Citi Sees Renewed Nordic M&A Confidence Halting Deals Slump
Citi Sees Renewed Nordic M&A Confidence Halting Deals Slump
(Bloomberg) -- A slowdown in Nordic deal making is set to end this year as companies grow more confident that big investments will pay off, according to Citigroup Inc.
Mergers and acquisitions in the region will at least match 2019’s $100 billion, said Lars Ingemarsson, Citi’s co-head of Nordic investment banking in Stockholm, after a combination of Brexit, tariff tensions and market turmoil prompted a pull-back in activity from the 2017 high.
“Sentiment has improved,” Ingemarsson said. “The consensus is now that Brexit will be orderly, the trade conflict between the U.S.-China will probably be resolved before the election, the market will likely be less volatile and provide stable conditions.”
A preference for regional deals has characterized recent years. Transactions between Nordic parties have been “disproportionately high,” with regional M&A favored for holding fewer risks, he said in an interview. “You know what you’re buying, it’s easier to integrate, easier to do due diligence, easier regulatory environment and, on average, more cost synergies.”
‘Buy Growth’
The intra-regional focus, which has probably peaked, can mean missing out on opportunities to move into a fast-expanding economy that potentially creates new growth platforms. “But that comes with a lot more risk.”
With a slowdown in Scandinavian economies, companies may look to increase revenue by making acquisitions to achieve their targets. “The combination of low interest rates and low growth means that ‘buy growth’ becomes a really attractive tool,” Ingemarsson said.
Private equity firms’ heavy representation in the region will also support an increase in deal flow. Their strategy of ultimately offloading their investments creates a “natural exit mentality,” Ingemarsson said.
“The fact that we have a really disproportionately high share of private equity with a lot of dry powder means that the floor for M&A volume is quite high,” he said. “They need to deploy capital.”
EQT AB, the Nordic region’s largest buyout firm, said Thursday it had a “record” year of activity in 2019, as total investments by its funds climbed 38% and exits soared 58%.
‘Good Year’
Improved sentiment among investors is also likely to reinvigorate Scandinavian initial public offerings. Strong interest among global investors should contribute to some large share sales and “a number of mid-cap ones,” Citi’s Ingemarsson said.
“We expect 2020, based on what we can see today, to be a really good year for IPOs and for M&A,” he said. “Is it going to be as good as the cycle peak in 2017? I hope so.”
A pattern of U.S. banks taking business from their European rivals is playing out in the Nordic region too, he noted.
U.S. banks increased their share of global investment banking fees by 17% from 2011 to 2018, and are likely to take more as European banks focus on core home markets, according to Deloitte Insight’s 2020 banking and capital markets outlook.
“It’s a global trend, but we see it here,” he said. “We’re certainly taking market share.”
To contact the reporters on this story: Hanna Hoikkala in Stockholm at hhoikkala@bloomberg.net;Frances Schwartzkopff in Copenhagen at fschwartzko1@bloomberg.net
To contact the editors responsible for this story: Tasneem Hanfi Brögger at tbrogger@bloomberg.net, John Viljoen, Morwenna Coniam
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