The COVID-19 pandemic affected Nordic private equity1 (PE) differently in H1 2020. When looking at the deal volume, the venture segment2 was stable, while the buyout segment3 faced a massive decline. In both phases, ICT was the most popular sector, and smart digital solutions was a trend. The amount invested was low compared to previous half-year periods, driven by few and relatively small deals in the buyout segment. At the same time, exits of PE-backed companies continued to decline.
One hundred sixty deals were made in the Nordic PE market during the first half of 2020, with Sweden having the most (43%), followed by Finland (28%), Denmark (16%) and Norway (13%).
The number of deals was reduced by 19%, compared with the same period last year. Denmark and Norway had an unusually large decline in activity, 38% and 53% respectively. In Sweden, there was only a moderate decrease of 10% the number of deals, while Finland was the only country with an increase in volume (25%).
If we look at the amount invested in the period, 1.87 billion euros, the distribution was a bit different. Swedish companies attracted more than half of the invested capital (56%), followed by Norway (20%), even though the latter attracted fewest deals.4 Finland can point to a high number of venture deals in the period, but still ended up in third place ranked by the invested amount (13%), in line with Denmark (12%).
Despite the uncertainty in the market through the period, the venture segment was stable, and Q2 was markedly solid. PE funds performed seventy deals in Nordic companies in Q2, which is slightly higher than the quarterly average for the last five years (66), and on par with the corresponding quarter last year (71).
If we look at the rate of investment on a half-yearly basis, there is a slight decrease of 10% in the number of deals compared to the average for the last five years. Despite the decline in the Nordic region as a whole, there was strong growth in Finland, with 39% more investments than in the corresponding period last year.
Tech attracted the most investments in the Nordic venture, close to 60% of the total, driven by particularly strong growth in Q2. Companies offering digital platforms5 and educational technology6 were popular subsectors. As trade media outlet Sifted has pointed out, the pandemic could help accelerate Nordic tech companies in markets such as the US, where demand for smart digital solutions is high, and investors are willing to finance them (read more).7
There was also growth in the number of deals in companies in health tech, up 44% compared with the same period last year. Compared with other industries, health and life sciences accounted for 19% of the total, which is six percentage points higher than the average over the last five years. One explanation is that many Nordic health tech companies deliver solutions that have become relevant during the COVID-19 pandemic.8
In the buyout segment, ICT was also the most popular industry in H1, with a share of over 44%. In Q2, the percentage was as high as 50%.9
For the Nordic buyout segment, the decline was remarkable in H1, with the invested amount down 74 % compared to the same period in 2019. If we look at the average for the period in the last five years, the decline is 69%.10
In a webinar on the Nordic buyout market,11 several Nordic investors pointed to the consequences of the corona crisis that may explain the decline: Liquidity challenges, problems with debt financing, uncertainty about company pricing and difficulties in conducting due diligence processes. In general, the panellists believed that digital meetings and data rooms could not replace the trust and exchanges that occur when you are in the same place (read more).
The panellists also stated that, in most cases, PE funds initiated deals before the pandemic struck. Therefore, they feared a setback in H2.12
In Argentum’s data for the Nordic market, we see no increase in the number of bankruptcies among PE-owned companies during the period. For the business community in the other Nordic countries, the number of insolvencies is moderate in Sweden and Finland in the first half of the year, with an increase of 16% and 11%, respectively, compared to H1 2019. In Norway, the number of bankruptcies has only increased by 2%, and in Denmark, it has fallen markedly by 36%, probably an effect of public support schemes (read more).