Nordic buyers increase dependency on family vendors

In the first half of the year, the Nordic region saw 48 buyout deals completed, according to unquote" data. Setting aside the three-year peak of 57 deals witnessed in H1 2016, this remains around the mid-40 mark that the region has consistently seen over the last six half-year periods. Market observers told unquote" there is no immediate change in appetite or attitude for assets in the region. The Nordic countries remain active, but it is unclear if deal volumes can sustain the strong performance of recent years.

Deal purchases in the market have typically centred on entrepreneurial businesses and corporate spin-outs. However, a large proportion of investors are now buying from families and entrepreneurs. Indeed, in H1 2017, family vendors accounted for 65% of all private-equity-backed buyouts in the Nordic region; the highest ratio recorded over the last six half-year periods.

Of course, there is a finite number of these companies available that have not already received external backing, says Carnegie's head of M&A Erik Laestadius, and this is driving up competition and hence pricing. This is reflected in the aggregate values, which despite stable dealflow rose for the third successive semester reaching €9.6bn in the first six months of the year – the second highest total since the €12.2bn figure recorded in H2 2015.

In H1 2017, family vendors accounted for 65% of all private-equity-backed buyouts in the Nordic region; the highest ratio recorded over the last six half-year periods

On the other hand, as various sources highlighted, Nordic corporates continue to actively seek out buyers to sell off their non-core assets. This has fuelled PE-backed spin-out activity in recent years, although in the first half of this year, acquisitions from corporates accounted for just 8% of all buyouts. This is slightly up on the 7% figure recorded in H2 2016, but below all other half-year periods over the last three years.

A handful of companies in the market have been rumoured to be en route to an exit for the past two years, with market participants expecting to see carve-outs particularly in the healthcare, TMT, financial institutions and industrial sectors.

Deal size dictates activity
Despite the frothy prices mentioned previously, large deals in excess of €500m remain rare. In the first half of 2017, the Nordic region saw three buyouts worth €500m or over, according to unquote" data. This is slightly up from two deals in both H1 and H2 of 2016. In 2015, by comparison, three deals within this value range were sealed in the second half of the year with none recorded in the first, while 2014 saw the highest volume recorded over the past three years, with four deals inked.

Valuation levels in the public and private markets are comparatively high, agrees Alireza Etemad, partner at IK Investment Partners. According to the Q1 unquote" and Clearwater International Multiples Heatmap Analysis, entry multiples in the Nordic countries averaged 10.5x in Q1 of this year, making assets more expensive than other more established regions such as the UK and France. There are few signs of this reducing in the short term but all markets remain fragile to what is going on in the overall economy and global politics, Etemad told unquote".

Meanwhile there has been a relatively stable number of deals below €250m in comparison to recent years. In the first semester of 2017, 43 deals were recorded, according to unquote" data – a decrease on the 52 seen in the same period last year, but up from the 33 witnessed in H2 2016. This is in line with the 34-52 volume range seen within the price range in each of the last three years. Similarly, the increased prominence of small-cap and lower-mid-market deals are to be expected in a region that is dependent on family vendors as its primary source of dealflow. To take advantage of this, PE firms, including Triton, EQT, IK Investment Partners and Bridgepoint, have recently launched funds specifically targeting this area of the market.

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