Technology buyouts stall in Nordic region

The number of technology buyouts in the Nordic region sat at 30 in 2019. The previous year saw 28 buyouts, while 2017 saw 30, suggesting a plateau in deal activity in the sector.

The region's share of European technology deal volume also dropped to 15%, the lowest share in more than five years. Its share of European technology deal value dropped more dramatically to 11%, down from 40% in 2017.

Deal value for the sector was sluggish, reaching €4.5bn in 2019. While this represented an increase on 2018's €4bn, it failed to match the €6bn recorded across the sector in 2017. The Nordic region normally has one technology deal each year that is valued at more than €500m. In 2017, that deal was the acquisition of Visma by a consortium led by Hg for NOK 45bn (€4.8bn). Last year, the sector's largest deal was Francisco Partners acquisition of EG for NOK 5.4bn (€558m).

The falling share of European activity could be explained by other European markets becoming more focused on the technology sector, following the Nordic region's early adoption of emerging technologies. Volpi Capital is a pan-European investor with a focus on tech-enabled B2B software, data and services; Volpi investment professional Erik Berggren says: "The exciting thing about the Nordic countries is that people are open to adopting technology. Digital transformation within most industries has come much further than elsewhere." However, increasing activity in the sector in the UK, Germany and France now means healthy competition. While France and the DACH region's technology buyout activity usually mirrors Scandinavia's, in 2019 both regions surpassed the Nordic region, with 39 buyouts each.

Sluggish activity may also be a result of high multiples, which may have reached a level that GPs can no longer justify paying. Partner Thomas Klitbo of IK Investment Partners says: "Business services, TMT, software; these types of industries attract quite high multiples."

Both the Nordic region and the technology sector top their respective categories in Clearwater International's Multiples Heatmap. Entry multiples for TMT buyouts in Q4 2019 reached an average of 12x EBITDA and the Nordic region reached an average of 11.5x, according to the report.

Says Berggren: "Recent years have seen quite a lot of activity in the Nordic region, though I am not surprised if processes have slowed to some degree because of pricing. There can be a disconnect in valuation expectations from shareholders. Companies might also be brought to market a bit too early. Processes sometimes do not end up crystallising as a result."

The future is bright
Although mature, the Nordic private equity market is also small, with a total deal volume of 125 for 2019 – and it is conceivable that the number of technology companies available to private equity buyers may have reached a ceiling for now.

However, the societal factors that gave the region a reputation in technology are still in place. Finland and Sweden take first and second place respectively in the European Union's Digital Economy and Society Index, with Denmark coming fourth after the Netherlands. The distribution of technology buyouts was also fairly even across the region in 2019, demonstrating the spread of technological innovation that can make for a more vibrant ecosystem. Sweden accounted for 10 deals, Norway eight, Denmark seven and Finland five.

Klitbo says: "The technology ecosystem is very healthy and there is a pipeline of interesting early-stage companies. The rise in both structured venture capital and private VC is supporting great ideas and great people whose companies are growing rapidly and have attractive business models."

Nordic venture funds holding a final close in 2019 in the region raised €1.5bn, the highest level since 2016, according to Unquote Data. Although some of these funds, such as EQT Ventures II, have a pan-European investment strategy, much of this capital will be invested in technology companies in the Nordic region – potentially fuelling a healthy pipeline for buyout players down the line, provided the multiples on offer remain within reach. 

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