Strong 2020 for Nordic tech, VC and IPOs, says Argentum

Following a subdued H1, which saw a slump in Nordic deal-doing caused by pandemic-induced lockdowns and uncertainty about the future, H2 stood in stark contrast as PE activity across the board picked up.

"If you take an overall view of the Nordic private equity space in 2020, I think we saw very strong activity, particularly in the last two quarters," says Joachim Høegh-Krohn, CEO of Argentum.

Venture activity in the Nordic countries has seen an upward trend for the past few years, and, despite the pandemic, 2020 was no different. Last year was a record year for venture deals in terms of deal volume, with a 13% increase, and for the amount invested, which was up by 116% compared to the average in the last five years. Overall, VC fund managers invested around €1.6bn in the Nordic region, according to the report, and 55% of all VC deals involved tech companies.

The dominance of the technology sector was reflected in the buyout space as well, which, according to the report, attracted 39% of all buyout deals, making it the largest sector for the first time in Argentum's tracking of the Nordic market. Høegh-Krohn says: "A few of the sectors that stand out are the tech, health care and life sciences sectors. It's a trend we'd observed for some time, but tech in 2020 was the strongest investment sector in the buyout space, and it was for the first time in our tracking of the Nordic market. And, while not at the same magnitude, we're already seeing a trend that healthcare and life sciences have seen an increased interest."

However, overall, the report found that there were 20% fewer buyout deals than the average between 2015-2019, with GPs investing €7.8bn in Nordic companies in 2020, a 4% decrease compared to the average in the last five years.

The report found that median entry multiples, which had been steadily increasing since 2009, fell for the first time in over 10 years, from 11x in 2019 to 10x in 2020. The fall in entry multiples was not exclusive to PE deals, though; all deals saw a reduction, says Høegh-Krohn, adding that while they were in decline in the first half of the year, they bounced back in the second half.

This was particularly true for some companies, particularly those in tech, which were able to capitalise on the pandemic and changing consumer patterns, leading to some large-cap transactions with high entry multiples.

Subdued year for exits, but IPOs surged
"Exits fell quite a lot in the first half of the year. They recovered in the second half, but didn't catch up. However, we saw a particularly strong fourth quarter and that trend has continued into the first quarter of 2021," says Høegh-Krohn, adding that he expects this year to be one of the strongest exit years in the last five years.

But while other ways of exiting companies were put on hold, the IPO activity was solid in 2020, especially in H2. The report found that 24 out of 82 Nordic IPOs in 2020 were PE-backed. The activity was led by "record-low interest rates, available liquidity and a domino effect of companies observing peers that listed successfully", Høegh-Krohn says in the report. He also notes in the report that the anticipation that valuations are more attractive on public marketplaces may also have played a role.

Of the 24 PE-backed listings, seven were on the Nordic main markets and global markets, and 17 were on alternative Nordic markets. "The trend is especially strong on marketplaces where the criteria for listing are low, like Euronext Growth and Nasdaq OMX First North. The mix of novice investors entering the market, the need for liquidity to finance growth, and existing owners wanting to realise their investment at attractive pricing, has led to an increase in IPOs," Høegh-Krohn says.

He adds: "One of the backdrops of that trend is that while multiples are decreasing in private equity last year, they have increased at the stock market, and I think that's one of the major factors causing the current IPO trend."

Segregated fundraising performance
According to the report, Nordic buyout funds raised €26bn in 2020, making it one of the only two years in the decade when fundraising surpassed €20bn.

But the three biggest fund closings, namely of EQT, Nordic Capital, and IK, amounted to €23.5bn and almost two-thirds of all capital raised in the previous 10 years – 90% of the total fundraising in the buyout segment in 2020. Meanwhile, 15 small- and mid-cap funds made up the remaining €2.4bn.

Høegh-Krohn says: "There is a segregated market, you have the Tier 1 funds and you have the Tier 2 funds; The former funds include the large firms like EQT, Nordic Capital, and IK, which are able to raise capital fast. In addition, there was a flight to security during the first half of the year at least, where investors were flocking to the larger players. On the other hand, we observed lots of funds last year that were struggling with closing their books, but that didn't apply to bigger players like EQT."

Outlook for 2021
Many of these trends have continued into 2021, says Høegh-Krohn, including the interest in technology and healthcare sectors, a keen interest for venture and the trend of companies going to the stock exchange. "ESG, which has been a strong trend for quite a few years, is also likely to be strong this year.:

Høegh-Krohn says GPs should be aiming to invest in high-quality companies that are resilient in the long run. "If you invest in quality companies and work with them through a crisis, turn them into an even stronger company. And this is what private equity is all about." 

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• Nordics
• Argentum
• Nordic Outlook
• coronavirus