Nordic M&A Lawyers Say Clients Want to Exit Pre-Virus Deals
Nordic M&A Lawyers Say Clients Want to Exit Deals Already Struck
(Bloomberg) -- Lawyers involved in arranging Nordic deals say clients are trying to walk away from transactions they’ve already entered as Covid-19 upends their forecasts for the future.
Soren Lindstrom, a partner at U.S. law firm Alston & Bird, says a number of buyers are recoiling from deals they signed before the crisis as they realize they “may suddenly be acquiring a vastly different business.”
Kristiina Hirva, an attorney at the Helsinki office of DLA Piper, says “many” deals in the region on which the law firm had been working have been shelved.
As recently as January, Citigroup Inc. predicted that Nordic mergers and acquisitions were likely to reach $100 billion in value this year. Now, with the coronavirus pandemic triggering mass job cuts and deep recessions, no one expects M&A activity to be anywhere near that level.
Lindstrom, whose clients have included Nokia Oyj, Nordea Bank Abp and Ericsson AB, says “M&A markets aren’t dead, but they’re barely alive.” At Alston & Bird, he says, “We’ve seen parties trying to get out of deals that have already been signed up.”
Among deals that have been scuppered is Nordic investment firm EQT AB’s plan to sell software maker IFS. Swedish real estate company Nyfosa AB last month said it’s shelved the purchase of portfolios worth about 8 billion kronor ($800 million).
The development also affects trans-Atlantic transactions, which had been on the rise, according to data compiled by Alston & Bird. The number of U.S. purchases of Nordic targets climbed 48% in 2019 from a year earlier, while the number of Nordic takeovers of Nordic assets rose 20% over the same period.
But backing out of deals may be tricky, according to Lindstrom. Agreements made under U.S. terms typically require significant shocks specific to the firms involved for a company to walk way rather than just broader trends such as the crisis caused by Covid 19, and that’s been extremely hard to prove, he said.
Hirva says few agreements she’s seen include clauses that might help parties back away. “It’s not even clear how force majeure applies in this situation,” she said. “It’s new to all buyers and sellers.”
Still, some corners of the deals market may see a revival, such as distressed sales, joint ventures and strategic alliances. Nordic fintech and health-care technology companies are also likely targets for U.S. buyers buoyed by the strong dollar, particularly cash-rich private equity funds, Lindstrom said.
“The M&A you’ll see between the two regions for the rest of the year will likely be a larger proportion of U.S. acquisitions going on in the Nordics,” he said. The “relatively strong dollar” will make it “more difficult for Nordic countries to go to the U.S.”
Any rebound will depend heavily on how long countries remain in lockdown, Hirva said.
“A key factor will be how long the restrictions stay and how they affect the economy,” Hirva said. “For the next few months, it’s going to be slower and the rest of the year is a question mark.”
Lindstrom says he expects the Covid-19 crisis to trigger a review of exit clauses in M&A contracts, similar to the one that took place after 9/11, when references to terrorism became standard, he said.
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