Nordic outlook remains upbeat despite 2016 slowdown

"More of the same" seems to be the message broadcast by Nordic private equity professionals when it comes to predictions for 2017. According to sources in the industry, themes central to Nordic private equity in early 2016 have not changed substantially and are expected to crop up again next year.

Upward price pressure, increasing competition and weakening of covenants remain among the chief concerns, while the availability of quality assets and overall economic health of the Nordic countries are again seen as providing excellent opportunities for private equity managers in the region to create value for investors.

"Nordic Capital's view of the Nordic private equity market is generally very positive," says Kristoffer Melinder, managing partner of Nordic Capital funds adviser NC Advisory. "We see significant opportunities in the region, while the continuous growth and establishing of new businesses creates new targets for PE investors such as Nordic Capital, which is active in the more mature mid-market."

Melinder tells unquote" Nordic Capital tried to avoid the highly competitive auction processes that were a recurring feature of 2016 and symptomatic of a lot of capital in the Nordic market chasing deals. With such activity pushing up pricing levels, Nordic Capital instead focused on proprietary and exclusive opportunities.

We see significant opportunities in the region, while the continuous growth and establishing of new businesses creates new targets for PE investors active in the more mature mid-market" – Kristoffer Melinder, NC Advisory

The sentiment was shared by many of the Nordic private equity professionals who had gathered for the British Private Equity and Venture Capital Association's first Nordic Forum, held under Chatham House rules in London on 22 November. Speakers at the event noted their surprise at the size of the opportunity that still remains for private equity in the Nordic region, and how the high pace of change in Scandinavia and its economic landscape drives the development of new sectors and the generation of attractive assets.

A look at unquote" data figures show a slight decline in deal volume and a substantial decline in value this year, compared to 2015. A total of 85 buyouts were completed in the Nordic market last year, compared to 72 so far in 2016 – suggesting a broadly similar year can be expected in terms of activity.

However, the difference in total deal value from 2015 to 2016 is more than €7bn – dropping from around €15.8bn to €8.7bn at the time of publication. The difference in combined value reflects a lack of mega-deals in 2016, with no transactions surpassing the €1bn EV mark. Two deals worth in excess of €2.5bn EV apiece were completed in 2015, whereas EQT's €1bn buyout of Danish web services business Sitecore remains the largest buyout this year.

On the exit side, 2016 also lags slightly behind its preceding year by 11 exits – excluding VC-backed companies – though a handful of exits are in the pipeline for December. "Nordic Capital has certainly been very focused on exits this year. We've taken advantage of an attractive capital market," says Melinder, referring to the GP's multiple IPOs. He says it is difficult to explain why there has been an overall drop in the number of exits this year, despite good exit conditions, but that one factor could be a lack of asset maturity: "Typically you would suspect that some of these companies aren't really ready for exit."

Macro factors
As is the case in most of the western hemisphere, Brexit and Donald Trump's presidency are inevitable points of discussion in the Nordic region as well. The Nordic economies are largely export-driven, with the majority of products and services sold into the EU. Denmark is the Nordic country with the largest exposure to the UK, with around 7% of exports going to Britain.

Despite the trading links to the UK, concerns about the impact of Brexit on the Nordic economies and PE market appears limited in the industry. Speakers at the BVCA's Nordic Forum listed the imminent Italian referendum, Trump's presidency and Russia as bigger concerns than Brexit, though even these issues were limited causes for concern in the near term.

Broadly speaking, unquote" sources in the Nordic private equity market are taking the view that the impact of Brexit and Trump's presidency will be reasonably limited and will begin to be felt in the mid-to-long term – though there is a shared belief in the Nordic economies' ability to adapt to new economic circumstances.

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