Effect of trade wars starting to show?

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1 Transaction Advisory Services Transaction Trends Norwegian M&A update Q3 21 Effect of trade wars starting to show? Also in this edition: Six ways private equity will help drive value in M&A Transaction Trends, published by EY Transaction Advisory Services, is a quarterly publication that aims to identify trends in the Norwegian transactions market. Data presented in this newsletter cover all transactions where the 5 largest companies in Norway have participated as either target, buyer or vendor. This makes Transaction Trends the most comprehensive transaction newsletter available for the Norwegian market. Last Twelve Months Number of Transactions by Industry Automotive & Transportation Business & Prof. Services Consumer Products Engineering & Ind. Products Financial Services Government & Public sector Life Sciences Oil & Gas During the third quarter of 21, the 5 largest Norwegian companies announced a total of 23 transactions. This is considerably lower than the 42 deals observed in the second quarter of 21 (normally a strong quarter), and below the average level of third quarter deals (27) observed since 2. In terms of activity by industry, Power & Utilities had the highest deal activity (5 deals), while TMT came in second (4 deals). Global deal volumes have been strong so far in 21 - and near record levels. In the third quarter of, however, Mergermarket reports that deal volumes were subdued due to growing geopolitical tensions, trade wars and protectionism. In total, global deal value amounted to USD 73bn in the third quarter of 21. This is the lowest quarterly deal value observed since the first quarter of 216. The 19 th edition of EY s Global Capital Confidence Barometer notes that corporate acquisition appetite is at a four-year low, and that regulation and geopolitical uncertainty are the biggest potential risks to deal-making. In this issue, we have included an article by Andrew Wollaston, EY Global Restructuring and TAS Private Equity Leader, on Six ways private equity will help drive value in M&A. Power & Utilities Real Estate 13 Number of transactions * Transactions where buyer, vendor and/or target is listed or have a parent company that is listed Retail TMT Travel, Leisure & Tourism Q Q Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q1 2Q1 3Q Public* Private

2 Key highlights and market outlook Over the last twelve month ( ) period, the 5 largest companies in Norway announced a total of 137 deals. While this is the strongest level observed since the second quarter of 217, deal activity is still somewhat behind the record levels observed in 216 (~16 deals). Engineering and industrial products continue to be the hottest industries for M&A, with 1 deals reported so far in 21, followed by TMT with 13 deals. Our experience of late is that deal activity among the 5 largest companies in Norway has become increasingly oriented towards the Nordics. In the data presented in the following pages, we observe that the share of transactions involving investors from e.g. the USA and Asia has dropped compared to what we observed just a few years ago. Perhaps this is partly a result of increasing trade wars and protectionism? From a local perspective, we remain optimistic about M&A activity in the fourth quarter of 21. Our take is that the deal pipeline continues to be robust, and that the overall appetite for deal-making is strong. Moreover, we currently observe a strong appetite for new share listings in Norway. On 6 July, Kongsberg Gruppen, has acquired the commercial marine business of Rolls-Royce for an enterprise value of GBP 5m. The sale is aimed at simplifying and focusing the business of Rolls-Royce. Kongsberg, on the other hand, aims to strengthen its position with ship-owners, shipyards and other customers through this transaction. The acquired business has 3,6 employees with the majority being based in the Nordic region. On 17 July, Telia Company announced the acquisition of GET and TDC Norway. The combined enterprise value amounts to NOK 21bn, and corresponds to an EV/EBITDA multiple of.1x based on 217 EBITDA. The acquisition will strengthen Telia s position on the Norwegian market and will position the company as a strong challenger in mobile, TV and broadband markets. EY acted as advisor to Telia Company in connection to the transaction. On 2 July, Nordea signed an agreement to acquire Gjensidige Bank for a consideration of NOK 5.5bn. The transaction will increase Nordea s market share in Norway. Gjensidige Bank will be merged with Nordea, and Nordea will welcome 17 employees from Gjensidige Bank. EY acted as advisor to Gjensidige in connection to the transaction. On 3 September, Antin Infrastructure Partners ( Antin ) and funds managed by Oaktree Capital Management, L.P. ( Oaktree ) announced that Antin will acquire Silver Holdings AS ( Sølvtrans ), the global market leader in the transportation of live salmon and trout and provision of infrastructure and specialised services to the aquaculture industry. Antin will own a majority stake in the business with CEO and Chairman of the Board maintaining their current roles and re-investing to remain substantial shareholders alongside Antin. On 13 July, Sector Alarm has agreed to acquire a 49.99% stake in Nokas, for a consideration of NOK 1.2bn (EUR 6.m). The transaction will further boost Nokas position and competitiveness in the security services business. EY acted as advisor to Sector Alarm in connection to the transaction. Top transactions last quarter (by deal value, USDm) Ann. Date Target Vendor Buyer Deal Dom. Industry Deal Value* Target Turnover 17 July Get AS TDC A/S Telia Company AB TMT USD 2,59m USD 4m 2 July Gjensidige Bank ASA Gjensidige Forsikring ASA Nordea AB Financial Services USD 673m n.a. 6 July Rolls-Royce (Commercial Marine business) Rolls-Royce Plc Kongsberg Gruppen ASA Engineering & Industrial Products USD 662m USD 1,3m 13 July Nokas AS (49.99% Stake) Sector Alarm Holding AS Consumer Products USD 14m n.a. 3 September Sølvtrans AS Oaktree Capital Management LP Antin Infrastructure Partners S.A.S. Automotive & Transportation n.a. USD 2m *Mergermarket definition 2 Transaction Trends 4 th edition 21

3 Activity Breakdown In the third quarter of 21, 17 of 23 deals (7) were made by Norwegian buyers. This represents an increase compared to the last twelve month period where 69% of all buyers were Norwegian. The composition amongst buyers situated outside of Norway is similar to the levels observed in the period for the Nordics, the Americas and Asia-Pacific, while the share of European buyers is 4 p.p. lower in the third quarter of 21 compared to the last twelve month average levels. The share of domestic deals was higher in the third quarter of 21 (52%) compared to the two first quarters of 21 (33%). It is also above the trend observed for the last twelve months (also 33%). Among the top five transactions in the third quarter of 21, three were cross border (two Swedish buyers and one British seller). Buyer Region 7 Q % Norway % Rest of Nordics Rest of Europe 13% 9% % 5% 69% Americas Asia-Pacific Other Transaction Type Q3 21 Domestic 52% Cross Border 33% 67% % Activity by industry Number of Transactions Industry Q Avg Trend indicator Automotive & Transportation Business & Professional Services Consumer Products Engineering & Industrial Products Financial Services 1 7 Government, Public sector & Organisations 1 Life Sciences Oil & Gas Power & Utilities Real Estate, Hospitality & Construction Retail TMT Travel, Leisure & Tourism Total Transaction Trends 4 th edition 21 3

4 5% Activity Breakdown The share of Norwegian targets increased from 5 in the first quarter of 21, to 91% in the third quarter. The amount of domestic targets for the period is now at just over 67% - the highest level observed in the history of Transaction Trends. Deal flow between Norway and countries outside of the Nordics continues to be low. In the period from the first quarter of 2 to the third quarter of 21, the average share of targets situated outside of the Nordics has been ~2, compared to a current share of 19%. In the same period, the average share of buyers situated outside of the Nordics has been ~27%, while the current share is 1%. Target Region Q % 9% % % % % Norway Rest of Nordics Rest of Europe 67% Americas Asia-Pacific Other 1 9% 5% 1% Deal value by range (est.) & EY USD - m > USD m Average deal size (USD, est.) & EY Q17 1Q1 2Q1 3Q1 4Q17 1Q1 2Q1 3Q1 Transaction Arena Q3 21 Public 52% Private 51% 49% % 51% 4 Transaction Trends 4 th edition 21

5 Public Market Update Stock Exchange ( OSE ) saw three new listings in the third quarter of 21, while Axess had no new listings. The companies listed were Northern Drilling (transfer from Axess), Star Bulk Carriers, and Seadrill. The amount of equity capital raised in the third quarter of 21 was moderate (NOK 2.1bn). However, 21 continues to be relatively strong. As at closing of the third quarter, the total amount of equity raised is only beaten by the record levels in 217. The Stock Exchange Benchmark Index continued its strong pace during the second quarter of 21 and closed just around an all time high of approx. 75 points - an increase of approx. 1% compared to year-end 217. The uptick on OSE can largely be attributed to energy related stocks (comprising ~4% of OSE market cap), which in turn is driven by the price of oil. Going forward, key items to follow will be the impact of trade wars and high oil prices on the general world economy, as well as the impact of rising interest rates on equity valuations. Issues by value, Stock Exchange & Axess Source: Stock Exchange NOKb 5 5% 1.5 Private Public 2.1 Employee Repair IPO YTD1 New listings Source: Stock Exchange Stock Exchange Axess Foreign exchange rates (indexed) Source: Norges Bank *Trade Weighted Index 1,1 1,,9,,7,6,5 21 5% YTD YTD1 SEK/NOK GBP/NOK TWI* EUR/NOK USD/NOK OBX Index Source: S&P Capital IQ Avg. OBX multiples Source: S&P Capital IQ Q3 21 Last quarter OBX EV/EBITDA P/B 2, 1,7 1,5 1,4 4,9 6,4 6,5 6,1 YTD YTD1 P/E,2,7,7 14, Transaction Trends 4 th edition 21 5

6 Six ways private equity will help drive value in M&A Rising cash reserves and new investment models are making PE firms among the most impactful players in the 21 M&A landscape. Private equity (PE) is one of the biggest topics in M&A this year, with corporates being challenged for acquisition targets more than at any time during the past five years. In the 19th edition of EY Global Capital Confidence Barometer, 6% of executives surveyed expected increasing competition for assets over the next months, with 46% indicating that this would be from PE and other funds. The past decade has seen PE build up substantial war chests, but high valuations mean it remains a struggle to put that capital to work effectively, and in turn, requires a more creative approach to investing money. Funds are increasingly looking to deploy different pockets of capital for different purposes, and as a result, transforming relationships with companies. 1. Investing for the long term PE firms are increasingly using investment vehicles with time frames of five, seven and even more than ten years. Longer-term capital gives investment managers the opportunity to engage in deals that require a transformational change to drive investment returns. For example, in March 217 it was reported that Blackstone had raised US$5b for its Core Equity fund, which has a 2-year lifespan and envisions holding companies for twice the average of a typical PE investment. In aggregate, over the last three years, PE firms have closed or announced long-life funds valued at more than US$4b. 2. Looking at less than control Funds are increasingly willing to take minority positions alongside existing owners, sometimes as a bridge to full control or as a pre-ipo strategy. While such arrangements do not give PE firms full control over purchased assets, they give the portfolio company capital to grow their operations, enabling PE to potentially return that value to investors at a later date via public listings. Assuming a non-controlling stake also allows PE firms to gain visibility into a target company s operations in ways that can pave the way for an acquisition at a later date, says Chris Le Roy, US Leader, PE Transaction Advisory Services, EY. This includes building relationships with key stakeholders within that organization, learning how an acquisition would fit into overall portfolio strategy and influencing corporate decisionmaking in a way that supports these strategies. PE capital is becoming a lot more flexible. Not just in terms of how much is invested and the sectors involved, but also where in the capital structure the capital will be put to work and what kind of return profiles are expected, Andrew Wollaston, EY Global Restructuring and TAS Private Equity Leader % of executives surveyed expected increasing competition for assets over the next months* 6% of executives surveyed indicated that the increase in competition would be from PE and other funds* Author The original article was written by Andrew Wollaston, EY Global Restructuring and TAS Private Equity Leader. * Sourced from the 19 th edition of EY Global Capital Confidence Barometer

7 Six ways private equity will help drive value in M&A 3. Counting on credit From global multi-asset managers to smaller boutique funds, credit platforms are becoming increasingly prevalent, providing non-bank lending across a company s capital structure. These alternate credit lines include long-/shortterm loans, senior down to subordinated or mezzanine (a hybrid of debt and equity funded) loans and even distressed lending. Such flexible credit provides new opportunities to both the fund and the borrowing business, giving the latter access to new capital and the former a fixed income return with the potential to take a stake in a growing business. 4. Increasing corporate-pe collaboration PE firms are also finding new ways to work with non-pe, or even non-financial services firms, with funds increasingly building institutional relationships with conglomerate businesses in order to participate in carve-out transactions. For example, by partnering with corporates, PE firms can leverage the synergy benefits of their partners to gain access to higher-valued assets, from which they may otherwise be priced out. Increasing competition for opportunities is also leading some funds to move downmarket into the growth capital space typically the preserve of venture capital (VC) investors. Similarly, there has also been a rise in pre-ipo funding, which gives PE firms access to growth opportunities that aren t complicated by high barriers to entry, like rising corporate valuations. 5. Co-investing with limited partners PE firms are also increasingly teaming up with limited partners independently of managed portfolios to pool resources, invest in bigger deals and access greater levels of debt financing. For the limited partners, this means cheaper access to larger investments, as they don t have to pay the management fees to an intermediary private equity firm. It also gives them the opportunity to earn higher returns and greater freedom in deal selection. For private equity firms, co-investing with an LP may cost them slightly in lost fees and a reduced degree of control, but it allows them access to deals that would otherwise be beyond their available capital, while strengthening the LP and general partner relationship. However, legislation in the US regarding investment could impact this trend. The Committee on Foreign Investment in the US (CFIUS) is an interagency committee of the US government that reviews financial transactions to determine if they will result in a foreign individual or organization controlling a US business. CFIUS s current review of US-China investment ties, particularly in high-tech industries, could set new limitations on global PE-LP coinvestments moving forward. 6. Building your own business A number of parties are now creating platforms as startup businesses. Increasingly, PE firms are using their cash reserves, sector knowledge and human capital to build their own startup businesses with their own bespoke management teams, to take advantage of perceived market opportunities. For example, PE firm Oaktree Capital Management used its sector knowledge and resources to build a substantial portfolio of student accommodations. And The Carlyle Group has backed a new company building the next generation of high performance chip technology designed to support the movement of business to the cloud. In these scenarios, PE firms don t just manage and add value to existing organizations, they directly create their own strategic players in the marketplace. Conclusion PE firms that were once focused on generating value from a limited range of activities now have a much wider variety of strategic options. From assuming minority interest, to starting their own companies, today s PE firms are far from just asset management entities. For PE funds, this is an exciting time. For non-pe funds, new competition can mean new challenges in the M&A marketplace but perhaps also new opportunities for value creation. One way or another, 21 is the year of the PE acquirer, and parties on both sides of the equation should take steps to prepare for the realities of a transformed marketplace.

8 Contact list - EY Transaction Advisory Services Transaction Support EY Transaction Advisory Services Complete and integrated services covering preparation to closing Vegard Stevning vegard.stevning@no.ey.com Trond Olberg trond.olberg@no.ey.com Erik Haagensen erik.haagensen@no.ey.com Bjørn Tore Foss bjorn.tore.foss@no.ey.com Sell-side services Vendor due diligence IPO due diligence SPA support Sell-side M&A advisory Carve-out planning Exit readiness Merete Skage merete.skage@no.ey.com Bergen Valuation & Business Modeling Marit Dokka Holthe marit.holthe@no.ey.com Buy-side services Financial due diligence Commercial and operational due diligence Tax and legal due diligence SPA support Buy-side M&A advisory Integration support Other services Valuation and modelling Tax structuring Legal support Restructuring Global reach and local presence with, transaction professionals Nils Kristian Bø nils.kristian.bo@no.ey.com Strategy and Operations Helge Fredheim helge.fredheim@no.ey.com Corporate Finance Ole Conrad Siem ole.conrad.siem@no.ey.com Kjell Stenersen kjell.stenersen@no.ey.com Stavanger Espen Norheim espen.norheim@no.ey.com Stavanger Cato Rognli cato.rognli@no.ey.com Transaction Tax Henning Raa henning.raa@no.ey.com Njaal Arne Høyland njaal.arne.hoeyland@no.ey.com Sigurd Garmann Tuntland sigurd.garmann.tuntland@no.ey.com Cecilie Rasmussen cecilie.rasmussen@no.ey.com Stavanger M162nordic Transaction Trends 4 th edition 21

9 EY Assurance Tax Transactions Advisory About this publication Transaction Trends is a quarterly publication that aims to identify trends in the Norwegian transactions market. Transactions covered in this publication are public and private transactions announced by the 5 largest Norwegian companies (DN5), defined as a transaction where either the buyer, target or vendor company is a Norwegian based company. Public transactions are defined as transactions where either the buyer, target or vendor company is listed on a public stock exchange. All other transactions have been classified as private. Domestic transactions are defined as transactions conducted within a national boundary, i.e. deals involving two or more incumbent nationals, while cross border transactions involve companies from at least two different nationalities. Deal Value is taken as the sum of the consideration paid by the acquirer for the equity stake in the target plus the value of the net debt in the target, where applicable. Inclusion of net debt in the deal value will depend on the stake acquired or the target company type. Transaction Statistics are based on Mergermarket and EY data. Public market data are sourced from S&P Capital IQ and Stock Exchange. Transaction Trends is published by EY Transaction Advisory Services. Contact information For further enquiries, or to add your name to the mailing list for this publication, please send an to transactions@no.ey.com. About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. 21 EYGM Limited. All Rights Reserved. This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice. ey.com