Global Deals Drive Nordic M&A

In recent years, the Nordic region has become known as a European hub for technology and start-ups. In fact, Stockholm, Sweden, has been dubbed the “start-up capital of Europe.” According to data from investment firm Atomico, Stockholm is actually the second most prolific tech hub in the world on a per capita basis behind Silicon Valley. With many start-ups and a sustained period of low interest rates across the region, money is cheap and available. These favorable conditions are also reflected in IPO activity, where Sweden had a record-setting year in 2017. Will this pace continue?

Let’s examine M&A deal activity across the entire Nordic region. Looking at quarterly activity over the last five years, we see a trend toward higher transaction values in the last year, even as the total number of deals has eased.

Focusing on the last 18 months of M&A activity (April 2017 through September 2018) provides some interesting insights. Sweden has the most transactions, with 732 deals accounting for 43% of the deals in the region. However, Sweden accounts for just 25% of the region’s total transaction value, with the lowest transaction average of the four countries ($121 million). At the same time, Denmark has the highest average transaction value ($592 million) and makes up 34.8% of the total transaction value of the region.

Deal Values and Number of Transactions by Country (Mil. USD)

Note: Data represents transactions with reported values                                                                                                                                     Source: FactSet

Breaking down the data by sector, Technology Services accounts for 13.8% of all transactions in the last 18 months, closely followed by Commercial Services, with 13.2%. Together with Industrial Services (9.3%), these three services sectors represent over 36% of all transactions. Clearly the services sector is driving M&A activity in the region.

Breakdown by Sector – Number of Transactions

Source: FactSet

Turning to transaction value, we see that Communications, Finance, and Industrial Services top the list with 15.7%, 13.4%, and 13.2% of the region’s total transaction value, respectively. The Communications sector led despite only having 14 deals, while Technology Services had 64 transactions with published transaction values.

Breakdown by Sector – Transaction Value (Mil. USD)

Source: FactSet

Now let’s examine the international acquirers of Nordic companies. Out of 1,706 deals over the last 18 months, 461 have involved an international acquirer, representing just over 27% of the total volume. Not surprisingly, “Several Countries” comes in at the top, since many deals involve multiple parties. The U.S. comes in as the number one single-country acquirer of Nordic companies with 78 transactions, while European companies make up the rest of the list, together with Canada and Japan. France is the standout country when looking at the average transaction value of the deals, with an average deal value of nearly $1.6 billion.

Top 10 Cross-Border Inbound Transactions (Mil. USD)

Source: FactSet

Looking at deals going in the other direction, we see that the Nordic outbound M&A data mirrors the inbound transactions. The U.S. was the destination in 88 transactions, with Germany and the UK coming in close behind with 82 and 79 transactions, respectively. We should also note strong activity in the Netherlands and France, with 42 and 39 transactions, respectively. The proximity of many of these countries likely explains the large number of deals, with the European Union’s regulations creating a unified system throughout the eurozone which smooth the regulatory process of transactions. The European Union Merger Law regulates under what conditions transactions and mergers may take place. This includes proposals being required, especially when cross-border, and when the companies’ combined turnover is in excess of €5,000 million.

Top 10 Cross-Border Outbound Transactions (Mil. USD)

Source: FactSet

Interestingly, 60% of the total Nordic transaction volume are international cross-border transactions. This demonstrates how dependent the Nordic region is on the world economy and international investment. At the same time, we see a strong appetite for Nordic companies from the biggest global economies.

The Largest Transactions

The largest transaction in the Nordics in the last 18 months was the purchase of Danish telecommunications company TDC A/S in early 2018. The company was previously government-owned and is the market leader in landline and mobile telephone communications, cable television, and broadband solutions. At the time of its purchase by Australian infrastructure group Macquaire and three Danish pension funds, TDC A/S was in the process of buying part of a Swedish competitor. The proposed merger with the Swedish competitor was cancelled and, after launching an improved take-over offer, the consortium took TDC private in early April after acquiring more than 90% of the shares. The consortium paid $10.7 billion in total.

The second largest deal was the French oil operator Total’s acquisition of Danish oil and gas company Maersk Olie og Gas A/S. The transaction was announced in March 2018 with a transaction value of $7.5 billion. This was a strategic acquisition to reinforce Total’s position in the UK and Norway while giving access to the Danish market. Total SA is now the second-largest operator in the North Sea.

Overall, the two largest deals by transaction value are both from Denmark and they both took place in early 2018, representing close to 50% of the total transaction value from the 66 Danish transactions with published values over the last 18 months.

Top 10 Transactions in the Nordic Countries (Mil. USD)

Source: FactSet

The Advisors

By total transaction value, the top advisor in the Nordic region was financial services group Nordea, with 29% of the total transaction value from the 12 deals in which they were involved. Nordea is closely followed by American companies Goldman Sachs, Morgan Stanley and Citi. 

Top 15 M&A Advisors in the Nordic Countries (Mil. USD)

Note: Data represents transactions with reported values                                                                                                                                     Source: FactSet

Key Takeaways

The volume of cross-border transactions proves that there is a lot of global interest in investing in Nordic companies, as well as many Nordic companies looking globally to find potential transactions. We mainly see developed markets on both the acquirer and target side, with very few transactions focused on emerging markets. Chinese companies have been involved in just three inbound transactions, while only twice has the target of Nordic outbound transactions been Chinese.

Another interesting fact when looking at the top transactions is that the top seven all took place during or just after December 2017, which would indicate that we are getting closer to the end of the M&A cycle. Generally, the biggest transactions tend to happen at the end of a longer bull market period. Historically, the pace of M&A activity is a lagging indicator, following the stock market rather than leading. Increased deal activity is driven by a rising stock market, as shown in the first chart. Looking at the M&A activity in the Nordics since 2013, we see an increase in the number of deals as well as a large rise in transaction values. With sharp equity market declines throughout October, the question is, will M&A activity suffer? According to history, the answer is yes.