"Our favourite holding period is forever" as said by Warren Buffett

Deal volumes and values

The trend of smaller deal values predicted for the Nordic region is already observed in the other European markets. Surprisingly, the lower brackets of below EUR50m have sharply increased in Europe since mid-2007, suggesting that sellers are also willing to accept lower valuations. A drop in deal values is also an inevitable consequence of a squeezed lending market, where the debt equity ratio is falling and loan costs are increasing.

Halfway through the year in the Nordics, volume is only slightly more than one third of 2007's figure. One reason could be that vendors are holding back, potentially in the hope of obtaining prices closer to the highs seen in 2006 and early 2007. The buyer, on the other hand, is seemingly awaiting even better bargains, creating a situation where one party is longing for yesterday's price, and the other tomorrow's. Furthermore, it has been suggested that private equity firms are now preparing for a period of add-on acquisition and a focus on building portfolio companies.

A survey among UK private equity firms showed that 91% of firms are holding onto their investments, supporting the notion that in tougher economic climates investors hold onto firms for longer periods. One example is Altor, which reportedly has expanded the life span of its new fund to 15 years allowing them not only to build and grow the companies, but probably more importantly, await the most favourable moment to sell.

Exits

This retaining of investments naturally affects the number of exits. Notably, in this issue we feature only one recapitalisation and not a single complete exit. It is a far cry from the record year of 2006 which saw both deal values and exit gains reaching new heights. Private equity firms reaped generous rewards as both IPOs and trade sales reached new peaks, which most predict the market will not see for some time to come. Given the current turmoil in financial markets, predictions should be avoided, although most commentators agree that IPOs seem an unlikely option in the foreseeable future. Additionally, there are investors, like Norvestor for example, which have announced their preferred exit strategy to be trade sales regardless of market conditions.

New opportunities

The Nordic region, unlike Europe, has seen a sharp decline in early-stage investments over the past few years. The sheer deal volume in seed, early-stage and expansion deals in recent months however, suggests that this trend is about to turn. The poor credit markets and difficult economic times make venture an attractive option, hopefully with prospects of strong future exits when normality is again restored.

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