Nordic giants drive region's aggregate value jump

The aggregate value of buyouts in the Nordic countries jumped to €25.7bn in 2018, a 66% increase on 2017's figure, which meant the region accounted for 14.3% of all capital deployed in European private equity last year.

A large portion of this uplift was driven by deals valued at more than €500m, as the seven deals closed in that bracket in 2018 accounted for €16.7bn of aggregate value, compared with the €7.9bn deployed across five deals the year before.

This is perhaps not surprising considering the funds that closed in the first half of the year, when the region's two largest GPs wrapped up their flagship buyout fundraises: EQT VIII hit its €10.75bn hard-cap in February and Nordic Capital IX closed on €4.3bn in May.

"We saw strong dealflow in the Nordic region in 2018, particularly compared with other parts of Europe, partly due to macroeconomic stability in the region," says Nordic Capital's Kristoffer Melinder. "Being a local player is still crucial in the Nordic region and the vast majority of primary deals are being completed by local funds even at the large-cap end. It is important to have a strong team on the ground. At Nordic Capital, we completed a number of proprietary deals in 2018 as a direct result of local relationships that we have been cultivating for many years."

This assertion is supported by Unquote Data figures, which show that three out of the seven deals in excess of €500m in 2018 were completed by either Nordic Capital or EQT Partners, comprising more than 50% of overall value.

Back at the block
Nordic Capital and EQT are likely to be joined by a third large-cap player with a strong historical presence in the region in 2019, after Triton V hit its €5bn hard-cap in the early weeks of the year. "We view the Nordic countries, each with their individual characteristics, as attractive markets for acquisitions in Triton's core investment segments, and have offices and strong teams in place in each country," says Triton's Thomas Hofvenstam. "We aim to invest in fundamentally sound businesses where there is a role for us to support management in driving operational or structural improvements and continuous growth, including active buy-and-build strategies. With our newest fund in place we will be an active investor in the coming years."

Fundraising is expected to pick up in the bracket just below this as well, as GPs, including Altor Equity Partners and CapMan Group come back to market. Altor is also expected to wrap up its fifth fund in a first and final close by the end of the first quarter of 2019 after raising €2.5bn for its fourth vehicle, while CapMan has launched its 10th buyout fund after deploying €600m from its ninth. Says Nordic Capital's Melinder: "The fundraising market is active and there were a number of funds raised in 2018, including our own Fund IX, which enjoyed very strong demand from investors. This high level of interest from LPs in Nordic funds can be attributed to consistent outperformance and strong returns in the region. We expect this to continue in 2019."

There are many investment opportunities for medium-sized businesses looking for PE backing to help them to grow domestically and internationally" – Kristoffer Melinder, Nordic Capital

As these funds in the core mid-market space begin to deploy, it is likely that the €250-500m deal bracket will experience a boost in volume and value in 2019, in the same way that Nordic Capital's and EQT's funds bolstered dealflow in the larger brackets in 2018.

Melinder sees this as a positive trend and a good source of dealflow for the larger funds: "There are many investment opportunities for medium-sized businesses looking for private equity backing to help them grow domestically and internationally. We have seen particularly strong opportunities within the financial services, tech and payments sectors in the Nordic region, and we expect this to continue into 2019." Nordic Capital acquired payment technology business Trustly from Bridgepoint Development Capital in March, generating an 8.8x return for the latter. It also invested in two financial services businesses during the year, Marcrobond and Nordax Finans.

Looking ahead in 2019, Melinder acknowledges that, with the increased competition, "dumb money will always chase deals". He adds: "The most successful funds will be those that combine experience, strong market reputations and consistently high performance. We welcome the higher bar, which is a win-win for investors and experienced GPs."

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