More balanced economy for Norway as tech attracts investors

The total number of Norwegian private equity deals in H1 2017 reached levels last seen in H1 2015, according to unquote" data, with 16 deals recorded compared to nine in each of the three preceding semesters.

The figures come on the back of a recent upturn in the country's overall economy after the squeeze of 2014-2016, which drove the country into its most significant economic crisis in more than two decades. Since then, the centre-right government, which was re-elected in September, has fuelled the recovery by investing money from its sovereign wealth fund at the highest rate ever recorded.

Of particular importance has been the support for highly skilled engineers, previously employed in the energy sector. The inevitable restructuring and layoffs have prompted engineers to look for new employment opportunities, frequently starting their own companies. Considering the shift in Norway's economy, an increase in private equity deal volume is a natural progression, says Bjørn Stray, co-founder of venture capital firm Northzone.

Distorted values
While the volume of private equity deals has increased steadily, aggregate value in the country has soared in the first half of the year, with the €6.3bn figure representing a 177% increase on the €2.3bn figure seen in H2 2016 and an impressive 714% up on the first half of last year. Yet, as is argued by Fredrik Näslund, partner at Nordic Capital, a handful of huge private equity deals – primarily HgCapital and KKR's investments and divestments of software business Visma – are overshadowing the investment picture. "The recent big Visma deals are high-value transactions that are driving up statistics," he says.

The 2014 Visma deal saw buyout houses HgCapital and KKR each take a 31.3% stake in the Nordic software business alongside new backer Cinven, in a deal that valued the business at NOK 21bn (€2.5bn). Meanwhile, this year KKR agreed to sell its entire stake in the business to a consortium of investors led by HgCapital, in a deal valuing the business at NOK 45bn – the largest ever European software deal.

According to unquote" data, two other large deals in Norway contributed to high aggregate values. In July 2014, Altor and Swedish investment company Investor AB sold their combined majority stake in debt collection agency Lindorff to Nordic Capital for an enterprise value of €2.3bn, while in December 2012 Swedish GP Ratos acquired 32% of Norwegian oil services company Aibel, a buyout worth €1.16bn.

Indeed, setting aside mega-deals valued at above €1bn, unquote" data shows a decrease in aggregate value from €2.3bn to €1.5bn in H1, though this figure is still the second highest total since H2 2014. Notably, the H2 2016 figure represents the second highest total ever recorded in the country, suggesting there is a marked uptick in investor appetite.

The whole ecosystem in Norway is picking up speed again. We are seeing seed funds, incubators and entrepreneurs with a lot of enthusiasm" – Bjørn Stray, Northzone

While change is afoot in Norway, it will also take some time for the growth trend to become embedded. "It's fairly early days in Norway," Northzone's Stray says. "The whole ecosystem in Norway is picking up speed again. We are seeing seed funds, incubators and entrepreneurs with a lot of enthusiasm." He adds that the VC is seeing attractive companies in the gaming space and in less glamorous segments such as micro-chip processing companies.

For Nordic Capital, Norway is an important market, says Näslund, and is about more than just oil and gas. The GP is not investing in that sector, but instead focusing on five core industries: healthcare, financial services, technology and payments, industrial goods, and consumer retail.

However, the oil price has shown signs of recovery, rebounding to above $50 per barrel of crude, and will continue to drive demand for some time yet. But there are signs that Norway is becoming a more balanced economy. Excluding oil and gas, the market is likely to see continued growth in the technology sector.

"If you look back five years, the number of venture opportunities in technology were too small compared to the size of the economy and number of engineers employed by the oil industry," says Stray.

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