Key take-aways

The sectors with the largest representation in Norwegian deals in 2021 was Technology (82), followed by Business services (73), with the highest deal values being in Real Estate (€6.84bn) and Industrials & Chemicals (€5.83bn).
Private equity transactions had a strong 2021, with five of the ten largest deals in Norway being PE deals and an increased interest from global PE houses.
The US has surged from a low level in 2020 to become the largest overseas investor by deal value by some distance, almost reaching €10bn underpinned by 29 deals, nearly double that of 2020 (16 deals).
There continues to be a prominent-looking pipeline for Norway’s ESG, technology and consumer sectors.

M&A market continues its bounce back

The rebound in deal activity across Europe and globally has been replicated emphatically in Norway, where M&A has seen record-breaking deal activity, building on an exceptional 2020. Robust vaccination rollouts this year have allowed the economy to reopen, with dealmakers moving to catch up on postponed processes. Nordic buyers have maintained a consistent share of the M&A deal volume, driven by a combination of competitive advantage and strategic synergies within industries. This year saw landmark deals of all kinds, including:

large private M&As (such as Alfa Laval’s acquisition of StormGeo, Brunswick Corporation’s acquisition of Navico and KPS Capital Partners’ acquisition of Norsk Hydro’s rolling business);
public to private (P2P) M&A (such as Nordax’s acquisition of Bank Norwegian – the largest P2P in Norway in 15 years;
pre-IPOs and SPACs (such as Softbank’s acquisition of a 40% stake in AutoStore and Alussa Energy Acquisition Corp’s merger with FREYR
carve-outs (such as Telia’s sale of a 49% stake in its towers business in Norway and Finland, although carve-out activity has not yet fully rebounded from pre-Covid times)

Technology and renewable energy continue to lead the way in M&A in 2021, driven by the now omnipresence of technology deals (which were the top M&A sector across almost all of Europe) and the increased pace of the green shift transition. For ESG assets, many buyers are seeking greater capabilities and exposure to green (or ‘clean’) technology, which has seen strong competition and high valuations, and the investment profiles of institutional investors continues to shift towards greater sustainability. In addition, the passing of EU’s taxonomy (a classification system that determines which economic activities may be considered sustainable) in June this year, and which will come into force in 2022 and 2023, is serving to shed light on the climate risk and increasing the promotion of sustainable investments.

The Covid pandemic has necessitated the adoption of digital processes in M&A transactions and this move towards virtual dealmaking has fundamentally changed M&A processes. It is unimaginable foreseeing these new processes being overlooked in ‘post-Covid’ times, with benefits including more efficient and flexible processes and timelines, time savings for management and cost reduction outweighing drawbacks such as a lack of physical presence in due diligence processes and an impact on cultural and relationship building aspects with management. In fact, common sentiment appears to favour a hybrid model that combines the ‘virtual’ and ‘traditional’ benefits, with the former unable to replicate necessary physical presence for due diligence and the testing of cultural fit and negotiations.

Figure 1: Top 10 deals with Norwegian targets in 2021 by deal value.

Looking at the most active sectors, H2 2021 followed the path set by H1, with the top five sectors remaining the same and in the same order. Technology was the largest sector by deal number (82 deals), with a comparatively low deal value reflected in confidential transactions and a strategy whereby large corporates are anxiously trying to secure the best new technology and the most promising new business models. Demand for the best assets in the TMT sector is extraordinarily high, in particular in ecommerce, as companies within the industry consolidate and combine, and outside acquirers look to these businesses for their transformative potential. Elsewhere, real estate was the largest sector by value, with deal value coming in at €8.57bn, despite its deadl count dropping to 12 from 15 in 2020. Industrials & chemicals is the second largest sector by value (€6.08bn), with a wave of deals seeing deal numbers increase from 35 in 2020 up to 59 in 2021.

Figure 2: Norway 2021 deal count and value by sector

In terms of cross-border transactions in Norway, the level has remained strong, with 65.1% of all deals involving a Norwegian target having a cross-border element. At the upper end of the scale in 2021, in the sectors with significant activity we have seen 64% industrials and chemicals and 63% of construction deals respectively being cross-border, whilst at the lower end of the sectors with significant deal activity (six deals and above), around 45% of both Transport and Pharma, medical & health sector deals were cross-border. In terms of acquisition of Norwegian targets by foreign owners, we see a significant increase from 36% in 2020 to 47% in 2021.

Looking at the country of origin for companies acquiring Norwegian targets, we once again see Norway’s strongest long term trading partners in Sweden, the US and the UK making an appearance in the top five bidders by both deal number and value. The US has surged from a low level in 2020 to become the largest bidder by deal value by some distance, almost reaching €10bn underpinned by 29 deals, nearly double that of 2020 (16 deals).

Figure 3: Top 5 deals and bidders by deal numbers and value

Private equity has had a stable deal flow over several years, but 2020 and 2021 in Norway has been particularly strong. There were 96 PE deals involving a Norwegian target worth €16.9bn in total. Five of the top ten M&A deals by value in 2021 involved a PE buyer or seller. This includes Nordic Capital-backed Nordax Bank’s acquisition of Norwegian Finans for €1.8bn – the largest P2P in Norway in 15 years – and KPS Capital Partners’ acquisition of Norsk Hydro’s rolling business.

Figure 4: Private equity / VC deal count by sector, based on any party being PE / VC and Norwegian target/buyer/seller

Looking ahead, the IMF is projecting higher economic growth for Norway than its Nordic neighbours, at 4.1% (Sweden – 3.4%; Denmark – 3%; Finland – 3%) and the deal pipeline looks optimistic for early 2022. Many of the drivers underpinning recent dealmaking in Norway – PE’s dry powder, the digitalisation imperative, low interest rates and readily available financing and capital,– should remain. In addition, the economic backdrop remains supportive and with the level of business resilience many Nordic businesses have demonstrated during the pandemic, the region is currently considered one of the safest places in the world to invest. Norway continues to offer high quality targets to overseas investors. Acquiring companies may expect to face stiff competition for such targets, primarily from Nordic PE firms sitting on a lot of dry powder.

Continued IPO surge sees Norway as one of the most active marketplaces in Europe for 2021

Norway’s IPO deal numbers for 2021 set a new benchmark, outperforming what was already a record year in 2020. Listings on the Euronext Growth market, aimed at small and mid-sized companies, have remained extremely popular, with 61 in 2021 comfortably eclipsing 2020’s record number of 48, even with a significant dropoff in the final quarter, with only five listings. Main list IPOs increased, with 21 listings more than double the number of listings in both 2020 and 2019, which saw nine listings. October also saw the IPO of AutoStore, Norway’s largest IPO in two decades, valuing the company at NOK 103.5 billion (approx EUR 10.1bn). The technology and ESG sectors continue their strong representation, with industry and consumer also notably active.

Figure 5: Euronext Growth and OSE listings

Despite these record numbers, H2 2021 actually witnessed a dropoff in activity in Norwegian capital markets. There has been a shift in focus from growth and start-up companied to larger more established companies. Coinciding with this, the already buoyant M&A market picked up further speed. There was an increase in dual-track processes in the first half of 2021 on Euronext Growth Oslo, and on the Oslo Stock Exchange in the latter stages of 2021 and heading into 2022.

A much discussed trend in the last 18 months in the global capital markets has been the introduction of SPACs (special purpose acquisition companies). So far, SPACs have not been permitted in Norway, and the Norwegian FSA has argued against establishing and listing SPACs in Norway because of a supposed lack of investor protection. At the same time, countries that follow EU rules in this field (as Norway does), such as Sweden, France, the Netherlands and Ireland have all allowed SPACs, so we await possible future developments.

Looking ahead, there is a lot of optimism for the first half of 2022, particularly for the Oslo Stock Exchange. Many of the anticipated Q3/4 2021 listings have been pushed back, so in the first half of 2022 we are expecting to see larger deals, in particular main market listings, reflecting changing demands from investors who have satisfied their demand for growth companies. There should also be a hike in uplistings from the Euronext Growth Market to the main Oslo Stock Exchange, as many growth companies have committed to doing so within a year of their IPO.

Competition regulator highly active in 2021

In the last 12 months, we saw a significant rise – approximately 50% – in notifications from the Norwegian Competition Authority (NCA). The NCA continued their active oversight, most significantly rejecting DNB Bank’s proposed acquisition of the Norwegian digital bank Sbanken in November 2021. This case is currently subject to appeal to the Competition Appeals Tribunal.

The NCA has continued its focus on mergers that affect consumer markets, especially within the digital sector. In particular, the NCA is concerned about concentrations in markets that experience network effects, are rapidly evolving or include the acquisition of so-called “mavericks” (i.e., newcomers that exercise a significant competitive pressure due to their aggressive market strategies). They continue to impose upon buyers to notify acquisitions of non-controlling interests, such as the proposed acquisition by Bonnier Books of a 45% stake in Strawberry Publishing, which was later withdrawn due to a change in approach.

The NCA has continued its strict enforcement of procedural rules within merger control, especially the duty to provide information.

There has also been a continuation of the NCA placing less weight on market shares and concentration levels and more importance on the closeness of the competition when assessing transactions. Generally, we have also witnessed that the NCA focus their investigations on the parties’ internal documents produced before the transaction when evaluating how they believe the company will act going forward. Parties should be aware during transaction planning that board and strategy documents could end up with the authorities.

In Q1 2022, the NCA will welcome a new Director-General, Tina Søreide. She has previously been a high-profile academic within the fields of corruption and white-collar crime at the Norwegian School of Economics and the University of Bergen. It remains to be seen what impact this will have on the NCA’s priorities.

More ESG measures coming into force

Environmental, social and governance (ESG) issues have continued to play a dominant role on the agenda for corporates, regulators and investors in 2021. Since our last update at the halfway stage in 2021, there is now greater clarity on when new laws will enter into force. The EU taxonomy has now become operational, with reporting obligations coming into force from January 1 2022. This will apply to large public interest entities, who will have to report whether their economic activities are eligible with the technical screening criteria, and from 2023, to what extent their economic activities comply with the technical screening criteria. Although this has not yet been adopted into the EEA Agreement, Norway has already prepared for this by adopting a new Norwegian law incorporating the taxonomy requirements, which was passed in December 2021, and will mean Norway can immediately implement the requirements into national law.

The Norwegian Transparency Act was passed by the Norwegian Parliament in June 2021 and has seen previously soft measures becoming hard enforceable rules and places new obligations on Norwegian companies when it comes to business partner supervision and reporting. These issues are likely to have an impact on many M&A deals going forward. The law will come into force in Norway from July 1 2022 and will have significant requirements for “a large number of companies” domiciled in Norway offering goods or services related to human rights and working conditions, including supply chain. We believe this increased focus on human rights will be significant in many transaction due diligence processes. It will be increasingly important for the buyer to assess whether the target company has sufficient routines to be able to comply with the Transparency Act.

There is now an increased need for practical advice for companies on how they interact with human rights, which will be unfamiliar and uncharted territory for many companies in Norway. This will likely apply to in excess of 8,000 large companies in Norway. These companies will not only need to perform a human rights due diligence and map their human rights footprint for their own business, but also their supply chain. Based on that assessment, companies will need to take measures to address these risks, as well as adopt human rights due diligence routines. It will be a significant risk if a company does not take these requirements into account. Based on all these new requirements, it is important for a buyer to price these requirements into a transaction. Also, with the EU taxonomy now providing a clear definition on whether a company is ‘green’ or not, it will now be possible for a company to have their green credentials reflected in their pricing.

Tax measures introduced by the new government

Withholding tax on interest and royalty payments

As of 1 July 2021 withholding tax of 15% on interest and royalty payments made to foreign related companies in “low-tax jurisdictions” has been introduced. A low-tax jurisdiction is a country where the effective tax rate is lower than 2/3 of the Norwegian tax rate on corresponding income. Due to wide exemptions under tax treaties the new rules have not had much of an impact.

Share options for start-ups

New rules for taxation of share options in start-ups has been introduced with effect from 1 January 2022. The new rules imply that employees in start-ups may receive and exercise share options without taxation. Taxation will first be triggered upon alienation of the shares, and then at the rate for capital gains tax, (not salary tax). To be eligible for these rules, the company must meet the following conditions:

not older than 10 years
no more than 50 employees (average previous year)
income not above NOK 80 million
balance sheet sum not above NOK 80 million

At the same time, the tax incentives for broad employee share programs, which has been in place for many years, has been abolished.

New tax rates

The new minority government in Norway has scrambled majority for a new state budget with several changes to tax laws with effect from 2022. In short, taxation of dividends and capital gains for personal shareholders will increase from 31.68% to 35.2%. Further, the marginal tax rate on salary for individuals will increase from 46.4% to 47.4%. Finally the net wealth tax of individuals residing in Norway will increase significantly, due to an increased basis for such taxation as well as an increased tax rate (0.95% standard rate and 1.10% for net wealth above NOK 20 million).

The state budget also has several changes aimed to fight climate change, including a significant increase (28%) in CO2 fees for greenhouse gas emissions in sectors not covered by the EU emission trading system (ETS) as well as an increase in CO2 fees for gasoline.

Working group to review the Norwegian tax system

The government has nominated a working group to review the tax system, and its mandate has a particular focus on “unintentional consequences” of the Norwegian exemption model. The group shall present its recommendations in November 2022.

Outlook for 2022

In spite of ongoing uncertainty related to the Covid pandemic, we expect strong M&A deal activity in the early stages of 2022 in Norway. The conducive conditions for a strong M&A market remain. Demand for high-quality assets and an increasing willingness to sell them in such a market are also bringing deals forward. Dry powder both in the Nordics and further afield is still abundant meaning there should be strong competition for desirable targets, with firms starting to look beyond the more commonly favoured sectors. In the capital markets, there is a lot of optimism for the first half of 2022, particularly for the Oslo Stock Exchange, with an expectation of an increase in larger listings, reflecting changing demands from investors who have satisfied their demand for growth companies and have shifted priorities towards larger more established companies.

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