In Europe, the M&A year 2016 has not started off quite as well as many had hoped. In H1 2016, European investment activity was down by 19 percent in deal value compared to the same period in 2015. The continent’s M&A was dragged down by the uncertainty created by the UK’s EU referendum, as well as the US government’s clampdown on tax inversion deals.
Brexit especially slowed down investments made to the UK. Following a record 2015, UK M&A activity during the first half of the year recorded 638 deals worth approximately EUR 50 billion, a near 70 percent decline compared to H1 2015 and its lowest deal value since 2010.
During this economic slump and uncertainty, the Nordics remained stable compared to the slow economic growth and market volatility within Europe. The Nordic region attracted 497 deals worth EUR 38 billion, which represented a good 40 percent increase by value compared to H1 2015. The region represented 12 % of the total M&A value on the European deal making scene. Therefore, the Nordics has become an increasingly attractive M&A destination.
- The amount of venture capital obtained by startups and growth companies in Finland, in relation to the GDP, is the highest in Europe (Finnish Venture Capital Association).
- According to the performance index of the Nordic Venture Network (NVN), investments made in Nordic early-stage companies have performed well – these investments actually yielded higher returns than the stock market’s comparable indices.
- The Finnish start up scene seems like a hot pot, full of potential from which new M&A stars will be rising over time.
Four M&A Trends in Finland in 2016
A recent blog post on the Huffington post by Ira Kalb declares Finland to be the World’s Best Kept Secret, stating that Finnish products and companies haven’t been able to market themselves abroad as well as they should have – and deserve. However, in the light of recent Mergermarket M&A trend report for H1 2016, this seems not to ring entirely true.
Finland recorded 76 deals in the first half of 2016 worth EUR 11.2 billion, an almost 370% increase by value compared to H1 2015 (84 deals, EUR 2.4 billion). The highest valued deal of the first quarter was the EUR 646 million acquisition of the Kevitsa mine by the Sweden-based company Boliden. The statistics for the second quarter were again dominated by the sale of majority stake in Supercell, a company valued at USD 10,2 billion, by the Japanese telecom giant SoftBank to Chinese internet giant Tencent.
While the Finnish M&A landscape was dominated during H1 by some large-cap deals, some of which we had the privilege to work on, such deals often blur the rest of the statistics and thus may distract from other, sometimes more solid, or at least interesting, trends.
From our perspective, we have seen the following trends in this year’s Finnish M&A activity.
- Industrials are increasingly active in technology deals compared to acquiring more traditional assets and add-on businesses. With digitalisation and the Internet of Things (IoT) becoming more integrated into industrial processes and products, tech acquisitions are predicted to be a highlight of this year. The Finnish start-up scene may be a good place to find such targets. Here are a couple of examples of such deals that we have been involved in: Wärtsilä: Acquisition of Eniram and Caverion: Acquisition of Sähkötaso Esitystekniikka.
- Within the social care sector the new kids on the block, in terms of steadily growing M&A activity, are education, child care and services for elderly. In Finland, the two largest transactions within these sectors in H1 were: Sale of Touhula Varhaiskasvatus and Intermediate Capital: Acquisition of Esperi Care. The rapidly growing Touhula, which was founded in 2010, today already operates over 80 pre-schools and day-care centres across Finland under two brands, Touhula and Aarresaari. Touhula and Aarresaari provide an active learning environment for children, incorporating physical activity and adventure into the experience.
- After some large deals in recent years within e.g. electricity and gas distribution a growing number of deals are now within sustainable energy and in particular within circular economy as that market is steadily growing and consolidating. The most recent transaction was Fortum’s acquisition of Ekokem and earlier this year Gasum’s acquisitions of Biotehdas and Biovakka, both of which we were involved in. Gasum and its subsidiary Skangas also acquired the LNG Production facility in Risavika, Norway from Norwegian Lyse.
- One trend that continues to be strong is the significance of the real estate sector in M&A – both in quantity and deal value. Due to the current, low interest rates, real estate offers a lower risk investment opportunity which increasingly attracts investors outside the real estate investing scene as well. One example of such a transaction during H1 was the Mall of Tripla shopping center and parking facility project in Helsinki in which we acted as legal advisors to the investor consortium. Tripla is one of the largest real estate transactions made in Finland and the shopping center is due to open for the Christmas season 2019. On the portfolio front, H1 included large transactions like the sale of a 20-property retail real estate portfolio for 115 million euros to an affiliate of Sirius Capital Partners. The retail premises are located throughout Finland, and the main tenants include Tokmanni, S Group and Kesko. SATO’s acquisition of SVK Yhtymä represents one of the major deals on the apartment side. The transaction resulted in the transfer of 1,255 rental homes mainly completed in the 2000s to SATO.