By Suzy Bibko, Content Marketing Manager, EMEA
M&A in the Nordics had a tough first half of the year, with the upward trajectory experienced in Q1 being quickly reversed by the COVID crisis. However, despite the steep decline in M&A deal value from 2019, the region appears to be showing signs of recovery, as revealed when we spoke with Lars Ingemarsson, Magnus Bernin, Riikka Rannikko, and Johan Rasmusson during our recent webinar.
An optimistic rebound
When the crisis began, many practitioners were worried about whether it would be worse than the crisis in 2009. "I think we’re all relieved and pleased that hasn’t really panned out, at least to date, and we’ve rebounded more strongly and quicker than we expected," says Ingemarsson. "In the equity and M&A market, we tend to see a lag of two to three month between an equity market recovery and mandates, and another six months until deals get announced. Based what we see in out pipeline, we expect a gradual recovery in the second half of this year, and a pretty good 2021."
Bernin agrees: "I think we expect that it will be a gradual recovery which may take longer for certain sectors, but overall and in particular in equity markets, we’ve seen a quicker and stronger rebound than perhaps we expected in the spring."
What will drive the rebound? "For M&A, a return to more normal level in terms of consumer behavior and expectations can lead to returning investment levels," explains Bernin. "So, I clearly think that is a very key factor."
This is already starting to play out in the market. "We’re seeing that for good opportunities, the market is open and deals are taking place," says Rannikko. "There is cash to do the deals and there are businesses that benefit from the current environment and they are attractive targets to the market. We are also seeing the fire sale, crisis-driven deals and then there are businesses that need to do restructuring."
Resilience through restructuring
Restructurings are one way to move forward and can be viewed as a form of resilience – a U-turn from the negative connotations the word possessed before the crisis. And more and more it seems resilience will be key to success, especially as there is a real possibility that a second or third wave of COVID could occur.
Ingemarsson says, "It’s been an interesting lab test for a lot of businesses, seeing how they fare in a really tough market environment. It’s obvious a number of companies have done really well, but there may be more distressed M&A. There’s been a big trend in divestitures and carve-outs have also proven to create significant shareholder value. And with global markets becoming more competitive, it’s a very natural, strategic response to focus on a fewer number of businesses."
The key to getting these deals done right now is the ability to complete due diligence remotely, but also as efficiently as possible.
"You cannot do a deal unless you can complete a virtual or remote due diligence and thus this aspect is trending up," explains Rannikko. "And when you can take for granted the ability to complete due diligence remotely, then the need to also increase the speed and efficiency goes up because then there is a window open everyone wants to move as fast as possible, as you never know how long that window will remain open."
The tools are available to help dealmakers succeed, whatever the scenario may look like going forward. "COVID has introduced an additional set of questions to due diligence, including what’s the vulnerability to pandemics, the cash flow profile and liquidity position in a crisis scenario, and operational preparedness for another lockdown. So, the market is much better prepared now and has the means to tackle future waves of COVID," stresses Rasmusson.
"The technology exists and the mindset to be able to do a deal remotely during lockdown exists as well, which I think bodes well. At Datasite, we provide virtual data rooms and have been for decades before the effects of COVID on transactions, allowing remote due diligence," continues Rasmusson. "But we have also seen increased demand for tools that increase efficiency, like integrated redaction and tools that can automate some of the work to allow dealmakers to come to market quicker. And we continue to listen to the needs of dealmakers and build the tools to help them have a successful future."