Spotlight on: Nordics
The Nordic region – comprising Denmark, Norway, Sweden, Finland and Iceland – saw strong buyout performance in Q2. Clearwater International partners Tomas Almgren and Lars Rau Jacobsen reveal where the opportunities lie and what the future might have in store.
Deal value surged to €10.9bn – an increase of 57%
The Nordics is Europe’s smallest region by population, but it consistently punches above its weight when it comes to deal generation. This proved to be the case again in Q2 2022, with PE dealmakers inking a total of 41 transactions in the region, up from 37 in Q1. Deal value, meanwhile, surged to €10.9bn – an increase of 57% from the previous quarter. All of this contributed to a new record long-term deal multiple for the region.
Flight to quality
Inflation, rising rates and geopolitical uncertainty are having an impact in the Nordics as they are elsewhere. While this has done little to dent overall deal appetite, it is nonetheless affecting the type of deals that are getting done. “Weaker assets are more difficult to sell at the moment. But valuations are high for good assets, and we have seen a lot of strong deals completed,” says Tomas Almgren, Clearwater International partner in Sweden.
TMT contributed 41% of all Nordic buyouts, the highest proportion of such deals in Europe
TMT and healthcare assets are at the top of the list for PE acquirers seeking to reduce their risk exposure, says Lars Rau Jacobsen, Clearwater International partner in Denmark. “Speculative assets that need time to become profitable are a bit more difficult, while stable, cash-generating businesses remain attractive. This is general across all sectors, but healthcare and TMT are quite hot.”
The Nordic region is well placed to capitalise on the growing demand for safe-haven assets, particularly in the TMT space. In Q2 2022, TMT contributed 41% of all Nordic buyouts, the highest proportion of such deals in Europe. Indeed, records going back to 2014 confirm that the Nordic region produces a greater proportion of TMT buyouts relative to other sectors than anywhere else in Europe.
Healthcare is also attracting considerable attention
Healthcare is also attracting considerable attention. The first six months of 2022 saw eight deals in this sector totalling €5.6bn. Business services – another sector with strong safe-haven credentials – saw 15 deals worth a combined €4bn over the same period. “PE is keen on assets that they perceive as lower risk,” says Almgren. “We see good activity in business services – assets with recurring revenues are very attractive. These include online marketplaces, which are super attractive and getting high valuations.”
ESG and energy
With the energy crisis, we are seeing a lot of appetite for anything that has to do with renewable assets and the value chain behind it
Sustainability is another strong theme in Nordic dealmaking. “With the energy crisis, we are seeing a lot of appetite for anything that has to do with renewable assets and the value chain behind it,” observes Jacobsen. “We are going to see a lot of public investment to secure energy supplies and develop green energy resources, so that sector will definitely be of interest.”
Subsectors that typically do less well in turbulent times are also benefiting from the sustainability trend. Construction products are one example. Clearwater advised Denmark-based Troldtekt, a specialist manufacturer of wood-based acoustic boards, on its sale to listed Irish building materials group Kingspan. “Troldtekt to Kingspan was very much driven by the sustainability angle,” confirms Jacobsen.
The Nordic region is renowned for its ample supplies of renewable energy, which is one reason why it is so attractive for data-centre developers. But the picture is complex, explains Almgren: “Sweden has an energy surplus in the north. That makes it attractive for data centres, and there is huge investment in that area. But supplies in the south are constrained and electricity prices are 10 times higher. This is a concern for businesses because higher energy bills decrease consumer spending.” Sharp differentials in regional electricity pricing are also a feature of energy markets in Denmark and Norway.
The road ahead
What might the future hold for Nordic dealmaking? While the pipeline remains robust, deal financing is becoming more challenging, particularly for big deals that require financing from multiple bank lenders. “Syndicated loans for very large transactions are always a bit difficult,” notes Jacobsen. “But on the smaller and mid-cap deals, it still seems OK.”
With banks becoming more hesitant, dealmakers are increasingly looking to alternatives. “In Sweden, we are seeing a lot of people looking at private debt funds and other financing options. These have not been very strong in the market historically,” Almgren says.
TMT and healthcare are resilient to recession and they will definitely remain attractive
Despite the challenges, the region’s attractions remain undimmed. “We will continue to see a strong appetite across most sectors,” predicts Jacobsen. “Some specific consumer projects might struggle, but TMT and healthcare are resilient to recession and they will definitely remain attractive. We will also see activity in stable, cash generating business services and industrials businesses. So, we’re optimistic about what’s going on – and though we might see a decrease in deal activity during the next period compared to 2021, we need to remember that we are coming from an all-time record breaking year in the M&A market.”