Nordic region dominates Europe's IPO activity

Initial public offerings have captured Nordic private equity headlines this autumn. In October, the market saw three major flotations – Balco in Sweden, Webstep in Norway and Terveystalo in Finland – while in September, games developer Rovio listed on the Helsinki stock exchange.

Indeed, IPO activity has rippled across Europe this year, but the Nordic region stands out, accounting for 30% of European listings.

"The IPO market value for the Nordic region has increased further," says Tony Elofsson, head of ECM Nordics at Carnegie Investment Bank. "The region keeps punching well above its weight, when considering the relative size of the economy."

EY's global IPO trends report for Q3 2017 indicates that listings in the Nordic region in 2017 total 63, a 50% increase year-on-year. This is the highest IPO volume per region, with the UK in second place with 50 IPOs this year to date, central and southern Europe with 16, and the DACH region with 10.

Similarly, unquote" data highlights a year-on-year rise in public market exits for 2017. From January to October this year, 10 private-equity-backed IPOs were conducted, compared with seven for the entire year in 2016. Prior to that, there were 12 IPOs in 2015, with 15 in 2014 and seven in 2013.

"The exit routes have completely changed from only two or three years ago, when private equity typically overpaid [compared with] the IPO market," CapMan buyout partner Jan Mattlin tells unquote". He sees IPOs as a preferred option now, where previously the exit team operated on a dual-track process, with M&A coming first and IPO second.

The Nordic region is currently witnessing a positive cycle with IPOs performing well, which is raising awareness. "There's a lot of faith in the IPO route – it's all about confidence by both buy and sell side," Elofsson says. He has worked on the major Nordic private-equity-backed IPOs where Carnegie has been a global coordinator and joint book runner, including Balco, Terveystalo and Rovio.

Skewed values
On the aggregate value front, unquote" data shows that IPO exits are significantly below last year's aggregate. The combined value so far in 2017 is €3.69bn for 10 deals, compared with €8.61bn for seven deals in 2016. However, last year's figures include one of Europe's largest IPOs to date, Nordic payments group Nets, as well as CVC-backed Swedish plumbing and tools wholesaler Ahlsell, which together accounted for an aggregate market cap of €6.1bn. Excluding these big IPOs, the yearly aggregate for 2016 was €2.5bn, indicating that 2017 is not as far behind as initially presumed.

The high valuations are partly fuelled by the current interest rate level, says Elofsson. How much higher valuations can go will depend on the market interest rate cycle, he adds. On this front, the ECB's monetary policy announcement on 26 October revealed interest rates are to remain at the present level, with the governing council saying it expected this to remain the case for an "extended period of time". Nordea's chief European analyst Holger Sandte said at the time that inflation is expected to rise gradually, while exchange rates represent the most uncertainty and need monitoring. In the capital markets, however, nobody is willing to bet on when the interest rates may change.

Interestingly, high valuations are not the only factor bolstering confidence in floating portfolio companies. IPOs have become a credible alternative even in the sub-€100-200m region, according to Per Skoglund, director at Carlyle.

Market sources agree that high IPO activity will continue for some time ahead, having gained on M&As as the preferred option in a dual-track exit route. The exit ratio for companies could already be in the 50/50 region when it comes to IPOs versus other exit choices.

"As long as this [low or negative interest rates and returns] continues to be a phenomenon, the IPO option will be a great exit route for private equity investors," says CapMan's Mattlin.

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• Topics
• Nordics
• Exits
• IPO
• Norway
• Sweden
• Denmark
• Finland