10. PE-backed exits: A boost in secondary transactions
After a temporary increase in the number of exits in 2021, the exit activity fell back to pre-2021 levels in 2022. 2021 stand out as an exception to the downward trend in buyout exits. Compared to 2021, the number of exits was almost reduced by 50 % in 2022. Compared to 2021, there was a 47 % fall in buyout exits. The number of exits was lower in 2020. Apart from 2020, the number of Nordic buyout exits has not been lower since 2010, in the aftermath of the financial crisis.
The number of buyout exits has been following a downward trend since 2017, with 2021 as a notable exception. From the record-high level in 2021, the number of exits fell by 47 % in 2022. In 2022, 71 buyout exits were completed, which was down 23 % compared to the average number of exits for the previous five years. Since the financial crisis, the number of exits has only been lower in 2020, during the pandemic, and in 2010, in the aftermath of the financial crisis.
“Following the outbreak of the pandemic in 2020, numerous private equity funds struggled to secure favorable valuations for their portfolio companies, which led to delayed exits. Several of these exits were realised in 2021. Similarly, in 2022, multiple factors – including geopolitical turmoil, increasing interest rates and inflationary pressures – contributed to a slowdown in buyout activity and further postponements of exits”, explains Espen Langeland, CEO of Argentum.
Sustainable products
Among the most significant PE-backed exits were the companies EcoOnline and Perstorp. What these companies have in common is that they are working towards more sustainable businesses and products through their operations.
Summa Equity and Goldman Sachs Capital Partners sold the Norwegian company EcoOnline to Apax Partners in a transaction that valued the company at EUR 374 million (read more). EcoOnline is a European EHS SaaS market leader dedicated to the development of software that creates safer and sustainable workplaces while also ensuring compliance and environmental sustainability. EcoOnline is a leader in the Nordics, UK and Ireland, with customers also in the US and many other countries.
PAI Partners sold the Swedish company Perstorp to Petronas Chemicals Group. Perstorp is engaged in the sustainable production of chemicals, and was valued at EUR 2.3 billion in the transaction (read more). Perstorp is a leading specialty chemicals player that develops sustainable solutions for the resins and coatings, engineered fluids and animal nutrition end-markets.
Significant exit transactions
In addition to the companies mentioned above, the list of significant divestments during the year includes:
- In July 2022, Schaeffler AG acquired Ewellix AB from Triton Partners for EUR 582 million. The exit is the first realisation from Triton V. Ewellix is a global innovator and manufacturer of linear motion and actuation solutions (read more).
- In September, Adelis Equity Partners exited Säkra, which is a leading insurance broker headquartered in Stockholm. The acquiror was Cinven. Säkra is one of Sweden’s largest insurance intermediaries, providing life and non-life insurance products, as well as pension and wealth management services (read more).
- Sentica Partners sold Citec. The international plant and product engineering services company was acquired by industrial buyer Cyient. The deal values the company at EUR 94 million.
- Ratos acquired a majority stake in NVBS Rail from Segulah Advisors. NVBS is a fast-growing player in the maintenance, improvement and construction of critical railway infrastructure in Sweden and Norway. The deal valued the company at EUR 103 million (read more).
Secondary exits still on the rise: Trade sales are still the most common exit strategy, but secondaries are closing the gap. Trade sales accounted for 45 % of buyout exits in 2022, closely followed by secondary exits, which accounted for 35 % of deals.
Seconadary exits are becoming more common
Trade sales are still the most common exit strategy, but secondaries are closing the gap. Trade sales accounted for 45 % of buyout exits in 2022, closely followed by secondary exits which accounted for 35 % of deals. Over time, the share of secondary exits has increased. The average share of secondary exits in the previous five years was 30 %, whereas the average for trade sales in the previous five years was 44 %.
Combined, trade sales and secondary exits account for 80 % of exits. Other exit strategies were share sales (8 % of exits), other exit types (6 %) and management buyouts (MBO) (3 %).
Continuation vehicle funds – an explanation for the growing secondary trend:
“An emerging trend in the private equity community is the rise of continuation vehicles or continuation funds. This might be part of the explanation as to why secondary exits are on the rise.” Espen Langeland, CEO, Argentum.
A continuation vehicle or continuation fund is typically formed for the purpose of acquiring one or more assets from an original fund. The same GP continues to manage the assets, and limited partners in the original fund can either cash out or roll their existing interest into the continuation fund, and new investors can also opt in.
Norvestor sold four companies from Fund VII in 2022: First Camp, Veni Energy, Sperre and NetNordic. These were sold to Norvestor’s second continuation fund, called Norvestor SPV II. This transaction allowed Norvestor, alongside the portfolio companies’ management teams, to continue to support the businesses over their next ownership cycle. Fredrik Korterud, who is a Partner at Norvestor, explains the advantage of a continuation vehicle sale:
“The advantage of doing it that way was that we gave existing investors and new investors the opportunity to join the growth journey further. We saw that the four companies we took into the continuation vehicle had so many good prerequisites for buy and build that, to be able to back the other companies in Fund VII in an optimal way, the better solution was to sell the four companies in question to a new fund. In that way, all our portfolio companies would stand the best chance of success”, explains Korterud.
“The use of continuation vehicles has sparked debate among investors. While we generally prefer alternative exit routes, we have nevertheless pursued multiple continuation funds, which we believe can offer advantages to us as limited partners”, says Espen Langeland, CEO of Argentum.
Barely any ICT exits
There have been changes in the sector composition for buyout exits. With the exception of the cleantech sector, all sectors experienced fewer exits in 2022 than in 2021. The number of industrial exits fell by 40 %, although it was still the sector with the most exits (39 %). The sector with the second highest number of exits was the consumer sector, with 24 % of exits, although the sector also experienced a sharp fall in the number of exits. Exits in the consumer sector fell by 48 %. The number of ICT exits experienced an extraordinary decline, with only 5 exits in 2022. The fall in the number of health care and life science exits was more moderate.
At the other end of the scale, we find ICT companies. Technology companies experienced falling valuations throughout 2022. This fall in the valuations across technology companies is likely to be a key factor for the reduced number of ICT exits, which fell from 26 in 2021 to 4 in 2022.
Torkild Hebbert Haukaas, Founding Partner at Equip, regards the shift in valuation and pricing as being more a reflection of a normalisation rather than a fall in prices overall:
“In the past couple of years, during the pandemic, we saw exceptionally high pricing, especially in some sectors, such as technology. However, compared to historical averages, good companies are still priced attractively”, he says.
Haukaas says that the dynamic regarding pricing is the same as we saw during the financial crisis in 2008 and into 2009, and that it now takes longer for the seller and buyer to adjust to each other again:
“It may be more difficult to reach an agreement on price. There is a greater distance between the buyer and the seller’s view on pricing – both because the valuations have come down, and because there is increased uncertainty about further development for some companies”, Haukaas says.
“Good companies still get good prices. But, for some companies, it may be better to delay exit. That is one of the advantages of our model. We can think long-term. That is the big advantage for PE in times like now, because PE can indeed take the long-term perspective”, he adds.
In 2022, all Nordic countries experienced a sharp decrease in the number of exits compared to 2021. The decrease was in the interval of 27 % to 59 % in all four countries. When compared to the average for 2017-21, all Nordic countries except Denmark experienced a decrease. In Sweden and Finland, the decline was especially large. In Sweden, the decrease was 32 %, and in Finland it was 44 %, compared to the average for the previous five years. The decline was more moderate in Norway with 13 % decrease. In Denmark, exits increased by 4 % compared to the average for the previous 5 years.
Sweden is the largest market for PE-backed exits in the buyout segment. However, in 2022, Denmark was closely behind Sweden as the second largest market for PE-backed exits. There were 22 exits in the buyout segment in Denmark, compared to 23 in Sweden. In relative terms, 32 % of PE-backed exits involved Swedish companies, followed by 31 % involving Danish companies, and 21 % and 15 % involving Norwegian and Finnish companies, respectively.
The exit market going forward
At the time of publishing, the instability in the markets remains high. The banking crisis that started with the collapse of the Sillicon Valley Bank in early March is another factor that affects the market space. However, it seems that the market has become more used to high inflation and increasing interest rates, which creates better conditions for sales during the first quarter of 2023, compared to the second half of 2022. This may also be due to an expectation that inflation rates will soon reach a peak. It is likely that some GPs that had been planning on exits during the second half of 2022 or the first half of 2023 may have postponed until the second half of 2023, waiting for better market conditions.