By Nick Cheek, Global Managing Editor, Mergermarket
In March, Datasite invited four M&A experts to a virtual roundtable to discuss dealmaking in the Nordic region. The discussion centered around trends for 2021, the impact of COVID-19 on the market, and the growing importance of technology in streamlining the M&A process. Here is a snapshot of some of the key findings from that discussion.
Nordic deal delivery
While initially shaken by the impact of COVID-19, the Nordic M&A market rallied in the second half of 2020 to deliver a strong annual performance. Deal activity was supported by a buoyant Swedish economy, which performed better than expected amid the turmoil of the pandemic.
Confidence in the market remains strong in 2021, fuelled by a steady stream of deals within the Nordics, along with an inflow from Europe and the US. Investors continue to be drawn to the region’s established record for good governance, advanced technology, and a well-educated workforce. The global vaccine rollout will further improve confidence in the market.
Keeping your powder dry
Nordic PE activity came to a sharp halt following the outbreak of the COVID-19 pandemic. Yet the situation began to improve in the second half of last year as PE dealmakers quickly learned to adapt to their new environment. While industries such as travel, hotels, and restaurants continue to be hard hit, activity has resumed elsewhere in the market.
This trend looks set to continue into 2021, with record dry powder fuelling activity in the competitive Nordic market. A Datasite survey found that high levels of dry powder and PE activity are set to be the biggest driver of M&A in the region over the coming year – according to 45% of respondents.
Watch this SPAC
IPOs currently offer the most attractive route to markets, providing favorable valuations in contrast with private markets. The rising popularity of SPACs (Special Purpose Acquisition Companies) across Europe has further increased their popularity. As a controlled IPO with certain incentives, SPAC deals offer a quicker and more cost-effective route to the public markets than a traditional listing.
While originally a US phenomenon, a sharp rise in European SPAC deals took place towards the end of 2020, resulting in a queue of Nordic companies looking to go public. However, investors are not sure how long the window for SPAC deals will remain open, creating a sense of urgency in the market.
ESG takes center stage
The EU taxonomy regulation, published in June 2020, looks set to impact the Nordic M&A dealmaking scene. The regulation sets out an EU-wide framework, by which investors and businesses can assess whether certain economic activities are sustainable. The introduction of the framework requires both investors and corporates to report on ESG-related issues in a more concrete manner.
To meet this new requirement, companies will increasingly seek technology to collate ESG data and improve their overall performance. Green tech solutions have already begun to attract PE interest over recent years, and this will become a hot spot for dealmaking as firms look to beef up their sustainability offering.
On the other hand, M&A opportunities will arise as companies look to divest units that do not comply with ESG criteria.
TMT goes boom
The TMT sector experienced a sharp rise in dealmaking during the pandemic as behavioral shifts – such as remote working and online shopping – shifted patterns of demand. Cloud computing, gaming, e-commerce, and broadband have all been positively impacted by the pandemic, with valuations climbing upwards.
This has caused a wave of M&A as companies take advantage of the shifts taking place in the market - acquiring innovative solutions to meet growing consumer demand. The Nordic TMT sector will be one to watch over the coming year, with both local and overseas buyers set to be active in the region.
The COVID-19 pandemic threw up many practical challenges for dealmakers to navigate. In an abrupt change, negotiations, M&A filings, and dealing with authorities – all central to the dealmaking process – needed to take place remotely. Achieving successful post-merger integration has also been challenging for deals that took place during the COVID-19 period.
Tech takes a new role
The changes came into effect virtually overnight, putting added pressure on technology to facilitate the deal process. Successful companies learned to quickly adapt to their new environment, using technology as a tool to increase efficiency by streamlining the deal process and eliminating low-value, repetitive tasks.
The Nordic market has been at the forefront of utilizing such technology to create efficiencies in the deal process.