Nordic buyouts: Sailing to recovery

European buyout activity has been recovering over the last couple of years - but unquote" data suggests that the Nordic region is recovering faster and showing more resilience to the sovereign debt crisis than the rest of Europe. "Scandinavia is different" confirms a European debt advisor, who goes on to describe the Nordics as the only region in Europe where large deals are still possible.

The first half of 2011 saw remarkable buyout activity in the region. Two Swedish transactions, Dometic and Com Hem, reached in excess of £1bn each. A third, Securitas Direct, was valued at around £2bn. Swedish broadsheet Svenska Dagbladet recently highlighted, however, that financing for these deals has been difficult. Dometic, for example, was partially supported by a PIK loan, and the Securitas Direct transaction was financed with a high-yield bond and mezzanine capital. The deals have proven costly for the private equity firms, argues the newspaper which goes as far as calling it a private equity crisis.

Nonetheless, unquote" data shows that Nordic buyout volume approaches levels seen in 2006-2007. The second quarter of 2011 saw the highest aggregate deal value since early 2006. Furthermore, the region's share of total European buyout volume, which remained at an average below 15% between 2005 and 2008, started rising in 2009 and hit around 20% by July 2011.

The data demonstrates that the region has been doing well despite the European slowdown and sovereign debt crisis. A possible explanation for the relatively faster recovery is that banks learnt their lesson after the 90s banking crisis and were better prepared to deal with such turmoil. Indeed, Swedish financial newspaper Dagens Industri recently revealed that Nordic banks' liquidity buffers would last for 2-3 years if credit markets were to be tightened.

Alan MacKay, CEO of Hermes GPE, thinks the argument is valid up to a certain size: "Nordic private equity debt has always relied on regional bank clubs as opposed to securitised/syndicated CLOs for example. That is great for €2-300m of debt, but of no use above those levels. The Nordic mid-market is currently well banked but upper-mid and large-cap deals experience the same debt starvation as other regions."

MacKay's comment touches upon the relative regional orientation of Nordic private equity. Thus far in 2011, nine out of the ten most active buyout houses in the Nordics hail from within the region. In terms of debt provision, pan-Nordic bank Nordea is leading the league tables by far, followed by four other regional banks and three international investment banks.

"It is important to note that Nordic banks never had much, and today have effectively zero, appetite for private equity outside the region. As well as no global financial crisis overhang, they also have no private equity-specific problem cases to make them wary of the industry," he explains. Nordea CEO Christian Clausen commented in the bank's Q3 report that Nordea has "no direct exposure to the PIIGS countries," and it is believed that other banks in the region are in a similar position.

That said, the Nordic private equity industry is not oblivious to the crisis. After an eventful first half of the year, and sustained activity in July, buyouts ground to a complete halt in August and slowly picked up again in September and October. The region has, however, seen a similar drop in activity from Q2 to Q3 over the last couple of years, and follows a cyclical pattern of activity over quarters - which is why it would be difficult to suggest a lasting slowdown. The general trend certainly points upwards.

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• Topics
• Buyouts
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