No plain sailing in Nordic waters

While the Nordic economies are in relatively good shape, deal flow has slowed and deal value has dropped significantly in the second half of 2012.

Deal flow has slowed in the
Nordic economies.

The Nordic economies have sailed relatively well through the economic crisis. The saying “it’s grim up north” does not stack up for the Scandinavian economies. Compared to their southern neighbours, there’s low government debt, low unemployment and the region’s banks are well capitalised and still lending.

However, deal flow and deal value has slowed in the last year, according to data provider Mergermarket. In the first half of 2012, there were 53 fewer deals than in the first half of 2011. Deal value dropped to €24 billion in the first half of the year, compared to €28.9 billion in the same period last year. 

The difference in deal flow compared to last year is striking. In the second half of 2011, there were 351 deals, with a total value of €22.1 billion. So far in the second half of 2012, there have been 204 deals with a total deal value of €6.8 billion. In the last 12 months, there has been a very significant decline in larger transactions, says Mathias Berggren, lawyer at DLA Nordic. A number of controlled auctions his firm advised on were pulled.

“The completion time of the transactions, even if it’s a minor one, is significantly longer than it was two or three years ago. The main reason is that firms are very careful not to rush into something that they are not sure of. The commercial and legal discussions seem to be much lengthier than they were before,” he says.

Deal flow is a bit slower, maybe below average for both smaller and larger deals – things just take longer to complete, but it's not dead, not at all

Caspar Callerström

While deal flow is down, it’s not completely gone, according to Caspar Callerström, a partner at EQT. “Deal flow is a bit slower, maybe below average for both smaller and larger deals – things just take longer to complete, but it’s not dead, not at all,” he says.

EQT has been relatively busy in the last year. In October, the firm acquired a 70 percent stake in Danish retail chain Tiger for an undisclosed amount and in August, it acquired IT software vendor UC4 for €220 million. In June, the firm bought BSN Medical from Montagu Private Equity for €1.8 billion, which is the largest European deal so far this year, according to data from CMBOR.

These days, the advantage in finding opportunities appears to be with firms able to execute on proprietary transactions, according to Joakim Karlsson, a partner at Nordic Capital.

“In Europe, fewer companies have been for sale and anyone who relies on structured auction processes has a hard time finding investment opportunities,“ he says, adding that structured primary buyouts opportunities are rare. “However if you have an ability to more or less create your own deal flow, then you stand a much better chance of doing deals,” he says. Nordic Capital has completed six deals in the first half of 2012. In July, it bought a 55 percent in Resurs Bank. In May it acquired a Danish sports chain called Sports Master and Tokmanni, a Finish discount store. Earlier this year, it also acquired Europris, a Norwegian discount retailer, from IK Investment Partners.

Debt availability

While senior debt is not as widely available as in 2005 and 2006, it is still possible to get financing for deals. “The market has polarised a bit,” says Callerström. “For good companies in good industries, it’s still good. Credit is available. For not so good companies in not so good industries it’s very difficult.” Gert Munthe, managing partner at Herkules Capital agrees. “A couple of years ago staple financing was available to everyone, those days are definitely over. Banks are getting very selective,” he says.

A good track record is key, according to Munthe. “Banks are having a much more firm view on who they are backing. We still do get leverage, which you very often do not get outside the Nordic region,” he says, adding however they “get less and pay more” for senior debt.

If anything, the market has normalised and behaves much more like how it used to be, Callerström says. “In general it’s a good thing, because it’s a sensible thing.”


While private equity deal flow has dropped, firms operating in the Nordic region have managed to carry out some successful exits in the last year. In May 2012, Nordic Capital sold Fougera, a pharmaceutical company for €1.5 billion. In the same month, it sold another pharma business called Nycomed to a Japanese strategic, called Takeda Pharmaceutical Company, for €9.6 billion. It is understood the Nycomed investment generated an exit multiple of approximately 5x. The capital gains are understood to be one of the largest for private equity globally to date.

You can no longer set up an auction and think that's done. We are back to our roots, back to how it used to be and that takes a lot more effort and skill

Joakim Karlsson

Yet it does not mean exiting is easy in the Nordic region. In the last couple of years, EQT has repeatedly tried to divest ISS, a Danish service group, but failed. EQT originally invested €3 billion in the company in 2005, alongside Goldman Sachs Capital Partners. In February 2011, EQT and Goldman prepared to exit the company through an IPO, but this was postponed because of market uncertainty. In November 2011, the firms tried to sell the company to G4S for £5.2 billion, but this was vetoed by G4S’ shareholders. In August 2012, the company received a €500 million cash injection from Canadian institutional investor Ontario Teachers’ Pension Plans and KIRKBI, a Danish family office, to deleverage the company.

Exiting is not as simple as it used to be five years ago, says Callerstrom, who declined to comment on ISS. “You can no longer set up an auction and think that’s done. We are back to our roots, back to how it used to be and that takes a lot more effort and skill,” he says. Karlsson acknowledges exiting can be hard in the current climate. “If you are reliant on the secondary buyout market, selling a business is a bit more difficult”, says Karlsson. “But if you create good companies with solid underlying positions then it’s [still] possible to exit a company successfully.

While the Nordic region has been holding up reasonably well in the current climate, it has not completely managed to escape the bad economic weather. However, Karlsson remains optimistic.  “The expected growth going forward is much stronger in the Nordic region than compared to the rest of Europe,” he says.