped by only 8% to 1,865 transactions (still 20% and 55% above pre-pandemic levels in 2019, respectively).

For context, global M&A value was down 34% year-on-year to US$3.8 trillion and volume fell 5% to 29,083 deals. As such, the Nordics have broadly tracked the overarching trend of smaller transactions after the windfall year of 2021.

Sweden remains the largest market by far, accounting for almost half of all deal value in the Nordics. The biggest deal of the year in the country (and the wider region) was Marlboro manufacturer Philip Morris International's US$18.9 billion takeover bid for Swedish Match. The US company successfully reached 90% ownership of the nicotine pouches maker, delisting it from Nasdaq Stockholm.

The deal pushed consumer sector M&A value in the Nordics to second place in 2022, at US$23.7 billion. Just ahead of this was the industrial and chemicals (I&C) sector's US$28.5 billion in transactions. Five of the top-ten largest Nordic deals featured I&C targets, the largest of these in Sweden, where EQT Private Equity and Emirati finance company Mubadala bought Envirotainer, the local manufacturer of temperature-controlled containers for air transport of pharmaceuticals from PE firm Cinven. The deal was valued at US$2.99 billion.

With 429 transactions, the technology, media and telecom (TMT) sector overwhelmingly led the region in terms of M&A volume and came in third by value at US$16.7 billion—though it's interesting to note that the sector did not feature in the top ten deals in the region, suggesting a higher level of slightly lower-value deals.

Digital infrastructure in particular has become a core investment theme of financial sponsors. As providers of essential services, to say nothing of the exponential rates of global data growth, these companies play an important de-risking role in investment portfolios.

Denmark, Norway and Finland remain steadfast 

While Sweden was the most active market, Denmark and Norway demonstrated the most resilience in their deal volume, registering a fall of just 3% and a rise of 1% year-on-year, respectively. Denmark was also a rare exception as it saw a 35% increase in M&A value during the same period, reaching US$24.6 billion.

This was made possible by the US$10.6 billion tie-up of ingredients producers Chr. Hansen and Novozymes, which was the largest Danish deal of the year and the biggest merger in the country's history. Wellness is becoming a recurring theme in M&A, particularly in the health-conscious Nordics, which are individually ranked among the top 25 healthiest countries in the world, with Sweden in sixth place. At the time of the deal, Chr. Hansen said that, with its newly enlarged product portfolio, it is looking to enable healthier lives with higher quality food.

In Finland, meanwhile, TMT dominated deal discussions, taking up six of the top-ten deals announced in the country in 2022 according to Mergermarket. At the top of the list was PE firm Bain Capital’s public cash tender offer in November 2022 to buy all outstanding shares in Caverion, the Finland based designer, builder and maintainer of building systems and provider of industrial services, through North Holdings 3 (comprising Security Trading, Fennogens Investments and Corbis). The deal was valued at US$891.5 million.

This deal was still in play in 2023, leading to a degree of drama: In January, PE investor Triton made an €8 per share bid for Caverion, improving on the earlier €7 per share offer from North Holdings 3, which was scheduled to expire. Shortly thereafter, North Holdings 3 supplemented its tender offer for all the shares in Caverion. At the time of publication, no decision had been taken on which offer would be accepted.

A down year for PE 

Last year turned out to be far quieter for PE in the Nordics than for corporate M&A. Total deal value of US$26.1 billion represented a decline of 68% on 2021, while the 399 deals recorded amounted to an annual fall of 22%. Financial sponsors have been struggling to keep up with strategics due to strained debt financing conditions.

Leading the pack was yet another EQT deal. The PE firm sold its stake in Danish hearing aid manufacturer WS Audiology from EQT VI to EQT VIII and co-investor Santo Holdings, a Swiss pharma and biotech fund, for US$5.7 billion.

Continuation funds, whereby GPs roll a single remaining portfolio company or several businesses into a new fund, providing liquidity to investors and the option for others to roll over into the new vehicle, have become an increasingly common feature within private equity in recent years. GP-led secondaries have gone mainstream and there is even more impetus for these arrangements in what remains an exit-liquidity constrained environment.

While EQT's recent WS Audiology self-buyout does not fit the profile of a GP-led secondary per se, some of the same considerations apply. The pros of a PE firm selling a company to a successor fund include the opportunity to continue scaling up a known business that has further headroom for growth, working with a familiar management team to achieve that goal. It also provides certainty in a market that last year was marked by wide buyer-versus-seller expectations.

However, such deals pose potential conflicts of interest. Some investors see them as an opportunity for PE firms to levy fees on deals they put little effort into sourcing, which may be a complaint of LPs invested in both funds.

Another point of possible contention is the fair price of the deal, as the PE firm may seek to maximize their exit value in the hope that EBITDA multiples will have sufficiently recovered by the time the company is eventually sold on. In the case of WS Audiology, a major vote of confidence was the presence of a co-investor coming in on the same financial terms.

Unsurprisingly, given prevailing market conditions, exits were especially weak last year, coming in at sub-2019 levels. Total volume was down 41% to 85 sales, while aggregate value dropped to just US$6.4 billion, down 84% on 2021. PE funds will be hoping for a more exit-friendly environment in 2023, in the Nordics and elsewhere. Assuming equity and debt markets soon settle, allowing IPOs and secondary buyouts, this should soon come to pass.

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