Citi Says Easy Access Makes Nordic Firms Ripe for Takeovers

(Bloomberg) -- A Nordic open-door policy to acquisitions will likely push takeovers to “peak levels” over the next two years as foreigners flush with cash pile in, according to Citigroup’s head investment bankers in the region.

While cross-border deals elsewhere often lead to detailed negotiations over job and technology transfers, in Scandinavia “there are no national restrictions on foreign direct investment,” Lars Ingemarsson said in an interview at Citi’s Stockholm offices.

“In most cases, you can just go in, buy a company, and just walk away and in theory you can do whatever you like,” he said. “It is different from what our main competitor nations are doing.”

Lawmakers in mainland Europe are considering measures that would increase screening of foreign investments, which is also now being debated in Scandinavia. The U.K. government in October revealed similar plans, as concerns mount across the western world over national-security risks tied to foreign investment, particularly by China.

But Scandinavia’s embrace of open markets helped propel in increase in deals of almost 180 percent in the first quarter, to $25 billion, according to Citi calculations.

Cross-Border Deals

“Inbound investment into Sweden and the Nordics -- we’re just in the very beginning of this,” Ingemarsson said. “This is going to grow a lot when you look at the amount of capital that’s available in Asia and in China, and you look at their ambition and their long-term desire to acquire technology, brands, market positions.”

Data compiled by Bloomberg show that over the past 12 months, total volumes of cross-border deals targeting companies in Denmark, Sweden and Norway have doubled. Investments by buyers based in Asia Pacific have jumped seven-fold.

Zhejiang Geely Holding Group Co. last week got regulatory approval to acquire a 51.5 percent stake in Danish financial technology company Saxo Bank A/S. China’s biggest carmaker is meanwhile facing a backlash after entering Europe’s automotive business by buying stakes in rival companies.

The “increasing tendency for some governments to want to monitor and influence the outcome” of deals has generally been considered antithetical in Scandinavia, according to Ari Makela, Citi’s second co-head of Nordic investment banking.

Swedish Election

“We’re coming from a political and economic framework which is very open, very transparent, very democratic, and very pro-open trade,” Makela said.

Elections may change that.

Swedish voters to go the polls later this year. The leader of the opposition Moderate Party, Ulf Kristersson, said in an April 12 opinion piece that Sweden should support the EU’s proposal and expressed bewilderment that the government hadn’t taken more action.

Sweden’s policy is “becoming a global exception,” Ingemarsson said. “It is not as if Swedish companies can do the same in China or even in the U.S., the U.K. or Germany without restrictions.”

Foreign Investment

Norway recently passed a law to limit foreign investment on security grounds. The government says it expects the impact to be limited from the legislation, which makes it possible to halt acquisitions of more than a third of a company considered a national security interest. That includes defense contractors and technology companies.

Here are some more drivers of Nordic mergers and acquisitions, according to Ingemarsson and Makela:

  • U.S. tax reform: U.S. companies will be both buyers and sellers; Citi has been involved in deals that ultimately were dropped because of the 35 percent capital gains tax; that could change as the rate falls to 21 percent
  • Consolidation in the telecommunications industry
  • Private equity: Scandinavia is home to Europe’s second largest industry, after the U.K., and funds are adding to their considerable amount of “dry powder” by teaming up with pension funds and insurance companies
  • Share prices: Investor demand for growth is focusing companies on essential operations, and that will drive spin-offs of non-core units
  • Ample funding

“If you can do a good industrial transaction with good synergies, funding is not an issue at all,” Makela said. “There are some companies that are clients where we have multiple M&A mandates. They’ve decided that it’s time.”

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