Navigating Nordic M&A in 2023
At a recent event in Copenhagen, panellists met to discuss the headwinds and tailwinds affecting dealmaking in the Nordics. The conclusions? While inflation and higher interest rates will continue to challenge the market, realism and strategic discipline should help drive M&A in the region in the months ahead.
Inflation and interest rates
The record rate of M&A activity across the Nordic in 2021 and early 2022 dropped sharply in the second half of last year as inflation and interest rate rises prompted many dealmakers to take a pause. And Q1 figures, per the latest Deal Drivers report, are not showing cause for celebration yet: the Nordics saw M&A volumes and values drop 4.6% and 66.7% respectively, quarter-on-quarter.
Inflation remains a challenge and higher interest rates have raised financing costs. This has led to a mismatch between the price expectations of buyers and sellers. However, this mismatch is already disappearing as both sides adapt to the new environment, particularly for TMT assets where prices had become inflated in 2021.
Meanwhile, buyers are also seeking out alternative sources of financing, which, combined with high levels of dry powder from previous fundraisings, means many buyers, notably in private equity, are looking to deploy capital over the coming year.
A disciplined approach to dealmaking
The tighter financing conditions have also brought a more disciplined approach to dealmaking, with due diligence becoming more robust and greater use of earn-outs for sellers, which had all but disappeared in the slightly feverish M&A environment of 2021 and early 2022.
Corporates in particular are well placed to make acquisitions, driven not by a pricing opportunity but by a long-term strategic rationale, and 2023 could be a year in which strong strategic conviction could be a key force in M&A activity.
Renewed energy for M&A
One of the largest strategic drivers for activity may be in the energy and infrastructure sectors. While the war in Ukraine had created economic headwinds, it had also thrown the spotlight on energy security and the already significant interest in renewable energy to meet net-zero carbon emissions targets.
There is also a ready supply of capital in need of deployment in the renewables sector as well as a need for investment, not just in renewable energy generation but in the wider infrastructure such as the energy grid and end-user infrastructure such as electric vehicle charging.
Overall, the verdict was clear and positive. M&A activity may have fallen from its peak 2021, but the market is still strong by historic standards. And, the new environment of deeper due diligence, more disciplined finance, and a greater focus on long-term strategic value could mean that the M&A market in the Nordic regions is not just set for continued growth, but also for a healthier market with more productive and more profitable outcomes for companies and investors.
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