While the Nordics, along with the rest of the world, has experienced several economic challenges in the last couple of years – the latest being the collapse of Silicon Valley Bank and subsequent UBS takeover of Credit Suisse – its corporate M&A market and PE deal flow has remained relatively resilient during this turbulent time.

In fact, the Nordics had a bumper start to the year in 2022. Deal flow tailed off towards the end of last year, a trend that continued during the first few months of 2023, but we believe we are now, as we are approaching summer, starting to see the first signs of recovery.

Our view is that in spite of the early positive signs, we are unlikely to witness the number of large deals of over $500m EV that we have seen come to market in recent years. The era of the big deals is, at least for the moment, on hold.  However, in the mid-market segment, momentum appears better.  This is where the majority of deals in the Nordics traditionally fall and this does seem likely to continue in 2023, simply because it remains easier to get financing for these medium sized and smaller deals.

On the insurance side, we also expect to see ongoing strong interest in insuring transactions, as buyers look to protect their investments in an uncertain economic environment. While the global economic situation has calmed slightly, and the outlook for inflation remains positive; there is still a lot of caution from buyers around economic developments.  Even while Nordic economics look set to rebound, the global nature of the financial system means that external events are bound to impact the region; and the global economy is, of course, far from stable or strong.

A well-regarded region for investors

In 2022, Sweden was the region’s top performer, both in terms of the number and value of deals.  Those who know the Nordic region will not find this surprising given the size of the Swedish economy compared to the rest of the region (Sweden’s economy is almost double the size of any of its Nordic neighbours). However, others prospered too.  Despite volatility in the market both Denmark and Norway faired relatively well and only saw a small dip in the number of deals during economic headwinds.

Historically, the Nordics have always had a strong PE market and there is a growing interest from other regions regarding investments in the market due to the availability of good local assets.  Last year, the top 10 M&A deals involved players from across the globe including the US, Malaysia and Spain.

Together these factors are helping to stoke deal activity.  This is further supported by the fact that there are a number of longstanding businesses in the traditional manufacturing, IT and Biotech R&D sectors which are of particular interest to foreign investors. This is reinforced by the fact that, as in previous years, in 2022 the technology sector saw the highest number of deals, followed by manufacturing and services.

According to PitchBook’s Nordic M&A report, the Nordics has under 4% of Europe’s population but in 2022 transacted 14% of deals. The ease of doing business in the Nordics makes it a popular choice for investors. It has a stable political and economic environment, and the international investor view is that deal negotiations are typically conducted in a way that is both “honest” and “solution-oriented”.  All this means that dealmakers can expect a smooth process, supported by experienced local lawyers who understand international dynamics. In addition to this, the Nordic currencies are local (save for Finland (EUR)) and do not tend to perform well against the Euro, which brings a further currency pricing benefit for foreign investors.

Well-developed W&I market

The private equity industry has been part of the financial services landscape in the Nordics since the 1980s and has grown ever since. As a result, the warranties and indemnities (W&I) market is well developed in the region. Sweden, in particular, was one of the pioneers of the product and the region has many dedicated W&I lawyers and brokers operating in the market.

Here W&I is a well-understood and established product which flows almost seamlessly into a regular deal process. The cover that is provided by W&I insurance and the price that clients receive is one of the best in EMEA.

The maturity of the market means that there is now growing interest from deal teams in accessing additional products, designed to safeguard investments.  This includes, for example, contingent legal risk insurance policies, providing protection to companies against potential legal risks associated with acquired business operations.

Overall, the Nordic region remains an attractive and stable market for all parties.  In the short-term things also look positive, and we expect the demand for W&I insurance in the Nordics to remain consistent over the next few months as dealmakers both increase the number of deals they do, and look to protect investments in this period of economic volatility.