David Samuelson attends the DI M&A conference in Sweden | Nordic Capital

Nordic markets inspire cautious optimism

DECEMBER 15 2023

Despite plummeting M&A figures in 2022 and 2023, experts remain relatively optimistic about the outlook and potential catalysts for dealmaking ahead. In an extract from a panel discussion at the DI M&A conference in Stockholm, David Samuelson, Managing Director at Nordic Capital Advisors, discusses prevailing M&A trends.

In October 2023, industry leaders and Private Equity professionals gathered in Stockholm as the Swedish financial broadsheet Dagens Industri (DI) hosted the annual event DI M&A. Against a backdrop of continuous geopolitical and macro-economic uncertainty, further accentuated by wars in Ukraine and the Middle East, experts reflected on the current climate and future forecasts.

In the conference's opening remarks, a few factors that will inevitably impact how regions across the globe fare in the coming months and years were cited. These diverse factors include interest rates and inflation, as well as trade wars and incoming regulation like the Joe Biden administration’s Inflation Reduction Act (IRA) and the European Union's subsequent response.

Much of this determines whether the global economy, and by association the M&A market, are destined for a soft or hard landing.

Global downturn – but Swedish M&A market remained resilient in Q3 2023

In the first six months of 2023, overall global M&A value was down 44 per cent compared to 2022, according to Bain & Company. This was also reflected in the Nordic region's domestic deal market, continuing a global trend of decelerating investment during 2022, created by fears of a deep economic recession. The lower deal making pace was in part also tied to private equity facing a narrower path to value creation and more limited access to financing. Strategic M&A equally stalled and shifted towards smaller deals and capability investments.

However, the second half of 2023 has so far seen deal activity starting to accelerate – and while global deal values remain roughly consistent, Sweden is now seeing the value of domestic deals increase. In Q3 2023, the total value of M&A activity in Sweden increased by 26 per cent compared to the same period in 2022. This was primarily driven by a 78 per cent increase in domestic dealmaking, according to one of the panellists.

Solid companies will continue to be seen as attractive investments

Although acknowledging that global cycles also impact the Nordics, as its markets and financial institutions are nowadays fully interlinked with the global business community and many Nordic companies export-led, David Samuelson believes that the region's strong track record of producing fast growing companies internationally speaks volumes and gives a competitive edge.

"What has changed is perhaps that some companies with unproven business models that attracted attention two years ago are no longer receiving bids. This is symptomatic of the wider economy, but I'm certain that robust companies with solid business models will prove resilient and continue to be seen as attractive investments," David said.

According to the panellists, the M&A volume seen in 2023 is not as disheartening as sometimes framed but rather in line with averages. The issue is that comparisons are made between 2022/2023 and 2021, a record-breaking year in which M&A value exceeded USD 5bn for the first time.

Careful selection of companies insulated from geopolitics

"Nordic Capital's still very active, particularly when you consider the large number of add-on acquisitions completed by portfolio companies. Nordic Capital remains committed to its specialist strategy and is keen to selectively invest in our focus sectors and subsectors," said David.

Since the start of 2022, Nordic Capital has made more than ten investments, many of which are owner-led. In the same period, the firm has also completed several exits, not least the successful sales of the Binding Site and Macrobond in 2023.

"We like knowledge-intensive industries and regions where we have long experience and relationships. Identifying companies that are insulated from geopolitics and not too exposed to economic cycles is key. Nordic Capital has always deliberately selected companies whose growth is not reliant on macro-economic factors and where the opportunity for true value creation lies in building a better business," David said.

Trends and technologies act as future catalysts for M&A transactions

High-interest rates and ongoing uncertainty mean that the M&A market remains cautious. However, there's reason for optimism, with signs of increasing activity and emerging trends and technologies that offer attractive investment opportunities. These have the power to boost further dealmaking and act as a counterweight for investment declines in other areas.

"One good example is AI. It's something that we're working with, both ourselves and within the Nordic Capital portfolio. It can increase productivity and provide additional firepower that’s needed in challenging economic climates. Nordic Capital has invested in Boost AI, which helps transform the operations at Fortune 1000 companies with its conversational AI services and we continue to see a number of very interesting investment opportunities in this space."

"Sustainable investment is also on the rise. As an ESG focused investor, Nordic Capital is committed not only to making companies more sustainable but also backing businesses that have the capability to offer genuine solutions to the many challenges faced by society today. New regulations have come into force as of late, encouraging investments and innovations in this space."

"Nordic Capital has always deliberately selected companies whose growth is not reliant on macro-economic factors and where the opportunity for true value creation lies in building a better business."

David Samuelson, Managing Director at Nordic Capital Advisors