Spotlight on M&A in the Nordics

This article is an extract from the European M&A Outlook 2023: Boom & Gloom? For the full report, follow the link at the bottom of this page.

Johan Svedberg (Corporate/M&A Partner, CMS Norway) reacts to the findings of the European M&A Outlook 2023 and shares his thoughts on the outlook for the Nordic region.

Briefly, how have the Nordics performed so far this year?

Overall, performance so far this year is somewhat weaker than in 2021. The market is continuing to feel the ripples from the war in Ukraine and prior to that it was the Omicron variant of the coronavirus which was affecting the region at the start of 2022.

There were 962 of deals in the Nordics region in the first half of 2022, worth EUR 56.3bn This was a significant 11% drop in volume compared to the prior year, although values increased 7% (if propped up in no small part by Philip Morris’s EUR 16.5bn offer for tobacco producer Swedish Match). For comparison, overall European M&A also saw an 8% decline in volume and a 1% uptick in value.

Nevertheless, from an historic perspective, 2022 is still a strong year. We have seen an encouraging bounce back of mergers and acquisitions across the Nordics, which has contrasted with weakness in the capital markets where we have seen fewer IPOs as a result of high interest rates, inflation and more expensive capital.

There are still many deals in the pipeline too, both across capital markets and private M&A. We may see a significant rise in deal activity towards the end of the year, or potentially the beginning of 2023, depending on how circumstances affecting the current market situation continue to play out.

What have been the main drivers of M&A activity in the Nordics region so far in 2022?

Private equity is still very much at the forefront of activity in the region, with PE being strongly represented among the 20 largest acquisitions in the Nordics during H1. Many of the major Nordic PE players have been active in raising money and we have seen large deals involving them (i.e. Axcel in Denmark, EQT in Sweden and HitecVision in Norway).

From a sector perspective, the consumer sector has seen the greatest value of deals but this is driven largely by the huge Swedish Match transaction. TMT as well as industrials and chemicals were the next best performers though with EUR 10.1 billion and EUR 9.5bn worth of deals respectively. The tech sector was also the most active in terms of deal volume, with a total of 235 registered deals in the Nordic countries and well ahead of manufacturing & industrials as runner-up with 151 deals.

 The energy sector has also been lively. The trend towards renewables deals is cooling off a little, while oil and oil services deals are recovering amidst the current geopolitical climate. In Norway in particular we also see fish farming as a winning sector, with strong performance so far this year from a deal value perspective.

We are expecting to release this year’s European M&A Outlook in a very different macroeconomic environment than last year’s report. What is the macroeconomic outlook for the Nordics region?

The Nordics, and Norway in particular, are in a strong position. In contrast to many other countries, we have not yet experienced as high inflation as in many other countries. This gives us some cause for optimism but things could change, of course, and we are monitoring the situation. However, higher interest rates, the increase in inflation, as well as increased commodity prices in the rest of the world will most certainly continue to affect investment activity in the second half of 2022 negatively.

Despite the fact that Norway has not experienced high inflation, the threat of inflation affects our due diligence exercises and the way we are analysing the businesses of companies. For example, are cash flows locked in or is there potential to re-negotiate contracts? Short term contracts may suddenly be more attractive than before, as it gives more flexibility for a company, an important thing in an uncertain market with a potentially high inflation.

Overall, though, our view is that as long as there are good assets available, there will be buyers that are willing to pay for them.

What sectors/countries do you expect will remain active in terms of deal activity in the face of an economic downturn in the coming 12 months?

We are seeing increased interest for companies with a substantial cash flow, and with a high growth potential. Investors are steering away from early phase companies and we have seen a significant drop in the share price of listed early-phase green companies so far in 2022. Based on what we are seeing on performance so far this year, our view is that the ESG, technology, energy as well as infrastructure sectors look the most attractive going forward, as well as the so-called “blue economy” – that is, the sustainable use of ocean resources.

The oil and oil service industries have defied the expectations of some. Far from being “dead”, they have seen a resurgence in 2022 so far in light of the geopolitical climate. There will still be high interest for green ESG investments however, particularly with the EU taxonomy being implemented in Norway during the second half of 2022, and the ESG reporting requirements that will follow. Consumers are focusing on green behaviour and sustainable lifestyles, and this will ultimately affect which targets are the most interesting for investors.

To download the full report please follow this link