7. Buyout deals: A game of two halves
In the Nordic buyout sector, the deal activity slowed down in 2022. After soaring activity in 2021 , activity normalised in 2022, with 127 investments in total. The amount invested also fell from a record-high level in 2021 to €9.3 billion in 2022. The high level of activity in 2021 continued during the first half of 2022. In the second half of 2022, activity reduced sharply.
Activity normalised in 2022, with 127 buyout deals, after a record-breaking level of activity in 2021. The number of investments fell by 37 % from 2021 and 12 % compared to the average for the previous five years. Despite the large reduction from 2021, the activity was higher than in 2019 and 2020, and similar to the period of 2014-2017.
The high level of activity in 2021 continued in the first half of 2022. In the second half of 2022, activity decreased sharply. The number of investments in H2 was the lowest in the buyout segment since H1 2009, when the financial crisis reduced activity. Several factors have contributed to lower activity in the buyout segment, such as geopolitical unrest, rising interest rates and inflationary pressure.
“In general, when the uncertainty becomes significant, everyone tends to sit still and wait. So, the first thing that happened was that several processes that had been planned over the summer were temporarily put on hold, because we wanted to wait to see how the world developed. We probably saw that fewer companies entered structured processes”, says Fredrik Korterud, who is a Partner at Norvestor.
“It is clear that the uncertainty in the markets as a result of the war in Europe affects the markets we are in. It is not unnatural that it takes some time before we see the effects of a crisis, such as the war in Ukraine, and the second half of 2022 was essentially to a greater extent affected by the uncertainty in the market”, Korterud adds.
According to Korterud, as a result of the uncertain times, everyone becomes more selective:
“The most attractive companies still get a lot of interest and valuation, but the mediocre companies get less interest and lower pricing. The thresholds are higher for both the companies and the funds in uncertain times.”
Nordic buyout deals, 2012-2022
Combination chart with 2 data series.The chart has 1 X axis displaying id_4435. Data range: 12 categories.The chart has 2 Y axes displaying id_4436 andAmount (€m) .End of interactive chart.Pivotal year: Activity in the Nordic buyout segment normalised in 2022, following an extraordinariry high activity level in 2021, with regard to both the number of deals and the invested amount.
Nordic buyout deals by half-year, 2017-2022
Bar chart with 12 bars.The chart has 1 X axis displaying id_4476.The chart has 1 Y axis displaying Number of investments. Data ranges from 39 to 131.End of interactive chart.Slowdown in the second half of 2022: Investment activity remained high in the first half of 2022. In the second half of 2022, activity fell considerably. The number of investments in H2 was the lowest in the buyout segment since H1 2009, when the financial crisis reduced activity.
Among the largest deals were six deals involving ICT companies
As in the venture segment, 2022 was not a year where one or two investments accounted for large parts of the total invested amount. There were several large transactions. ICT had six of the ten largest transactions. In addition, two other sectors were represented among the most significant transactions. Two of the ten largest transactions were in financials, and two were in the industrials sector. The investments that stand out in terms of size are the following:
Technology
- In March, HgCapital acquired a minority stake in the software company IFS, valuing the Swedish company at EUR 9 billion (read more).
- Visma’s consulting business Visma Custom Solutions was acquired by CVC Capital Partners in June. The transaction valued the company at around EUR 800 million.
- Accel-KKR completed an acquisition of Basware Corporation, which supplies cloud-based procurement solutions. The company was valued at EUR 620 million (read more).
- Advent International acquired a minority stake in Medius in March. Medius is a global leader in AP automation, B2B payments, sourcing and procurement software (read more).
- In August, software investor Thoma Bravo acquired Norwegian company Mercell. Mercell is a provider of e-tendering and procurement systems. The deal valued the company at EUR 451 million in (read more).
- Thomas H Lee Partners agreed to acquire a majority stake in Inriver from Industrifonden, Verdane and Luxor Capital Group, in addition to other investors. The deal was completed in May (read more).
Industrials
- In June, Swedish EQT made an investment in Envirotainer, which produces refrigerated containers for the transport of pharmaceutical preparations. The transaction valued the Swedish company at EUR 2.8 billion (read more).
- Cary Group was acquired by Nordic Capital and CVC Partner in a public-to-private deal. Cary Group is a leading European vehicle glass repair and replacement service provider. The deal valued the company at EUR 1,045 million (read more).
Financials
- In July, Nordic Capital acquired a minority in Riskpoint to support continued growth. The Danish company is a global independent specialty insurance managing general underwriter (read more)
- In September, Cinven acquired Säkra, a leading insurance broker headquartered in Stockholm. 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).
Success with a flexible approach in uncertain times
On the list of the most active fund managers in 2022, we find traditional buyout actors such as Altor, FSN and CapMan, but we also find Verdane, which is a fund manager with a flexible approach (se full list below). In total, Verdane made 16 new investments in 2022. Frida Einarson, who is a Partner at Verdane, says that their flexible approach might explain their success during uncertain market conditions, which was the case in 2022.
“We can work with both majority positions and minority positions. We can work with primary capital, and we can buy used shares (secondary). So, we can indeed find solutions even if there is some difference in valuation expectations in periods of uncertainty. In our business, we are also independent of bank financing in general, which is another important factor”, Einarson says.
“For us, contrary to the general trends, we were very active on the realisation side. In fact, in 2022 we were net sellers. We made 7 big realisations in 2022. These primarily concerned software companies, which, even in a more uncertain environment, have a stable customer base and have contracted sales. This means that these companies have a buyer’s market, even in times of increased uncertainty. It is in such moments that we can really prove to our fund investors that we have created value that we are giving back. We could provide our investors with over four times their investment on average, which are strong returns we are very proud of”, she continues.
Most active fund managers in 2022
| Fund manager | HQ | # of deals | Companies |
|---|---|---|---|
| Adelis Equity | Sweden | 7 | Aderian, Avidly, Diakrit, Handverkskompaniet, netIP, SSI Diagnostica, Westpack |
| CapMan Capital Management | Finland | 5 | Aro Systems, Hydroware, Netox, Niemi Palvelu, SARC Architects |
| Altor Equity Partners | Sweden | 5 | Audiowell, Nordic Climate Group, Nova Austral, Silo AI, Svea Solar, Vianode |
| Axcel Management | Denmark | 5 | Danx, Init, NTI Group, Oral Care, Voff Premium Pet Food |
Verdane Capital | Norway | 4 | Active Brands, Apoteka, Hobbii, Topro Industri |
| FSN Capital Partners | Norway | 4 | Active Brands, Epista Life Science, Firesafe, ilionx, Seriline |
Buyout deals by sector, historically
Bar chart with 3 data series.The chart has 1 X axis displaying id_5031.The chart has 1 Y axis displaying id_5032. Data ranges from 1 to 50.End of interactive chart.Buyout deals by sector, historically
Bar chart with 6 data series.The chart has 1 X axis displaying id_5039.The chart has 1 Y axis displaying id_5040. Data ranges from 1 to 74.End of interactive chart.Fall in all major sectors: In 2022, the investment activity fell in all the three largest sectors in the Nordic buyout segment: Industrials, ICT and Consumer. Activity in Health Care and Life Science remained stable, while Cleantech investments increased.
Buyout deals by sector in 2022
Pie chart with 7 slices.End of interactive chart.Comeback for industrial companies: Sector-wise, Nordic industrial companies attracted by far the most investments in 2022, 34 % in total.
Reduced investments across all major sectors
Among the buyout deals, the industrials sector attracted by far the most investments, 43 in total, which accounted for 34 % of all transactions. Despite attracting the most investments, the number of deals involving industrial companies reduced by 42 % compared to 2021, and by 9 % compared to the average for the previous five years. The ICT sector attracted the second most investments, with 32 in total, which was a decrease of 13 % compared to the average for the previous five years. This was followed by the consumer sector, which attracted 23 investments or 18 % of Nordic buyout deals.
All the three major buyout sectors (industrials, consumer and ICT) experienced a decrease in the number of deals by more than 30 %. When compared to the average for the previous five years, the decrease was more moderate for all three sectors, as 2021 had been an extraordinary year with high activity in the buyout segment.
Investments in health care and life science remained stable with 14 deals, just as in 2021, accounting for a share of 11 % of Nordic buyout deals. Compared to the average for the previous five years, health care and life science investments were up by 33 %. Investments in cleantech increased from 6 to 7, accounting for 6 % of investments.
Navigating market turbulence: Unrest can bring new investment opportunities
Torkild Hebbert Haukaas is a Partner and Co-founder of Equip, with twelve years of private equity experience, and leads Equip’s work within the IT and business services sectors. We talked to him about the general uncertainty the market experienced during 2022.
For Equip, 2022 represents a year of continued growth:
“We have grown as a company, we have grown our portfolio, we have raised a new fund and we have continued to deliver strong returns to our investors. At the same time, we do also notice the increased uncertainty, primarily in the financial markets and in transaction markets. Capital is more expensive and more scarce”, explains Haukaas.
“We also notice it in some of the markets that our companies operate in. There is a somewhat increased uncertainty among consumers. Working with our portfolio companies, we have tried to be prepared for what may come, to ensure that the companies are as well prepared as possible for tougher times. However, overall, we are very pleased at how strong our portfolio is performing during these times”, he adds.
Haukaas continues to say that they have noticed that the uncertainty affects structured transactions and incoming processes from investment banks, particularly in the larger segment, where he says there are fewer incoming deals than before.
“However, we primarily operate in the SME market, and there is more steady activity there. We still have lots of deals coming in, and we have a strong proprietary deal flow from our own outreach and network”, he continues.
The geopolitical instability caused by Russia’s invasion of Ukraine explains a lot of the instability in the market in 2022. Haukaas addresses the geopolitical situation, and how Equip and their portfolio companies have reacted to this:
“It is important for me to say that, while the recent financial market volatility has been concerning, it pales in comparison to the devastating war in Ukraine. The horrific human toll and atrocities resulting from Russia’s illegal invasion have been the most pressing issue over the past year. Many of us have done what we can to help, and I am proud to say that our portfolio companies stepped up early on, contributing to the humanitarian effort in February last year, and continuing to provide support to Ukraine”, Haukaas says.
When asked about the expectations for the future and for 2023. Haukaas says that they are closely following the further consequences in the economy for consumers and companies.
“We have always stayed away from the most cyclical companies and industries. That will serve us well in the event of an economic downturn”, he explains.
“On the more opportunistic side, all experience suggests that good investments can be made in downturns in the economy. And we also see many interesting opportunities in these times. In fact, right now we have a very high activity level on new investments in Fund II”, he adds.
Chart
Chart with 4 data series.The chart has 1 X axis displaying id_5407. Data range: 12 categories.The chart has 1 Y axis displaying Number of deals. Data ranges from 8 to 202.End of interactive chart.Reduced investments across the Nordics: All Nordic countries experienced a decrease in the number of investments. The number of Investments was more than 40 % lower in Denmark, Norway and Sweden.
Buyout investments (amount) by home country of company
Chart with 4 data series.The chart has 1 X axis displaying id_5434. Data range: 7 categories.The chart has 1 Y axis displaying € bn. Data ranges from 1.216378258065587 to 18.988395666033426.End of interactive chart.Reduced amount invested across the Nordics: All Nordic countries experienced a decrease in the amount invested compared to 2021. When we compare 2022 to the average between 2017-2021, the picture is a bit more nuanced. Swedish investments were up by 29 % compared to the average, whereas the other three countries were down, ranging from 28 % to 54 %.
Buyout deals by country, 2022(amount invested)
Pie chart with 4 slices.End of interactive chart.Sweden dominating: More than half of the amount invested in 2022 were invested in Swedish companies (57%). Norwegian companies attracted 17 % of investments, whereas Danish and Finnish companies attracted 15 % and 11%, respectively.
Buyout deals decreasing across the Nordics
In 2022, the number of deals fell across all Nordic countries. Demark, Norway and Sweden all experienced a reduction in the number of deals of more than 40 %. In Finland, the reduction was more moderate.
- Finland: Finnish companies attracted 32 investments in 2022, accounting for 25 % of the Nordic buyout market. Compared to 2021, investments fell by 3 %, compared to 37 % in the Nordics as a whole. Compared to the average for the previous five years, the number of buyout investments increased by 26 %. The amount invested fell by 48 % compared to 2021, and fell by 28 % compared to the average for the previous five years.
- Denmark: Danish companies attracted 25 % of buyout deals in the Nordics in 2022, which is on a par with their average Nordic market share of 25 % in the previous five years. The number of deals, however, was down by 42 % compared to 2021. The amount invested in Denmark decreased by nearly 64 % from 2021, and was also 54 % lower than the average share from 2017 to 2021.
- Norway: Norway attracted 26 investments, or 20 % of the buyout deals in the Nordic market in 2022, but 17 % of the total amount invested. Buyout deals in Norwegian companies fell by 41 % from 2021, and they were also 15 % lower than the average number of investments in Norway between 2017-2021. The Norwegian market experienced the largest fall in invested amount relative to 2021, with a reduction of 71 %.
- Sweden: Swedish companies still attracted the most investments of the four countries, accounting for 29 % of all buyout deals. The number of investments was 47 % lower than in 2021, and 28 % lower than their average from the five previous years. As much as 57 % of the invested amount in the buyout segment was invested in Swedish companies, which was significantly more than in the three other Nordic countries. However, compared to 2021, there was a reduction in the invested amount in Sweden of 31 %.
Number of deals by home country of investor, 2022
Bar chart with 7 bars.The chart has 1 X axis displaying id_5712.The chart has 1 Y axis displaying id_5713. Data ranges from 6 to 41.End of interactive chart.Swedish investors dominate: Swedish investors are behind 35 % of investments in the Nordic buyout segment, followed by Norwegian investors, accounting for 19 % of investments.
Nordic and non-Nordic fund managers’ share of investments
Bar chart with 2 data series.The chart has 1 X axis displaying id_5735. Data range: 11 categories.The chart has 1 Y axis displaying id_5736. Data ranges from 66.981132075472 to 100.End of interactive chart.Fewer international investors: The share of investments from non-Nordic investors fell for the second year in a row. Since 2020, the share of investments from international investors fell from 33 % to 20 % in 2022.
Fewer international investors in the Nordics
In 2022, fewer international GPs invested in Nordic buyout companies. The share of investments by non-Nordic investors fell for the second year in a row. Since 2020, the share of investments from international investors fell from 33 % to 20 %. In a historical perspective, the share of international investors became normalised in 2022.
All investor countries with a significant number of investments in Nordic buyouts reduced their number of investments compared to 2021. Most investments were made by Swedish investors, accounting for 32 % of investments in the buyout segment. Norwegian investors were second on the list, accounting for 18 % of investments in Nordic buyouts. Finnish investors made 22 investments in Nordic buyouts (17 %), and Danish investors made 15 investments (12 %).
UK investors made almost as many investments in the Nordic buyout segment as Danish investors, with 11 investments, compared to 15 from Danish investors. The number of UK investments was down, from 18 in 2021. The number of investments from US investors fell from 14 in 2021 to 6 in 2022.
Rebecca Farr is Head of Investor Relations at Norvestor, and explains one of the reasons why international investors from outside of Europe may be more sceptical about investing:
“The Nordic region is often referred to as a safe haven to invest in, and we saw that this was the case when we raised funds both during the financial crisis and during the corona pandemic. Historically speaking, the Nordic region has done well in uncertain times. Some investors from outside Europe are a little sceptical, due to the war in Europe, but at the same time, investors have a specific amount of capital that they want to allocate to the region every year, so it is still possible to access capital also from outside Europe”, she explains.
“In uncertain markets, and in competitive situations, long-term relationships are even more important than before. If you want to attract investors from near and far, it is even more important to have a strategy that stands out, and that has key differentiators from those of your peers. Having a good track record is, of course, also key, especially here in the Nordics where there are many successful managers”, she adds.