Year in review 2021: Corporate and M&A
Gap between buyers’ and sellers’ valuation
In the first weeks of the COVID-19 pandemic, the transactions market slowed down, and many drew similarities to the M&A and IPO markets in the aftermath of the financial crisis in 2008. In March 2020, many deals were aborted or shelved as buyers’ and sellers’ price expectations did not meet. The uncertainty of the pandemic led to the traditional tools for bridging valuation gaps between parties being rendered useless. The market participants were cautious to move forward with transactions without clearer visibility of the short and long-term effects of the pandemic.
The pandemic and oil price reduction shifted the focus to operational concerns
Almost simultaneously with the COVID-19 pandemic, the Norwegian markets suffered another hit as oil prices dropped to record-low levels during the spring months of 2020. This led many business and market players to direct their attention to operational concerns and focus less on pursuing growth or strategic transactions.
The resurgence of the M&A and IPO markets
The impact of COVID-19 also led to a severe fall in prices at the Oslo Stock Exchange, as it did globally. However, the pandemic effect on the M&A and IPO markets only lasted for a short period, and from the summer of 2020, the markets bounced back with an increase in the number of deals and the value of the deals, with the IPO market leading the growth.
Key summary points
- The number of deals in 2020 declined slightly compared to the previous years. Technology and business services were the busiest sectors with the most deals in 2020.
- The IPO market was strong in 2020 with the number of listings on Euronext Growth Oslo reaching the record from 2007 (58 companies) and with 76 listings on Euronext Growth Oslo, Oslo Stock Exchange and Euronext Expand Oslo to date in 2021 breaking all former records.
- The surge at Euronext Growth Oslo slowed significantly in the second half of 2021, simultaneous with the bounce-back of the M&A market.
- The Norwegian M&A market continued its recovery in 2021 after the COVID-19 slowdown in 2020. The recovery in the M&A market was strengthened by the return of larger transactions with higher value.
- There was increased private equity presence in 2021 – also with some of the largest deals in the market.
- The technology sectors continued to have the largest representation in Norwegian deals in the first six months of 2021, closely followed by business services.
Largest deals and trends in the market
Selective M&A and IPO markets
The M&A market became very selective in the wake of the COVID-19 pandemic. Industries that were severely affected by the pandemic, such as travel, tourism and retail, really suffered, while other sectors, such as technology, media and business services, accounted for a large number of the deals made in 2020 and 2021. The technology sector continued to attract high valuations as the digitalisation trend was driven by global and local lockdowns.
Increase in dual-track processes
The second half of 2021 has seen a slowdown in the Norwegian capital markets. The markets have prioritised value companies to growth companies, and larger companies to start-ups. At the same time, the M&A market has picked up. There was an increase in dual-track processes in the first half of 2021 on Euronext Growth Oslo, and in the second half of 2021 and going into 2022, on the Oslo Stock Exchange.
The presence of private equity funds in the market
Private equity funds have had a stable presence in the Norwegian market over several years, but the first half of 2021 was historically strong. Some of the biggest M&A deals by value involved private equity funds on the buy or sell side. An example is the NOK20 billion public takeover of Bank Norwegian by Nordax Bank, the largest cash transaction ever on the Oslo Stock Exchange, which is backed by Nordic Capital.
Digitalisation of the transaction process
One of the key trends in the markets globally, mirrored by the Norwegian market, has been the digitalisation of the transaction process. Meetings and negotiations are now completed through video conference. Signing and closing are done almost exclusively on digital platforms without any physical meetings. This has made it possible for the market players to continue their businesses throughout the pandemic. It was the IPO market that led the implementation of the digitalisation process, as it was possible to complete IPOs, including roadshows and the listing process with the Oslo Stock Exchange, without any physical meetings. Soon the M&A market followed, even though private equity funds were hesitant to complete transactions without a prior physical meeting with management. Digital meetings between management and private equity funds are now accepted as standard market practice. Even though local travel restrictions have been rolled back, the majority of transactions are still being completed digitally.
Active technology sector
The pandemic led to global lockdowns and travel restrictions, and this led in turn to the workforce needing new solutions to be able to work remotely. As a consequence of this, the digitalisation of the workforce has led to the technology sector becoming one of the busiest sectors with the most deals in 2020 and 2021 in the Norwegian M&A and IPO markets. A clear display of shifted focus towards technology on the part of market players, was the listing of video technology company Pexip Holding ASA on the Oslo Stock Exchange, which yielded tremendous interest and represented the largest-ever listing of a tech company in the Nordics.
Introduction of SPACS and their position in the Norwegian M&A and IPO markets
One of the vital trends the last few years in the global capital markets has been the introduction of SPACs (special purpose acquisition companies), where an SPV raises capital and lists its shares for public trading on the stock exchange with the purpose of carrying out an acquisition or merger taking a private company public. To date, no SPACs have been introduced in Norway, and the Norwegian FSA has argued against establishing and listing SPACs in Norway due to alleged lack of investor protection. This is somewhat surprising, taking into consideration that Norway has implemented applicable EU rules in this field, and Sweden, the UK, France, the Netherlands and Ireland have all allowed SPACs.
Outlook for 2022
Basis for a strong M&A market going forward
While there is still uncertainty as to how the COVID-19 pandemic will continue to affect the markets, and how effective the vaccination roll-out has been or if there will be new lockdowns due to increasing COVID-19 cases, the basis for an active M&A market appears to be intact. There is a surplus of dry powder in the market waiting to be deployed, and cash is still inexpensive. There are good indicators that the current positive M&A environment will continue to grow in 2022.
Slowdown in the IPO market
All signs indicate that even though the IPO number slowed down in the second half of 2021, the possibility of a listing process is still something that is being considered as a valuable option to the M&A market. The market valuation is still high. This is exemplified by the listing of Autostore, the second largest IPO on the Oslo Stock Exchange in history. There are currently clear indications that a number of significant companies are heading for an IPO on the Oslo Stock Exchange in H1, 2022.
Technology will continue to be an active sector
For sectors that have not been affected by the COVID-19 pandemic, the markets will continue to be strong with low interest rates, easily accessible financing and capital, and high-quality targets. With the continued focus on remote work and flexible solutions for the workforce, even after the pandemic, a strong technology sector is expected to continue its high deal frequency.