Nordic pharma and tech sectors set for quickest recovery post COVID-19 crisis – sources: Analysis

30 March 2020

While the coronavirus outbreak has put a stop to most Nordic M&A processes, pharma, technology and certain retail companies are considered more resilient and could thus be the first to return to the M&A arena once the market has adjusted, several sources told Mergermarket.

  • Consumer staple retail, local services and security companies could also engage in M&A after adjustment period
  • Hospitality, tourism and construction among worst affected
  • Purmo, Euro Cater and Fidelix among halted sale processes

 


While the coronavirus outbreak has put a stop to most Nordic M&A processes, pharma, technology and certain retail companies are considered more resilient and could thus be the first to return to the M&A arena once the market has adjusted, several sources told Mergermarket.

 

Healthcare companies and food retailers could lead the way in terms of M&A, said Jan Olsson, CEO Nordic Region at Deutsche Bank.

 

Companies such as Danish dentist chain Tandlægen.dk recently mandated Danske Bank for a 2H20 sale process, Mergermarket reported. CEO Henrik Kølle told this news service that the company had a robust pipeline of potential acquisition targets and a new owner that would exploit these opportunities could benefit the group. Other dental groups that were also assessing sale processes before the outbreak include Swedish dental group Distriktstandvarden and Danish Godt Smil, as reported.

 

Med tech, e-commerce, telecoms, software and anything digital could also come out in decent shape and be ready to tackle M&A once the market has stabilized, a Danish banker said. Some companies in the software sector could end up with 5%-10% lesser annual revenue, but such a decrease in this environment is “quite cushy”, a debt fund manager said.

 

This news service reported that Swedish software company Unifaun is one of the few Nordic processes that are still active, having mandated Goldman Sachs to run the auction irrespective of the logistical challenges the virus throws at them. Nordic Capital-owned Norwegian provider of digital identity and signature solutions Signicat could make an acquisition before the summer, while Swedish consultancy firm CAG Group  is also actively looking for M&A opportunities despite obvious market challenges from the coronavirus, as reported by Mergermarket.

 

The virus’ knock-on effects on the Nordic M&A scene are not dissimilar to other regions, Olsson said. The strong healthcare and banking sectors could, however, work in the region’s favour during the road to recovery. Nordic banks and its financial systems were in good shape before the pandemic, which could help soften the negative financial effects of the virus, he added.

Other sectors that will be less impacted by the knock-on effect of the coronavirus outbreak include certain local services and security sector companies, a Swedish banker said. Non-cyclical sectors will bounce back quicker, a second Swedish banker said. Similarly, companies with state-owned customers and utility aspects will do better, he added. Infrastructure is still seen as essential, so Nordic infrastructure deals are also likely to be less affected, a third Swedish banker said.

 

Click here for a list of M&A processes in the Nordics impacted by the COVID-19 crisis.

 

Gloomy start to the year…

 

With a total deal value of EUR 2.2bn in 1Q20 to date, representing a dramatic 79.2% fall on last year’s equivalent period, the Nordics has seen one of the steepest falls in deal value across Europe, according to Mergermarket data. The region reported an unusually slow start to the year, which has now been further aggravated by the coronavirus outbreak.

 

Pharma, medical and biotech reported the largest deal value so far in 1Q20, with EUR 935m across nine deals, a drop of 6.9% in value compared to 1Q19. The sector makes up 42.3% of the region’s reported M&A value so far this year. It is followed by financial services with EUR 383m across five deals, representing a whopping 84.3% decrease in value versus the same period last year, Mergermarket data shows. Technology deals totalled EUR 365m across 43 deals, placing it in third place with 16.5% of total activity in the region.

 

In this new coronavirus-impacted environment, apart from a few distressed sales, there is unlikely to be any M&A activity in the near-term, a Danish lawyer said. April deal activity is likely to be close to zero but colleagues in China are now starting to work at 50% capacity which, if the Nordic region follows a similar pattern, could mean that the Nordic M&A market could start to pick up in June, just in time for the summer holiday to shut the market again, a Finnish banker said.

 

A good scenario would see the outbreak peak in April and May, then flatten in June and July, followed by an active M&A market during the autumn, the third Swedish banker and the Danish lawyer added.

 

The market now needs time to understand and get to terms with new valuation levels and updated price estimates, the Swedish banker said. The re-rating of valuations will have to sink in before any deals can be made, a private equity executive added.

 

… and long road to recovery for some

As in the rest of Europe, Nordic companies in the travel, tourism and restaurant space are likely to have a longer road to recovery as they face major liquidity issues, several dealmakers said.

Certain companies, often in the events, restaurant and hotel industries will – or have already – seen a 100% drop in revenues, the first Swedish banker said. Finnish restaurant chain Noho, for example, is talking to investors to raise EUR 30m after restrictions to keep restaurants open in Finland have hit the company hard, as reported.

 

Firms in the construction, automotive and industrials sectors, as well as fashion retailers, and companies related to or exposed to the oil market, with long international supply chains, or with end customers in China or Italy, will also be worse off, several sources said.

 

Several processes in the aforementioned sectors have been put on hold, including that of Finnish radiator company Purmo, owned by Rettig; Danish food distributor Euro Cater; and Finnish building automation company Fidelix, owned by Procuritas, as reported.

 

The impact of the coronavirus outbreak will be broader than we can anticipate now, the Danish lawyer said. Some sectors are not badly hit right now but could be affected at a later stage. With fears of a recession and redundancies looming, many supermarkets, their suppliers and distributors, as well as online shops and B2C companies, will take a critical look at their capex and liquidity positions, he added.

 

The underlying question will, however, be as to whether Nordic banks will be able or willing to finance M&A deals, several bankers said. If they don’t, M&A could freeze in the more resilient sectors too, they added. Banks have already started to focus on their own portfolios, so even if bankable assets pop up, they are more likely to focus on their own investments rather than looking for new cases at this time, the second Swedish banker said.