Crisis Rates Just Revived the Market for Buyouts in Scandinavia
Crisis Rates Just Revived the Market for Buyouts in Scandinavia
(Bloomberg) -- In Scandinavia, private equity funds and industrial buyers just stepped up their deal making by a third from a year ago.
July is normally a sleepy month in the market for corporate takeovers, but it’s been brought back to life thanks to historically low borrowing costs in a region that stands out for having had negative rates longer than anywhere else.
Andreas von Buchwald, the chief executive officer of Nordic Knowledge Partners, which is behind the fresh data, says there’s every indication the current climate in the deals market is “going to continue throughout the rest of the year, and possibly into the first and second quarters of 2020.” He says that the “main driver” behind that trend is “record-low interest rates and the fact that the rate outlook is also so low.”
The number of deals has risen 13% so far in 2019 from the second half of last year, according to NKP, which looked at 2,400 transactions across the region over 14 months.
As more investors worry about the risk of a global recession, interest rates have fallen through the floor. In Denmark, regular homeowners can now get 10-year mortgages at negative rates and pay no interest on 20-year home loans. The region’s biggest bank has even done the legal groundwork to allow for negative rates on 30-year mortgages. In Sweden, the central bank has had to delay its efforts to return to positive interest rates as the outlook darkens.
Given the rate environment, there’s now more appetite among companies with strong balance sheets to throw their extra cash into strategic acquisitions, von Buchwald said. It has become “expensive to sit on excess liquidity,” he said.
When it comes to private equity investments in particular, von Buchwald says part of the reason the Nordic deals market is attracting money lies in its status as a haven, as investors gird for a disorderly Brexit and an increasingly entrenched global trade war.
“A lot of U.K.-based and U.S.-based investors increasingly see the Nordics as a safe haven,” he said. Among the particularly attractive industries are technology, infrastructure and health care. Cyclical sectors like retail are less appealing, he said.
Read here for why an investor takes over this Swedish clothing retail industry
Nordic Knowledge Partners, which was founded in 2015, tracks deals in the region and maintains a list of companies that are likely to be bought and sold in coming months.
| Possible acquisition/exit targets: |
|---|
| Molslinjen A/S, the ferry operator owned by Polaris |
| Permobile, Investor AB’s health transportation provider |
| IFS, the software developer held by EQT Partners |
The region’s relatively good economic health and lighter direct foreign investment screening already make its companies attractive targets. Foreign investors in particular have increased their holdings, amid relatively low barriers to entry. Swedish and Danish restrictions on direct foreign investment are below the average for peers.
Non-Nordic investors closed 48 acquisitions of large and medium-sized companies in the seven months through July, Nordic Knowledge Partners figures show. That compares with 39 deals in the seven months through December 2018.
There had been speculation the “Nordic M&A market is coming to a halt and there will be no deals and private equity firms are holding back,” von Buchwald said. “It’s partly true for Sweden, but looking at the overall picture, there is still very strong momentum.”
To contact the reporter on this story: Frances Schwartzkopff in Copenhagen at fschwartzko1@bloomberg.net
To contact the editor responsible for this story: Tasneem Hanfi Brögger at tbrogger@bloomberg.net
©2019 Bloomberg L.P.