2021 Preview: Nordic region weathers brunt of pandemic

With 2020 soon in the rear-view mirror, Sweden looks like a clear winner in terms of buyouts and venture capital dealflow in the Nordic region.

According to Unquote Data, 47 of the total 104 buyouts in the region took place in Sweden. Denmark, which saw the second highest number of buyouts, recorded fewer than half that number, with 22 deals, while Norway and Finland recorded 20 and 17 buyouts respectively.

Although Sweden did not undergo a government-imposed national lockdown, the pandemic caused a significant drop in activity in the first half of 2020. Compared with Q1 and Q2 of 2019, the first two quarters of this year saw a 29% and 33% drop in buyout deals, respectively.

But activity picked up quickly in Q3 2020, which saw a 150% increase compared with the same quarter in 2019 and a 50% increase when compared with Q2 2020.

Overall, Swedish buyout activity has not only recovered, but also surpassed 2019, a year that saw 42 buyouts completed between January and November.

Tomas Almgren, managing partner at Clearwater International in Sweden, said in Q3 2020 that the advisory firm was seeing "record levels of transactions, especially because of the suppressed demand from March to May".

Tech deals surpass industrials
Buyouts in the industrial sector have previously dominated the Nordic region, exceeding technology dealflow by more than half in 2018. This gap had narrowed last year, but in 2020, the number of tech buyouts finally exceeded the number of industrial buyouts, with 48 deals in the tech sector and 27 deals in the industrials sector. 

Companies in the tech sector have come out of the pandemic relatively unscathed, with many even benefiting from it. Companies in e-commerce, digital learning and telemedicine, for instance, have, by and large, experienced a surge in demand for their services due to a behavioural shift enforced by the pandemic. 

There are more businesses that are starting 2021 with a lower order backlog than normal due to a major hiccup in sales" - Anssi Kariola, Verso Capital

On the other hand, GPs have become cautious about companies in the industrial sector. Anssi Kariola, managing partner at Finnish carve-outs specialist Verso Capital, says: "There are more businesses that are starting 2021 with a lower order backlog than normal due to a major hiccup in sales. There will be an impact at least in those companies that tend to have a slighter longer delivery cycle. For software companies, the delivery cycle is very short, and the more descriptive item to look at is recurring revenue. If you have a recurring revenue model and you have a good customer base, then you already have a predictable base revenue for the subsequent year. But on the industrial goods side, my expectation is that it is going to take a little longer to recover because their order books are a little thinner than they were a year ago in many cases." 

On the venture side, the aggregate value of deals in the Nordic region stands at €3.5bn for 2020 at the time of writing, amounting to an average value of €15.3m per deal. While these figures are slightly down compared with the previous year, venture activity remained resilient in the face of the pandemic in volume terms, setting a record for the highest number of deals recorded in the past decade. Unquote Data recorded 233 VC deals in the region so far for 2020, already higher than the 212 deals seen in the whole of 2019. Of those 2020 deals, 87 were in Sweden, followed by 76 in Finland, 41 in Denmark and 26 in Norway. Finland has seen the most impressive jump (35.5%) compared with the same period last year. 

Looking beyond 2020
For those companies that have benefited from the effects of the coronavirus pandemic, next year may bring new highs. Verdane partner Henrik Aspén says: "Looking at the development of the e-commerce section of Verdane's portfolio, we have a number of businesses that have grown significantly and improved their profitability in 2020. I expect we will see more e-commerce businesses listed during the course of next year, and in 18 to 24 months' time, we may even see an IPO rush. It is important that advisers and sellers do not become too greedy and take advantage of demand by pushing out companies that are not ready for the stock market. That could lead to setbacks. But lots of companies are ready now."

Meanwhile, LP appetite for Nordic private equity remains healthy, despite challenging conditions, and this is reflected in the successful fundraisings that took place amid the pandemic, headlined by Nordic Capital Fund X, which held a final close in October 2020 on €6.1bn. 

Adam Turtle, managing partner at placement agent Rede Partners, says: "We still see a lot of demand for Nordic funds. I think it is still perceived as a strong, robust region right now. At this time, people are drawn to low-risk opportunities, and the Nordic region is in that stable, safe-haven bracket."

Overall, however, he says activity next year will be slower: "No one is in a rush to come to market, unless they feel they are in a really good place, so you will generally see fewer people in the market next year." 

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