For the Europe, the Middle East and Africa (EMEA) region, Q4 2022 presents itself with the byproducts of economic upheaval due to increased interest rates. The elevated rates, paired with rising inflation and distorted supply chains, will be particularly challenging for Nordic economies and businesses. Compared to previous economic crises, many companies have acquired more advanced financing and layers of debt.
Still, the mood is optimistic as firms and investors, parlaying experiences with previous Nordic economic crises, adjust not only to higher rates but to stabilizing markets.
In Q2, mergers and acquisitions (M&A) pipeline approoached peak 2021 levels, meaning they are tracking consistently to previous years. (We go over the trends in detail in the just-released SS&C Intralinks Deal Flow Predictor for Q4 2022. The analysis includes an accurate six-month forecast of M&A activity based on global deals in preparation or beginning due diligence.)
With fewer initial public offerings (IPOs) being presented and special purpose acquisition companies (SPACs) having fallen out of favor, companies in the Nordic region will need to raise money on either the debt markets and/or through M&A.
The increasingly difficult market conditions and rising interest rates have made competition for qualified assets challenging as well. Valuations here have been slaughtered. Yet, the sentiment here shows optimism with the prevailing notion that, if you have a sustainable business model, a strong team and a clear plan, then the right investors are out there.
Impacts of Russia’s invasion of Ukraine
Nonetheless, there are headwinds on the macro scale that clients are facing. Due to its proximity to Russia, external (non-Nordic) investment in Finland has declined. This has impacted deal activity. However, Norway’s state coffers and economy continue to benefit from rising global prices for oil and gas, with other European countries now turning to them due to the embargo of Russian energy.
The sectors to watch in the Nordic region center around Energy. Renewable Energy continues to be a huge sector of focus and investment, boosted by the effects of the Ukraine invasion, the European Union’s Green Deal and a shift toward safer and steadier infrastructure investments.
Traditional oil and gas companies are benefiting from an increased price per barrel. Paired with environmental, social and corporate governance (ESG) considerations, this should result in increased M&A activity, as per previous years of high oil prices.
Industrials is also a sector to watch. Having previously spent a large amount of capital expenditures (CapEx) over the years, this sector now has huge fixed costs and can’t easily alter its bottom line.
Some external factors may impact M&A here this quarter: Unlike government debt, private debt is huge in Sweden. With many people on floating interest rates, they will be in a worse position financially and that could affect the housing market.
