Entry multiples stay frothy in Nordic region

Fierce competition and a prevailing buoyant economy have kept entry multiples – and corresponding asset prices – at a high level in the region's private equity market. But these factors have not slowed down buyout activity so far, as deal volume and value in Q2 remained on par with previous quarters.

According to the latest Clearwater Multiples Heatmap report, European private equity entry multiples dropped to an average of 9.9x in the first quarter of 2018. This represents the first time the average multiple has fallen to single digits since Q1 2016, and also shows a steady decline since Q2 2017.

While multiples across the European private equity landscape appear to be cooling down, the Nordic area reigned as the hottest region over the period, with a slight increase in average multiples to 10.5x over the period, but a little below its longer-term average of 11.0x.

Indeed, market observers still perceive the European market to be competitive with numerous bidders in most auctions, and this applies even more to the Nordic market. "If you had to describe the current market in Europe, it would be: seller-friendly, borrower-friendly and management-friendly," says Johan Steen, partner at White & Case.

The Nordic area continues to be a politically stable region with low corruption, good investor protection rights and historically active M&A, which attracts attention to the auction processes. Additionally, a recent dip for the Swedish krona has made it relatively cheaper for international investors and companies to buy Swedish assets, which drives up multiples in auction processes.

Hot spots
According to Clearwater, figures in the Nordic region are driven by high-multiple deals in the TMT and business services sectors. Financial services, along with food and beverage targets, also attracted high prices in the region, but accounted for a lower proportion of deals.

A look at Unquote Data reveals a number of business support services deals in the Nordic region were transacted at more than 12x EBITDA in 2018 – these included ProData Consult, Prenax and Solita. In the financial services space, Hellman & Friedman's takeover of payments service Nets, de-listed in February, valued the business at around 16x EBITDA.

The Nordic healthcare sector is slightly below the average multiple, but this broad bracket includes pharma, medical devices and healthcare services. Additionally, it is surrounded by political uncertainty, especially in Sweden and, as such, sees lower historical multiples. However, the sector could still hold hidden gems.

"Healthcare could still offer interesting buys and add-ons for long-term investors, who are able to absorb the risk. Despite inherent political risk, this sector has still seen a fair amount of deals being made over the past two years and we continue to see a lot of deals in the Nordic region," says Steen.

If you had to describe the current market in Europe, it would be: seller-friendly, borrower-friendly and management-friendly" – Johan Steen, White & Case

One healthcare deal that recently commanded a punchy entry multiple is Finnish healthcare service Mehiläinen. Triton and KKR sold the asset to CVC Capital Partners and co-investors, in a deal reportedly valued at €1.8bn in May. According to a source with knowledge of the situation, the figure is based on publicly available data that indicates Mehiläinen reported a €93m EBITDA in 2017, and that EQT-backed peer Terveystalo was most recently valued at around 15.5x.

Looking at the long-term picture rather than quarterly trends could reveal insights into what the industry could expect for H2 2018. Multiples might deviate from quarter to quarter, but industry observers believe multiples will remain high in tandem with low interest rates. Additionally, disruptive assets continue to be on investment professionals' agenda.

"Technology continues to attract record investment and the Nordic region is a European tech power house," says Sven Raeymaekers, a partner at GP Bullhound. Sub-sectors such as fintech and online technology are also likely to continue drawing attention, in addition to healthcare, business services, utilities and infrastructure.

"The pipeline ahead looks good," says Steen. "We have an unusually good visibility already now and autumn will be very busy with several large complex new deals for us."

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