Value compares to a contraction of 30.4% in Western Europe and 2.7% in the UK & Ireland over the same period
M&A activity in the Nordic region grew in total value by 27.8% in 2012 – mostly targeting healthy SMEs – while at the same time contracting by 30.4% in Western Europe, according to research into the privately-held as well as listed businesses of Norway, Sweden, Denmark and Finland, by S&P Capital IQ, a leading provider of multi-asset class data, research and analytics.
The growth of 27.8% brought Scandinavian M&A total deal value up to $19 billion from $15 billion in 2011 – edging the $20 billion mark for the first time since 2008, when deal value totalled $22 billion. By contrast, total M&A deal value contracted by 2.7% in the UK and Ireland, from $40 billion in 2011 to $39 billion in 2012. Furthermore, Western Europe as a whole saw a contraction of 30.4%, from $80 billion in 2011 to just $56 billion in 2012.
S&P Capital IQ’s research reveals that the increase in Nordic M&A activity is supported by strong fundamentals in privately-held as well as listed businesses, such as revenue growth, short-term liquidity profiles and leverage rates. This is alongside higher GDP growth than the Eurozone average in Norway, Sweden and Denmark. Moreover, all four countries boast AAA ratings and “stable” outlooks from Standard & Poor’s Ratings Services, while only seven such countries remain in Europe following years of financial and economic crises.
“The strength of Scandinavian businesses combined with the stability of regional economies present an attractive proposition to expansionary-minded corporates, banks, private equity firms and investment professionals,” says Silvina Aldeco-Martinez, Managing Director at S&P Capital IQ. “This is particularly true for SMEs – often described as the engine of growth in developed economies – which constituted 81.8% of targets in regional M&A activity over the past five years.”
The research undertaken by S&P Capital IQ reveals stronger double-digit revenue growth in privately-held Scandinavian companies than in their public peers; on average, the private sector grew 22.7% in 2012, public sector grew 15.5%. Indeed, as one of the clearest demonstrations of the strong financial health of the Nordic region, revenues increased in all sectors across all countries, with only two listed sectors reporting revenue contractions: publically-traded healthcare (-3.7%) and utility (-2.1%) companies in Finland.
Private and public energy sector firms, in particular, consistently witnessed some of the highest average revenue growth rates across Norway, Sweden, Denmark and Finland, according to the latest annual figures. But the highest annual revenue growth rates were witnessed in the Danish and Swedish public utilities sectors, with 67.0% and 52.1% respectively, followed by the Norwegian private energy sector, which saw their annual revenues grow by 36.4%.
The analysis carried about by S&P Capital IQ also reveals strong operational health for private Scandinavian firms in terms of Days Sales Outstanding (DSO), a measure of how quickly a given business can translate sales into income. In Sweden, private businesses reported a respectable receivables turnaround time of only 34.37 days – with the consumer staples sector boasting the best of 11.48 days – while their listed peers reported DSOs of 59.72 days, on average. This demonstrates the relative operational strength of privately-held entities in Sweden, which managed to convert receivables into cash almost twice as fast as their public counterparts.
While looking at the capital structure of businesses across Nordic countries, S&P Capital IQ’s research revealed that average reported debt proportions – as measured by Total Liabilities to Total Assets – were higher for privately-held firms than listed businesses in all of the four countries analysed, according to their latest annual figures. This trend was particularly present in Sweden, where private companies reported Total Liabilities to Total Assets of 71.4%, on average, with utility firms topping the list at 85.4%. Publically-traded firms in the same country meanwhile reported a lower average Total Liabilities to Total Assets rate of 53.1%.
“This analysis bears out comments from S&P Ratings in November describing Sweden’s relatively high external as well as household debt levels as a key risk factor,” says Maria Shevchenko, Director of Financial Content and Analytics at S&P Capital IQ. “This research highlights the importance of full transparency into the fundamentals of both privately-held and listed firms, without which positive and negative signals can be hard to identify promptly.”
European private company coverage expansion
The full S&P Capital IQ research report analysing privately-held and listed firms in Norway, Sweden, Denmark and Finland. The report makes use of data made available during the recent expansion of S&P Capital IQ’s private company fundamentals throughout Europe, including the Scandinavian region. For the purposes of this report, Financials were not included in the data analysed.
“The number of smaller M&A transactions and the globalization of business operations – from both suppliers’ and clients’ perspectives – point to increasing demand for the analysis of private entities,” says Aldeco-Martinez. “For these reasons, private firm data additions will remain vital to S&P Capital IQ’s business strategy in the short- to medium-term.”
Subject to robust quality checks, the data is made available to investors, risk managers and researchers via the firm’s market-leading S&P Capital IQ desktop and Xpressfeed channels. Furthermore, S&P Capital IQ’s proprietary “click-through” functionality was introduced with the latest release, which allows users an additional layer of transparency into the provenance of private entity data inputs.
Indeed, S&P Capital IQ clients across several market segments will be able to improve their in-house analysis of counterparties and targets with this data. This includes risk managers quantifying risk exposures, or private equity analysts and corporate finance teams at investment banks conducting research into prospective investments and M&A targets.