Key take-aways

The sectors with the largest representation in Norwegian deals in H1 2021 was Technology (42), followed by Business services (32), with the highest deal values being in Industrials & Chemicals (€4.12bn) and Financial services (€3.45bn).
Private equity transactions has had a strong 2021 so far, with seven of the ten largest deals in Norway being PE deals and an increased interest from global PE houses
Prominent-looking pipeline for Norway’s ESG, technology and consumer sectors
Euronext Growth listings continue to surge, with almost as many listings in H1 2021 (45) as in all of 2021 (48), which was itself a record. Oslo Stock Exchange listings have also picked up with more this year (12) than all of 2020 (9)
Following a trends across Europe, a wave of consolidation has seen increased deal flow, with mergers among banks and insurers being particularly prominent – Financial Services was the third large sector for deals
Oslo had the most listings in Europe in Q1, and was only surpassed by Stockholm in Q2, exceeding the London Stock Exchange, which itself had a record half-year
Impending SPACs clarification at EU level stands to impact Norwegian IPO and M&A activity in H2 2021
Q2 reporting for listed companies should provide a useful indicator of the impact that the easing of pandemic-related restrictions, introduced in May, will have on companies’ earnings going forward

M&A market continues its bounce back

A prevailing theme since the turn of the year has been the question as to the sustainability of 2020’s recovery: “can M&A’s boom keep going in 2021?” Evidence from H1 data in Norway presents a positive picture overall. Deal value has shown strong growth, with H1 2021 up by 466% (€19.12bn), which reflects historically low M&A figures (€4.1bn) for H1 2020. Deal volume is also up, by 77% (299 in H1 2021 vs 169 in the same period in 2020). The continuing recovery in transaction value was assisted by the return of larger transactions, such as SoftBank Group’s investments in online grocery business, Oda and robotics company AutoStore, and KPS Capital Partners’ acquisition of Norsk Hydro’s rolling business. Five deals exceeded €1 billion (all occurring within a heated six-week period in March-April), as opposed to zero in the corresponding period last year.

Figure 1: Top 10 deals with Norwegian targets H1 2021 by deal value. Wiersholm advised on five of these deals.

Figure 2: Summarising Norwegian and Nordic deal numbers and values, based on Norwegian or Nordic target/buyer/seller.

It is perhaps unremarkable that technology was the largest sector by deal number (42 deals in H1 2021), with a comparatively low deal value reflected in confidential transactions and a strategy whereby large corporates are buying up small technology companies. Industrials & chemicals was the largest sector by value, with deal value coming in at €4.12bn in H1, and a deal count that increased to 30 from 20 in H1 2020. Financial services is the second largest sector by value (€3.47bn), with a wave of consolidation seeing increased deal flow. Mergers among banks and insurers have been particularly prominent, following a similar trend across Europe.

Figure 3: Norway deal count and value by sector.

In terms of cross-border transactions in Norway, the level has remained strong, with 50.5% of all deals with a Norwegian target being cross-border and 66.9% of all deals involving a Norwegian party having a cross-border element. At the upper end of the scale in 2021, in the sectors with significant activity we have seen 67% industrials and chemicals and 64% of construction deals respectively being cross-border, whilst at the lower end only around 20% of real estate deals being 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.

Figure 4: Cross-border intra-sector deal count distribution.

Looking at the country of origin for companies acquiring Norwegian targets, it is no surprise to see Sweden, the US and the UK making an appearance in the top five bidders by both deal number and value. However, it is interesting to see Japan at the top of the bidders by deal value table, underpinned entirely by SoftBank Group’s investments in Oda and AutoStore. The Tokyo-based firm’s significant focus on Nordic businesses continue its shift toward Norway, following its investment in the game-based learning platform, Kahoot! in October 2020.

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

Private equity has had a stable deal flow over several years, but H2 2020 and H1 2021 in Norway has been particularly strong. There were 43 PE deals involving a Norwegian target worth €7.23bn in total, a 95% rise in terms of volume and more than 71 times the value in H1 2020. Seven of the top ten M&A deals by value in H1 involved a PE buyer or seller. This includes Nordic Capital-backed Nordax Bank’s acquisition of Norwegian Finans for €1.8bn, which will strengthen its position in the competitive consumer finance market in the Nordics. Another of the largest deals in Norway saw Altor and Goldman Sachs Asset Management exit Navico, a marine electronics and sensors company, to Brunswick Corporation, an US-based boats and leisure equipment manufacturer. The USD 1.05bn deal will accelerate Brunswick’s push into new technologies and digital solutions.

Figure 6: PE/VC deals in Norway H1 2021. Defined by the deal containing a VC/PE buyer or seller, and that either the buyer, seller or target is Norwegian.

In the early stages of the pandemic, it was expected that deal flow would be slowed in a similar manner to the global financial crisis in 2008, due to difficulties in agreeing valuations. However, that affect only lasted for a short period, up to summer 2020. The trend started in the capital markets, with high valuations, particularly for companies with anticipated high future earnings. This appears to have had a knock-on effect with generally higher valuations of targets and the resulting emergence on the market of a number of assets that we would not expect to see in a less buoyant market. However, we have still seen a gap between PE valuations and those higher valuations in the stock market, which has also been a challenge for venture capital investors, with many venture deals gaining momentum in Q2 this year.

Looking at the sectors in Norway, oil and oil services has been lagging behind for a long period, partly through struggles in getting the required levels of attention in the ‘green’ –frenzied market. However, with an apparently higher and stable oil price and the appeal of direct earnings today rather than, say, 10 years into the future, this may bring attention to oil and oil services once more. It is worth noting that businesses in these sectors could also act as a good “hedge” whereby stable income from oil activities can fund growth in a renewables business.

Looking ahead, the IMF is projecting slightly higher economic growth for Norway that its Nordic neighbours, at 3.9% and the deal pipeline looks optimistic for Q3 and Q4 with deal opportunities across multiple sectors, and an anticipated vaccine-powered boost. For businesses unaffected by the pandemic, it should be a strong market, with low interest rates, readily available financing and capital, and some high quality targets. Acquiring companies may expect to face stiff competition for such targets, primarily from Nordic PE firms sitting on a lot of dry powder. However, given 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. As such, US and European PE players are expected to target Norwegian assets.

Continued IPO surge sees Norway hold the number one position in Europe for number of listings in H1 2021

With increased liquidity, Norway’s IPO deal numbers and proceeds have seen the best performance witnessed in the many years and the strong performance within the capital markets in 2020 has continued into 2021. At the halfway point, Euronext Growth listings have remained extremely popular, with 45 so far in 2021, almost reaching 2020’s record number of 48, even with a slight decrease in the number of Growth listings towards the end of Q2. Main list IPOs have increased, with 12 listings already surpassing the nine from 2020, with Q2 seeing a real uptick with nine in that quarter alone. The listing of Elopak in June saw record high interest from analysts, with many investors interested in steady cash flow. The technology and ESG sectors continue their strong representation, with industry and consumer also notably active.

Figure 7: Euronext Growth and OSE listings.

There is a lot of optimism for the second half of the year, for both Euronext Growth and the Oslo Stock Exchange. There is a considerable pipeline of companies looking to list in Norway, with many that have had postponed or slowed down processes in H1 looking to list in the autumn. We are also starting to see an increase in uplistings from the Growth to the main Stock Exchange in order to secure larger investors more focused on companies on the main list. The indirect uplisting strategy is often promoted as one that provides quicker short-term access to capital and can be a quicker and less expensive route to the main list.

One of the current hot trends is SPAC listings, where a special purpose vehicle raises money and lists its shares for public trading with the sole purpose of carrying out an acquisition or merger with a private company to take public. There are a number of examples of SPAC listings in other EU/EEA countries, including in neighboring countries, but the current status in Norway is that SPAC listings are not permitted. However, following the establishment of Viking Ventures’ currently unlisted SPAC we are anticipating further clarification from the regulators, hopefully in the short term.

New measures highlight importance of tax considerations in M&A

Historically, Norway has only imposed withholding tax on dividends. However, as of 1 July 2021, tax will also be imposed on interest and royalty payments made to foreign related companies in “low-tax jurisdictions” at a rate of 15%. The main purpose of this is to counteract profit shifting from Norway that takes place through artificially high interest- and royalty payments to related companies in low-tax jurisdictions. In addition, the rules will also prevent Norway from being used as a flow-through country for such payments. As the withholding tax is a tax on gross earnings, interest and royalty payments will be taxable even if the recipient is operating at a loss. The withholding tax is limited to payments to “related companies” in “low-tax countries”, meaning where the effective tax rate is lower than 2/3 of the Norwegian tax rate on corresponding income. Given these new rules, in addition to the complex rules relating to interest deduction limitation rules already in place in Norway, we have seen increased work assisting on tax structuring of M&A transactions as well as the structuring of PE funds.

New rules based on the Mandatory Disclosure Rules (MDR) in the EU Directive on Administrative Cooperation (DAC 6) have been proposed by the Norwegian Ministry of Finance. The rules aim to increase the transparency of transactions involving an increased risk of aggressive tax planning. Subject to the disclosure requirements are primarily “intermediaries” (Nw: tilbydere) of tax arrangements. This may include tax advisors, auditors and brokers. Several EU member states have interpreted the term to include the legal counsel of a corporation or company. New and comprehensive reporting requirements are due to be introduced in the next few years and focus on tax compliance in a broad sense will be key in M&A.

From 1 January 2021, the application of the exemption method (Nw: fritaksmetoden) for Norwegian investors in British companies will be conditional on the Norwegian investor owning at least 10% of the shares in the British company, and having owned these shares for at least two years. If these conditions are not met, dividends and capital gains will be taxable. For British investors in Norwegian companies the exemption method will no longer be applicable. Consequently, dividends from Norway to the UK are subject to withholding tax, which is limited to a maximum of 15% pursuant to the tax treaty entered into between Norway and the UK. Further, the rules on Norwegian controlled foreign companies (Nw: NOKUS-reglene) may be applicable to Norwegian participants in British companies. Norwegian tax authorities have, however, pointed out that the rules will only be relevant in certain specific cases.

The Norwegian government has introduced a number of tax-related measures to deal with the economic consequences of the Covid-19 pandemic. The most pertinent are:

In relation to wealth tax, the valuation discount has been increased from 25% to 35% for 2020 for shares, the share component of securities, equity certificates, shares in businesses assessed as partnerships, and fixed assets, including commercial property, reducing the basis for wealth tax.
A temporary exemption from limited tax liability rules (permanent establishment) will ensure foreign enterprises do not obtain limited tax liability in Norway merely as a result of employees working from home in Norway due to Covid-19.
Companies who had a negative result for the financial year of 2020 will temporarily be able to deduct up to NOK 30 million of the company’s deficit in 2020 against taxed surpluses from the previous two years. Companies who do not wish to be included in the scheme, must request to be excluded when they submit their tax return for 2020.

Competition regulator’s focus shift to mergers affecting consumers

The last year has shown that the NCA is focusing their investigative power 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 or are rapidly evolving. Dealmakers should be aware that the NCA might impose a notification in such transactions, despite the transaction not meeting the general merger filing thresholds.

In Norway, the merger control regime has not been severely affected by the pandemic. The deal volume has remained relatively high, and there has been no failing firm defence cases. However, this might become more relevant when the state-sponsored aid schemes end, possibly forcing struggling companies out of the market.

Before undertaking a transaction that might raise concerns with the competition authorities, dealmakers should also be aware that the NCA will likely place less weight on market shares and concentration levels. Generally, we have witnessed the NCA focus their investigations on the parties’ internal documents produced before the transaction and conducting a more sophisticated economic analysis such as price-pressure tests and diversion analyses.

ESG remains front and centre

Environmental, social and governance (ESG) issues have continued to play a dominant role on the agenda for corporates, regulators and investors in 2021. In Norway, the country’s sovereign wealth fund Norges Bank set the tone by announcing its intention to accelerate divestments from companies that do not meet their key ESG metrics. It has become an integral part of M&A and buyers increasingly need to carefully assess a target for exposure to ESG risks and understand stakeholder expectations and future regulatory requirements. This is particularly important for private equity or opportunistic buyers, to ensure that the value of the investment is preserved and a clean and responsible exit is ultimately possible. ESG is also becoming an integrated part of companies’ business models and an important KPI. Indeed, some acquisitions can be ESG-driven, with acquirers with a low ESG rating targeting a company with excellent ESG credentials in order to improve its overall ESG rating. ESG’s rise to prominence was further emphasised by the development in the stock market, where investors showed impressive appetite for ESG related companies throughout the year.

The EU recently published technical criteria for a number of key sectors, including real estate and energy. This represents another step towards a convergence in reporting standards and disclosure of ESG related information, which will ultimately help determine the impact of ESG factors on the valuation of a target company or the pro forma ESG impact of a transaction on an acquiring company. We continue to see a considerable increase in ESG scrutiny and information gathering during M&A processes, both to map a target company’s ESG risks and to evaluate compatibility with ESG metrics, as well as potential costs of aligning standards post-closing. The difficulty of quantifying certain findings in financial materiality terms remains an issue, but we believe ESG due diligence will become more and more important going forward.

Foreign investment control is becoming increasingly important in transactions involving investors outside of Norway. Norwegian authorities have blocked at least one prominent transaction in 2021, and there is significant and ongoing political discourse on the topic.

In addition, the recently adopted transparency act place 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.

Increasing labour law considerations in due diligence processes

Since our last report at the turn of the year, the trend has only grown stronger for an ESG focus as part of transactions, which continues to put increased emphasis on labour law compliance, as employee rights and employee participation are typically included in an ESG assessment. In addition to this, a recent judgement from the Supreme Court on collective bargaining agreements could have an impact. The Supreme Court concluded that certain individual rights of collective bargaining agreements continue to apply after discontinuation of the collective bargaining agreement. As a result of this, we expect to see a greater focus on collective bargaining agreements in Due Diligence processes and transactions going forward.

Green energy investment continues its rise

2021 has continued from the second half of last year with many new companies emerging which have developed or have plans to develop new technology that seeks to contribute to the carbon neutral production of energy. These include companies focused on the production of batteries (such as FREYR, Kyoto and Beyonder) and hydrogen (such as Nordic Electrofuel, Meråker Hydrogen and Hexagon Purus) as well as companies investing in ‘planet-positive’ technology companies, such as Aker Horizons. Whilst some have sought to list on Norway’s secondary stock market, Euronext Growth, others have been acquired by large infrastructure investors, in order to secure long term capital for the development of their technology. For example, Wiersholm recently advised London-based investment firm Infracapital on its acquisition of thermal battery company EnergyNest. Many of these companies are in an early phase, but their need for capital will grow over time, which will continue to trigger significant M&A activity in the next few years.

A number of less explored renewable energies are starting to develop and gain momentum in Norway, in particular offshore wind and solar energy. Offshore wind could now be considered a substantial industry in Norway and will play a significant role in the local energy market. There will be a large need for cables and other infrastructure as well as large supplies on the continental shelf to support offshore wind, and a market will form to support this. For solar, we are starting to see increasing interest in solar projects in southern Norway. Many companies are exploring this potential, with regional vertically integrated renewables companies trying to set up a solar energy business and large international solar energy companies keen to invest in projects in Norway. The development of this sector in Norway has been slow to date, but we expect to see significant investment interest in the near future.

The Nordic power market has long stood out as a trailblazer in a European context, and a new trend emerging is the development of new products for securing or hedging produced renewable electricity, through the Nasdaq Commodities and Nord Pool power exchanges. The evolution of long-term Power Purchase Agreements (PPAs) to serve not only as a tool for providing cash flow certainty to investors, lenders, and producers, but also price certainty to buyers, has helped fill the financing gap left by the rolling back of government renewables support schemes. These innovative hedging products are seeing investors with a greater risk appetite, such as infrastructure and pension funds, as well as venture capital and investment companies, invest in PPAs. Wiersholm has been involved in a number of large transactions in this area and is currently assisting with several ongoing projects.

SoftBank’s focus on Norway

As referenced above, SoftBank Group has made three significant investments into Norway in the last 9 months, starting with Kahoot! in October and then AutoStore and Oda in April, announced just three days apart. Wiersholm advised SoftBank Group on the investment into Oda, which saw the online grocery startup valued at €900 million, a valuation that subsequently reached 10.2bn Norwegian kroner (around €1 billion), making it Norway’s latest unicorn. This trend marks Norway and its Nordic neighbours out as being hotbeds for innovation and talent, belying their smaller populations, with a key attraction for SoftBank being a focus on smart technology, automation and efficiency. For example, Oda has stated that its grocery item picking rate well exceeds its nearest competitor, Ocado in the U.K. and is about double the industry average. For Oda, the investment will see them expand internationally, starting with Finland in H2 2021 and Germany in 2022.

Outlook for H2 2021

Looking forward, we expect strong M&A deal activity in Q3 and Q4 in Norway, building on the resurgence that began after the first wave of the Covid-19 pandemic and has continued impressively in H1 2021. The deal pipeline looks just as healthy if not healthier than Q1 and Q2 and on that basis we might see 2021 deal volume outpace last year’s. Demand for high-quality assets and an increasing willingness to sell them in such a market are also bringing deals forward. Low interest rates mean inexpensive debt is available for acquisitions, as well as financing and capital. Private equity 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 (we note recent overseas PE interest in a Norwegian knitting company). The impending SPACs clarification should also decide if the door opens for SPAC activity in Norway, which could add more heat to the market. In the capital markets, with no shortage of companies keen to access the market while the window remains open, we expect Q3 to keep pace with H1 and recent annual record numbers on Euronext Growth and main listings are on course to be broken, perhaps emphatically.

No related found

Newsletters and invitations