A sustained period of inflation will impact both financial markets and transaction processes, and is currently top of mind for those involved in dealmaking.
This was one of the key findings in a recent discussion in Copenhagen on the opportunities and challenges within Nordic M&A, featuring Barbara Fiorini Due, Casper Elnegaard, Frederik Hoffmann von Holten, Michael Wejp-Olsen, and Rosie Corcoran, moderated by Elizabeth Pfeuti.
Inflation Slows Dealmaking
In 2021, Nordic M&A outpaced the rest of Europe and notched up a 44.7% year-on-year increase, but with geopolitical and inflationary headwinds in 2022, there is a question whether that momentum can be maintained.
In Denmark, consumer prices rose by 7.4% on a year-on-year basis in May – the highest 12-month inflation recorded since 1983. In April, the increase stood at 6.7%.
The primary impact of the high-inflationary environment has been on deal timelines, the panelists said. Typically, deals are being bookended by longer preparation sessions and extended completion stages, the panelists said.
While inflation is not usually impacting whether deals are completed or not, apart from some select cases, it is curbing the efficiency of the deal-making process.
Similarly, the current environment is altering estimates and valuations within the deal-planning stage, panelists said, resulting in additional delays between deal preparation and execution.
A Perfect Storm?
The panelists said supply chain challenges and labor shortages are also contributing to a perfect storm. Subsequently, a slower pace has been witnessed, yet there are still vast sums of capital that need to be deployed, so activity remains healthy.
Stemming from the labor shortage has been a discrepancy within salaries – one factor impacting valuations.
Some sectors, namely science and technology, are providing Nordic investors with a tool to weather the difficult period, the panelists said. Technology, media, and telecommunications made up the greatest number of deals in the region in the most recent quarter, accounting for nearly 27% of all deals made across the four nations in the first three months of the year.
Elsewhere in the Nordic region, geopolitical tensions caused by the Ukraine-Russia conflict temporarily upturned the deal-making process. At a recent event in Finland, for example, panelists noted a period where deals were not being completed as the industry attempted to decide how best to proceed. But once a plan had been put in place, volumes resumed.
Technology to the Fore
In light of drags on efficiency witnessed over recent months, dealmakers are now looking to technology to speed up processes, panelists revealed. The combination of the slowdown alongside new technologies is making M&A specialists review their processes with the objective of completing everyday processes as quickly as possible to get deals over the line.
In particular, there is a reliance on automation of repeatable processes to improve efficiency.
Beyond acting as a catalyst for efficiency, technology is affording M&A specialists a deeper insight into prospective deals. Panelists noted how new technologies are providing tools to evaluate the strengths and weaknesses of deals quickly and efficiently from anywhere in the world.
One panelist explained how online collaborative platforms can more easily facilitate deals, with all parties having access to relevant documents, which is giving the industry the ability to reconsider how global businesses and relationships are structured.