M&A markets in the Nordic region are recovering from the challenges posed by increased interest rates and the jump in inflation in 2022, and as the economy continues to stabilise, experts are optimistic about the second half this year.

These are the key insights from Datasite's Dealmakers Dialogue held in Helsinki in June.

Panellists Jouni Salmi, Partner, Roschier, Juhana Kallio, Managing Partner, Intera Partners, Kinga Charpentier, Head of Corporate Finance, EY Finland, and Pekka Hiltunen, Head of Corporate Finance, Danske Bank, gave their thoughts on how the market is recovering and their predictions for the future.

The impact of the economic environment on dealmaking

M&A’s biggest challenges over the last year have been increasing inflation and interest rates, according to our panel. The audience broadly agreed, with 83% choosing these factors as the most serious headwinds for M&A in the Nordic region. Just 9% chose the war in Ukraine and 8% voted for low valuations.

According to the latest figures from the IMF, Denmark and Finland’s economies are set to stand idle this year while Sweden’s is expected to contract by 0.5% and Norway will enjoy growth of 2.1%.

Rising inflation and interest rates mean rising financing costs, which has created a gap in price expectations between buyers and sellers that has been difficult to bridge. However, all four panelists noted that the market, across the board, was showing signs of recovery from the economic turmoil of 2022.

Sellers are no longer hesitating to bring assets to market, the panel noted, with 2022’s rise in deals not being completed and taking longer than expected to be completed starting to flatten. Charpentier noted that the stabilization of the economy was likely to release a number of deals caught in a backlog.

Salmi highlighted that certain industries and sectors were more affected by interest rates rising last year, particularly the construction industry.

The role of sustainability in the dealmaking process

Considering ESG factors and carrying out due diligence is a fairly new part of the deal-making process, it is an increasingly important one. Panelists noted that over the past two years there has been a big increase in investor interest for impact funds, with other strategic buyers consistently looking for companies with a strong transition plan.

Hiltunen highlighted that, unlike other parts of Europe, in Finland a deal can only be leveraged if it meets certain ESG requirements, which makes the process fairly linear when valuing ESG factors against profitability.

Kallio also highlighted that the term ESG is made up of three different terms, each covering a different specialism, so there are requirements for different types of advisors in undertaking due diligence that can add to the deal’s complexity – and impact a company’s valuation. 

The future of private equity in dealmaking

An enormous amount of investor capital is ready to be deployed across the region, with economic experts expecting a tsunami of private equity to hit the market. Panelists agreed that these funds’ capital was likely to flow mainly to tech companies, particularly those looking at paths for the green transformation, and energy companies with renewable platforms.

They added that any strong, resilient business with a good cash outflow would be a prime candidate for private equity investment in the coming months and years.

Overall, the panel was optimistic for the rest of 2023; all of them expected most M&A opportunities to lie in corporate strategic action.

There was some disagreement from the audience, with 52% believing that M&A opportunities in 2023 would mostly lie in divestitures, liquidations, bolt-on acquisitions, and exits, compared to 31% voting for corporate strategic transactions. However, the panel noted that this answer covered a wide range of deals, which would all be rising in number and volume separately.

Across the board, panelists agreed that they felt confident about where the market would be in two years' time. Kallio predicted that private equity would drive high global transactions, and Salmi felt confident the market would continue to grow to a better position than it had been in over the past four months.

Charpentier predicted that certain sectors would be recovering faster than others over that time period, and Hiltunen argued that 2021 was an exception economically, predicting that the market would continue to increase by 2025.