Northern lights

Expectations of an improved exit market were high last year following the worst recession in recent memory. Despite some European economies experiencing difficulties, the Nordic region was seen as Europe's bright spot for economic recovery in 2010. With credit markets more or less back in play and confidence levels rising, many expected the improving conditions would result in some long-awaited exits.

But in fact, though up on 2009, exits recorded by unquote" in the Nordic region only managed to match 2008 levels, while they were down by 30% on 2007 and a full 60% less than in 2006.

The need to exit was further driven by the need to hit the fundraising trail, with a strong track record of paramount importance. Clearly, a few recent successful exits in the bag can go a long way, especially in times like these.

Sporadic sector success

Even if the last 12 months failed to generate a flurry of exits, some sectors did provide success stories: "Apart from certain sectors, such as healthcare, we do not feel that 2010 has been a particularly strong year for exits," says Taus Wolfsberg, head of private equity at KPMG Sweden. Notable disposals include EQT's sale of Aleris, CapMan's OneMed sale and Herkules' exit from Handicare.

High-quality assets made up the bulk of exits in 2010, though assets of lesser quality are expected to become easier to sell in 2011, according to Christopher Fägerskiöld, head of M&A at KPMG Sweden. Multiples for these transactions will be lower, however, owing to banks being less generous than in the past. "We will see an increased polarity between the price of quality assets and assets more affected by cyclical fluctuations or that require more capital expenditure."

As a result, Fägerskiöld believes that the number of exits is likely to increase in 2011. He also adds that industries particularly affected by the downturn will grow strongly in 2012, with 2010 having been a year of recovery and 2011 a stabilisation year. "Sellers will be eager to offload companies this year as it will enable them to point to strong prospects for the company in the coming year; something that is important for a successful exit."

Ways out

The different exit routes available are also likely to become more attractive, increasing the opportunities available for GPs. Although the Nordic region has seen a dramatic increase in secondary buyouts compared to 2009 (9% of all exits), its share of total exits is not out of line with those seen in previous years. In 2010, secondary buyouts accounted for 28% of all private equity-backed exits according to unquote" data, compared with 32% in 2007 and 23% in 2008.

Another exit route that made a comeback in 2010 was the IPO. Axcel's flotation of Pandora, valued at DKK 27.33bn, was the most notable IPO in the region. Since listing in October, the share price has increased by 65%. Not all IPO attempts have been as successful however, with a number of listings being pulled at the last minute, such as EPiServer and Falck. Despite strong stock markets, fluctuations have made judging the timing difficult.

Successful listings is a hurdle the exit market needs to overcome, says Tobias Thunander, head of debt advisory at KPMG Sweden: "Last year we had a mixed result with IPOs, which meant that sellers looking at dual-track processes chose to wait due to the nervous markets." With reports that EQT and GS Capital Partners are looking to list ISS, and Nordic Capital openly stating it is still pursuing a flotation of Falck, it is important that these plans materialise to instil confidence in the market.

As 2011 takes shape, an increase in deal activity and exits is likely to be seen. Exits are expected to take place across all types of sectors, and with industrial players recovering from the recession, trade sales are looking to become more frequent. According to Wolfsberg, preparations for a number of structured sales processes are already under way, which means exits in 2011, particularly from the second quarter onwards, will be increasingly common.

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• Topics
• Nordics
• Exits
• KPMG