JPMorgan Sees `Massive Amounts' of Cash Feeding M&A in Nordics

(Bloomberg) -- There’s a lot of cash swishing about in the Nordic region and that leaves plenty of potential for more mergers and acquisitions, according to JPMorgan Chase & Co.

“There’s massive amounts of dry powder both on the corporate side, where cash balances are very good, and on the private equity side, where we see a lot of activity,” said Jonas Wikmark, the head of Nordic M&A at JPMorgan. “We see very positive sentiment across most sectors and I think that leads to a lot of deals.”

The Nordic region is already witnessing a pronounced increase in deals, with the value of pending and completed transactions soaring 28 percent to $154 billion over the past year, according to Bloomberg data. Though the actual number of agreements has gone down, the deals that are being done are a lot bigger.

Part of the growing appetite for such transactions is being fed by a sense among executives that now is the time to get a head start in new technologies by acquiring startups.

“Many industries are being disrupted and for quite a few companies, attack is the best form of defense,” Wikmark said. “They think ‘how can I disrupt myself before someone else does?”’

There are lots of institutional buyers and they’ve got a lot of liquidity to dispose of, so competition for targets is stiff. As a result, some less traditional tie-ups are occurring. Examples include investment funds stretching the definition of infrastructure to include telecoms and health care.

“Subscription models tend to lead to fairly stable cash flows and I think that has enabled investors to try to redefine the industries that can be perceived as infrastructure, to some extent,” Wikmark said by phone from London.

The development has also opened the door to more private money funding operations such as hospitals, day care centers, schools and social housing, all of which have traditionally been provided by the public sector. And with public budgets increasingly under strain, especially as populations age, many councils are electing to lease space instead of owning it, inviting more private investors into the public real estate market.

That trend goes beyond the Nordics. Last year, 19 percent of global infrastructure deals were in the social sphere, up from 12 percent in 2015, Preqin Ltd. estimates. Almost 90 percent of the transactions were valued at under $500 million each.

“Most of the funds are becoming more open, looking at new sectors that they can call infrastructure, because the abundance of capital and a low interest-rate environment continue to prevail and the opportunities are shrinking in the core sectors,” said Carsten Woehrn, who was named JPMorgan’s head of EMEA infrastructure M&A earlier this month.

As more private money flows into infrastructure, the funds doing the buying have seen their balance sheets balloon in size. Many have started moving from “ultra-regulated, long-term contracted, very stable assets” to a “more core+ space,” Woehrn said. Key for these investments is that they “tick the criteria that make an infrastructure investment, such as inflation protection, some level of stability for the profits in the future.”

Benefits of investing in social assets can include a steady cash flow, portfolio diversification and inflation protection. On the other hand, many projects are small, may encounter operational inefficiencies or run regulatory and reputational risks. To be sure, exposures to social projects only make up about a fifth of all infrastructure investment for the industry.

“It’s fair to say it’s nascent, in the Nordics at least, and something to keep an eye out for going forward,” Wikmark said. “Many infra funds would love to invest more in the Nordic region if assets become available.”

©2018 Bloomberg L.P.

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