Nordics grab an ever-bigger slice of the buyout pie

The surging Nordic region stakes its territory as one of the most successful private equity markets in Europe

The private equity industry in the Nordic countries has come of age, increasing its share of both buyout and fundraising activity in Western Europe over the last decade. The reliably rising market stands as testament to the long-term value of a Nordics investment culture widely regarded as very stable and predictable.

At year-end 2017, the Nordic region had attracted US$43.3 billion spent across 259 private equity deals, accounting for 16.2% of Western European buyout deal value during the period. The region’s share of overall deal activity in Western Europe has climbed by more than 55% since 2008, when there were 185 Nordic deals worth US$19.6 billion recorded, representing a 10.4% share of Western European private equity deal value at the time. 

Last year’s momentum carried into H1 2018, with the Nordics posting 142 deals worth US$13.09 billion in the first half of the year. If Nordic private equity deal volume in H2 2018 can match that of the first six months of the year, the region will be on track to post its highest annual deal volume on record. 

Bumper deals and strong returns

The growth in Nordic private equity deal activity has been underpinned by consistent, strong returns. According to figures from private equity software provider eFront, Nordic funds delivered the best returns in Western Europe from 1991 to 2018. Nordic funds secured a 1.91x TVPI (total value to paid-in) multiple, ahead of the TVPI multiple for Western Europe of 1.68x. 

Consistently strong returns and growth in deal activity has supported a rise in private equity fundraising targeting the Nordics. According to research firm Preqin, Nordic firms raised €36 billion (US$41.5 billion) in the five years from 2013 to 2017, up from the €26 billion (US$30 billion) raised over the preceding five-year period. 

Along with fundraising, the prevalence of megadeals (transactions exceeding US$1 billion) is up. Examples from 2018 to date include the US$2.1 billion sale of Finnish private healthcare company Mehiläinen by KKR and Triton to a CVC-led consortium, 3i Group’s US$3.18 billion announced exit of ferry company Scandlines to First State Investments and Hermes Investment Management, and the ongoing US$2.2 billion sale of fintech group iZettle by a consortium of venture investors to PayPal.

Healthcare services, business services and FIG at the vanguard

Despite lingering political uncertainty in the region, in particular in Sweden and Finland, the healthcare services sector continues to excite investor enthusiasm. The sale of healthcare company Mehiläinen stands as the third-largest private equity transaction in the Nordics in H1 2018. 

Also churning up activity is the business services sector, a trend jumpstarted in late 2016 when HgCapital carved out the business process outsourcing division of Visma Group (subsequently renamed Azets) to form the Nordic division of the newly created CogitalGroup. 

In February this year, IK Investment Partners announced plans to acquire the accounting, payroll and related advisory services of PWC Sweden, and then in June the company acquired KPMG Sweden’s business accounting services division, as well. Altor signed an agreement in March to acquire a majority ownership in the largest accounting and consulting firm in Sweden, LRF Konsult AB, for an undisclosed amount; soon after, LRF Konsult turned around and acquired digital accounting agency Bokoredo, also for an undisclosed sum.

The related financial institutions group (FIG) sector is similarly hot for Nordic PE investors. On the heels of EQT’s acquisition of Bluestep Bank last year from EMK Capital,  Nordic Capital, following last year’s successful exit of the payment provider Bambora to Ingenico, announced in March a plan to purchase online banking payments provider Trustly, and then in August announced plans to snap up Swedish economic data platform Macrobond Financial AB.

Sweden in focus

Long the most established private equity market in the Nordics, Sweden continued to lead the pack in H1 2018, recording the highest private equity deal value (US$7.6 billion) and attracting the most deals (60) over the period. Sweden also delivered five of the ten largest private equity deals during the first half of the year, more than any other Nordic country.

The US$2.2 billion sale of iZettle to PayPal has been the largest private equity deal in Sweden so far this year, followed by EQT’s exit of industrial automation company PIAB Group to Patricia Industries for US$802 million. In the biotechnology sector, a venture consortium sold Alexion Pharmaceuticals to Wilson Therapeutics for US$731 million. 

Finland pushes forward

In 2007, the US$2.84 billion in Finnish deals accounted for a fraction of the US$33.5 million total Nordic deal value. In 2018, Finland posted private equity deal value of US$10.4 billion—almost a quarter of the US$43.3 billion Nordic total. In Q2 2018, Finland delivered higher deal volume and higher deal value than both Norway and Denmark, its value surge led by the Mehiläinen sale.

Against this backdrop, the expansion of the private equity industry across the Nordics shows little sign of slowing. The region has delivered strong returns for dealmakers and investors, and the combination of economic growth, social stability and technologically advanced, export-driven companies should continue to provide a rich set of investment opportunities for private equity firms.

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