EVCA 2008 Nordic Report

Transcription

1 EVCA 28 Nordic Report An EVCA Research Paper December 28 Research by the European Private Equity and Venture Capital Association (EVCA)

2 About EVCA The European Private Equity and Venture Capital Association (EVCA) was established in 1983 and is based in Brussels. EVCA represents the European private equity sector and promotes the asset class both within Europe and throughout the world. With over 1,3 members in 53 countries, EVCA s role includes representing the interests of the industry to regulators and standard setters; developing professional standards; providing industry research; professional development and forums, facilitating interaction between its members and key industry participants including institutional investors, entrepreneurs, policymakers and academics. EVCA s activities cover the whole spectrum of private equity: venture capital (from seed and start-up to development capital), buyouts and buyins. About PEREP_Analytics PEREP_Analytics is a joint Pan-European statistics platform of 17 private equity associations among which DVCA (Denmark), FVCA (Finland), NVCA (Norway), SVCA (Sweden) in the Nordic region, and EVCA. It is a centralized, non-commercial private equity database, run by its own staff, with its own internal resources and web page. Acknowledgements Special thanks to all the national private equity associations in the Nordic region for their help in making this report: DVCA the Danish Venture Capital and Private Equity Association FVCA the Finnish Venture Capital Association NVCA the Norwegian Venture Capital & Private Equity Association and Menon Business Economics SVCA the Swedish Private Equity & Venture Capital Association We would also like to thank the following active private equity players in the Nordic region for their comments and help to understand the Nordic private equity market: Altor Equity Partners Mr. Omid Ghanei, Investment Controller Argentum Mr. Joachim Hoegh-Krohn, CEO CapMan Group Mr. Heikki Westerlund, CEO EQT Partners Mr. Thomas von Koch, Senior Partner Eqvitec Partners Mr. Juha Mikkola, Senior Partner Polaris Private Equity Mr. Jan Johan Kühl, Managing Partner Vaekstfonden Mr. Rolf Hauge Kjaergaard, Senior Vice President Disclaimer The information contained within this report has been produced by EVCA, based on PEREP_Analytics data. EVCA has taken suitable steps to ensure the reliability of the information presented; however, it cannot guarantee the accuracy of the information collected. Therefore EVCA cannot accept responsibility for any decision made or action taken based upon this report or the information provided herein.

3 Table of Contents 1 Editorial 3 1. Nordic Report Executive Summary 6 2. Introduction 7 3. First Half of 28: First Signs of Crisis 8 4. Fundraising: a Swedish Story? Investments Divestments 2 7. The Nordic Venture Market The Nordic Buyout Market Investors Insight: How Private Equity Professionals View the Nordics in Appendix 1: Funds Raised in the Nordic Region Appendix 2: Investments in the Nordic Region Appendix 3: Divestments from the Nordic Region Methodology Definitions 43

4 2 EVCA 28 Nordic Report - Research Paper - November 28

5 Editorial 3 Private equity in the Nordics Current Overview In 27, the Nordic private equity market boomed, with investment increasing 41 percent to 8.3 billion in 1,111 companies off the back of strong fundraisings by regional private equity players and buoyant economic growth. But in 28, the region was affected by the deteriorating global conditions, with investment activity in the first half down a third on a year earlier. In the second half of the year, as the credit crunch became a full-scale financial crisis and recession spread across the globe, private equity activity slowed even further. It is now a waiting game, says Taus Wolfsberg, Partner and Head of the Private Equity group at KPMG in Sweden. Private equity houses have quite a lot of money in their funds and are waiting for prices to come down before they buy and they don t want to exit their investments at lower prices if they can hold on. The lack of debt finance is, of course, a very big concern. The financial crisis has come to Norway, but I think that the effect on the Norwegian banking system so far has been far less than in other countries, says Jonathan Farnell, Partner at KPMG in Norway. The bigger issue is the interbank rate and the reluctance of banks to lend to each other. The situation is mirrored in other Nordic countries and, while it may take government intervention to stimulate lending, there are solid reasons to believe that any recovery could be swifter than in other parts of Europe, perhaps as soon as the first quarter. The Scandinavian banking model remains comparatively relationship-driven and the leading private equity houses can turn for debt to the domestic banks with whom they are close, even if it takes longer to arrange it. Pricing has begun to fall across the region, but many vendors remain reluctant to accept the new reality however corporate sellers face the option of selling non-core assets at lower prices or holding on for another five years in the hope that prices recover. Private equity firms meanwhile took advantage of strong demand for the asset class and 18.7 billion was raised in 26 and 27, so when they do feel pricing has reached realistic levels, they have the funds for new investments. Going Forward Whilst some good investment opportunities are likely to arise, private equity investors will not have the market to themselves: In recent years, strategic buyers could not match the prices paid by private equity houses because of the leverage, says Soeren Krejler, Partner and Head of the Private Equity Group at KPMG in Denmark. But things are changing now and there appears to be a strong base of large corporates looking to buy up in the Nordic area and throughout Europe, and they are happy to invest now. That is not the only change - holding periods will get longer and there will be greater focus on portfolio companies as private equity houses look more closely at their portfolio companies a trend which accelerated in the second half of 28 with the deepening of the financial crisis. This opinion is reflected by KPMG s Swedish private equity practice which established its operations and working capital group a year ago and is seeing an increasing number of private equity portfolio company engagements. EVCA 28 Nordic Report - Research Paper - November 28

6 4 Editorial Overall, the Nordic countries have traditionally had strong venture capital markets, with particular expertise in information and communications technology and life sciences. Many promising companies in these segments, who are particularly exposed to sluggish export markets, will find public markets closed to them. Not every technology company will be a good IPO candidate at the point where the venture fund would feel its job is done, explains Jonathan Farnell. The growth of the buyout market provides an alternative opportunity for those companies that need to get more scale before they venture onto the market. One potential trend in the Nordic region could be deals originating from banks that are interested in transferring companies facing issues such as liquidity, to what they see as potentially more capable private equity hands. Traditionally closely held small and mid-size companies have not been very sophisticated regarding cash flow and working capital management, which is one area of focus for private equity, says Kenneth Blomquist, Partner at KPMG in Finland. Infrastructure is expected to be another opportunity. While there has not been much activity compared to a country like the UK, we have seen the first real infrastructure funds in the region, looking for assets such as airports and ports, says Taus Wolfsberg. Sectors supported by reliable and predictable government spending, such as healthcare, are also likely to be considered attractive medium-term investments and the long-term strength of domestic sectors, such as oil and gas in Norway, energy and utilities in Denmark and business services, means that in the medium-term these are likely to remain attractive to private equity players. In addition, several private equity funds have shown interest in public-to-privates, but market volatility in 28 made these transactions impossible to price. A degree of stability and the expected difficulties of raising money on public markets in 29 could push companies into the arms of private equity owners. PIPEs (private investment in public equity) may prove to be another way to raise capital. Exits Currently, I don t think there are too many good exit opportunities, so people are likely to be battening down the hatches and holding onto things for longer, says Jonathan Farnell. The majority of Norwegian platform investments will first look to develop a Nordic strategy, but you now see other funds, such as Nordic Capital, EQT and IK Investment Partners, that have been doing secondary buyouts from the more Nordic-focused funds and building them further into Europe. If exits are to be achieved, more creative approaches may be required, such as the use of earn-outs, vendor loan notes, bringing in co-investors and paper mergers, with the potential for upside in a few years. I think we may see some very interesting structures, says Soeren Krejler. It could mean a new approach to financing for the PE houses and the ones that find the best solution will dominate the market. Summary From the perspective of activity levels and fundraising, 29 is unlikely to break records, but in time it may prove a good vintage for the investments made. A lot will depend on whether there are any other major ramifications of the crisis in the banking sector, but once the uncertainty lifts it is possible things will pick up a little. As Jonathan Farnell says I don t think it will be a fantastic year, but I do think when you look back it will be a very good year for private equity as there will be some very good investments done this year for very good prices. EVCA 28 Nordic Report - Research Paper - November 28

7 5 Further Information For further information please contact: Taus Wolfsberg Partner and Head of Private Equity KPMG in Sweden T: E: Soeren P Krejler Partner and Head of Private Equity KPMG in Denmark T: E: skrejler@kpmg.dk Kenneth Blomquist Partner and Head of Private Equity KPMG in Finland T: E: kenneth.blomquist@kpmg.fi Jonathan Farnell Partner and Head of Private Equity KPMG in Norway T: E: jonathan.farnell@kpmg.no The views and opinions expressed herein are those of the authors and do not necessarily represent the views and opinions of KPMG International or KPMG member firms. The information contained is of a general nature and is not intended to address the circumstances of any particular individual or entity. About KPMG KPMG International is a Swiss cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. EVCA 28 Nordic Report - Research Paper - November 28

8 6 1. Nordic Report Executive Summary Fundraising market in the region Fundraising in the region fell by more than 5% in the first half of 28 on a year-on-year basis. In 27, the Nordic region represented nearly 9% of the total European funds raised during the year. For the past two years, Sweden drove the fundraising market in the region, representing 79% of the Nordic funds raised in 27, up from 7% in % of the funds raised in the Nordic area in 27 were originated domestically; the remaining 44% came from investors located primarily in Germany, United Kingdom, Switzerland, and the US. Investment activity The total value of equity invested in buyouts in the first half of 28 fell by almost a third compared to the first half of 27, while venture investment value fell by more than 4%. Business and industrial products was the most popular sector during the first half of 28 by amount invested. Computer and consumer electronics took the lead by number of deals. In 27, Nordic companies attracted 12% of total private equity investment across Europe. Denmark, Norway, and Finland were characterised by a higher proportion of venture activity than the European average in 27. The Swedish private equity market was in line with the European average in terms of buyoutventure split. Nordic private equity firms invested mainly locally during 27, but the region also benefited from investments by foreign private equity firms, which contributed close to one third of the total amount invested; cross-border deals within the region were limited. Life sciences was the most popular sector in terms of number of investments in both the venture and buyout segments during 27. Divestment activity In the first half of 28, divestment value in the Nordic area declined by 36% year-on-year. For the whole of 27, the region represented 12% of the total value sold in Europe, with trade sales being the main exit route, in line with the preferred European method. In 27, the region ranked second in Europe for sales by flotation, after Germany.

9 2. Introduction 7 In the first ever EVCA report on the Nordic venture capital and private equity market based on data from PEREP_Analytics, we find a market with a very active venture sector and a strong presence of the mid-market buyout segment. In the last two years, the Nordic area registered better economic performance than continental Europe. On average, in 26 and 27 real GDP growth in Denmark, Finland, Norway and Sweden reached higher levels than in the Euro zone, while inflation rates remained slightly lower. The region benefited from the high level of economic growth observed worldwide thanks to its export-oriented economies. On average, net exports represented 8.6% of GDP in the region in the last two years, compared to 1.4% in the Euro Zone. Moreover, in each country of the region, GDP per capita in purchasing power standards (PPS) was much higher than the average in the Euro zone( 1 ), it was about 6% higher than the Euro zone average in the last two years in Finland, and up to 69% higher in Norway. This positive macroeconomic environment favoured the development of private equity activity in the region. During 26 and 27, close to 19 billion was raised by Nordic private equity firms, accounting for 9.8% of the total funds raised in Europe, and more than 14 billion or about 1% of the European total was invested in 3,12 Nordic companies. Altogether, 265 active private equity firms have their headquarters in the region in 28. More than half of them are venture, while 16% are buyout-only private equity firms. Half of the private equity firms located in the region are based in Sweden. Table 1: Total number of private equity firms by country Venture Buyouts Generalist Total Denmark Finland Norway Sweden Total Nordics Note: Only head quarters have been included. No private equity firms subsidiaries have been taken into account. In terms of performance, the Nordic countries have provided stronger returns over the past two years than the European average. The net pooled return since inception to the end of December 26 for Europe was 12.2%( 2 ), compared with 13.7% for the Nordic region. The performance gap increased even further in 27, when the average net pooled return since inception for Europe went down to 12.1% while it increased to 15% for the Nordic area. The performance of the top quarter funds in the Nordic region demonstrated an even greater divergence from the European top quarter average. While the top quarter pooled net IRR since inception till December 27 for Europe was 24.9%, the same net return for the four Nordic countries reached 43.2%. ( 1 ) Eurostat: en&product=ref_tb_national_accounts&root=ref_tb_national_accounts/t_na/t_nama/t_nama_gdp/tsieb1 ( 2 ) Source: Thomson Reuters VentureXpert

10 8 3. First Half of 28: First Signs of Crisis After a rosy 27, the first half of 28 was characterised by an overall slowdown in private equity activity in the Nordic region in the context of a global deterioration of the economic and financial environment. According to preliminary data, fundraising activity fell sharply by 58% year-on-year, while investments and divestments dropped by 33% and 36% respectively. Overall European figures show a decrease of 28% in fundraising, 17% in investments and 44% in divestments. Norway was the only country in the region to register a sharp increase in the total amount of funds raised in the first half of 28 (+32%) compared to the full year 27. The three other countries registered a strong decrease, leading to the overall downward trend. Year-on-year, investments in the Nordic region fell by approximately one third, both by amount and number of deals, with a drop in both venture and buyout deals. However, compared to the last quarter of 27, investment activity in the region picked up in the first and second quarter of 28. On the venture side, investment by amount decreased by about 5 million in the first half of 28 compared to the first half of 27, driven by a fall in the total number of deals which went down by nearly 4%. Despite a sharp decrease in their total number, seed investments increased by amount, driven mainly by a higher average deal size in the Swedish market. Figure 1: Evolution of Nordic private equity activity by amount Index Q1 27= Q1 l Funds raised l All investments l All divestments Market statistics 27 Q2 27 Q3 27 Q4 28 Q1 28 Q2 Fundraising has clearly become more challenging in the past months. The uncertainty of available credit for new investments is visible in the investors behaviour. Heikki Westerlund, CEO CapMan Group.

11 9 On the buyout side, the total amount invested in the first half of 28 fell by 1 billion compared to the first half of 27. The decrease was triggered by lower equity values, while the total number of deals remained relatively stable. Figure 2: Evolution of Nordic investments by amount Index Q1 27= Figure 3: Evolution of Nordic investments by number Index Q1 27= Q1 27 Q2 27 Q3 27 Q4 28 Q1 28 Q2 27 Q1 27 Q2 27 Q3 27 Q4 28 Q1 28 Q2 l All investments l Venture l Buyout Market statistics l All investments l Venture l Buyout Market statistics Contrary to 26 and 27, in the first half of 28, the most targeted sector by amount invested was not life sciences but business and industrial products, driven in particular by very large buyouts in this sector in Sweden. By number of deals, computer and consumer electronics came first with more than 13 deals registered, driven mainly by the venture segment. On a preliminary basis, divestments by amount fell sharply in the first half of 28, and represented only about two thirds of the total amount divested semiannually in 27. While Denmark and Finland did not register considerable changes in divestment activity in the first half of 28 compared to the second half of 27, the number of divestments in Norway and Sweden decreased sharply. As a result, the total amount divested at cost in each of these two countries slowed down dramatically during the first half of 28.

12 1 3. First Half of 28: First Signs of Crisis Figure 2: Evolution of Nordic divestments by amount Index Q1 27= Figure 3: Evolution of Nordic divestments by number Index Q1 27= Q1 27 Q2 27 Q3 27 Q4 28 Q1 28 Q2 27 Q1 27 Q2 27 Q3 27 Q4 28 Q1 28 Q2 l All divestments l Venture l Buyout Market statistics l All divestments l Venture l Buyout Market statistics The most common divestment method during the first half of 28 was trade sales. It represented about 4% of the total amount divested during that period and 35% of the total number of divestments. However, similarly to 27, on the buyout side, sales to other private equity houses came first by amount. The IPO window narrowed further in the first half of 28 with only two venture-backed companies going public.

13 4. Fundraising: a Swedish Story? 11 In 27, 6.8 billion was raised by Nordic private equity firms, or 8.6% of the total funds raised in Europe. This was about 5 billion less than in 26. However, the amount of funds raised in 26 was exceptionally high due to the closing of a 4.3 billion fund by EQT Partners. This led to a sharp decrease in the total amount of funds raised for buyouts in 27, while funds raised for venture in the region remained stable at 1.4 billion. Figure 6: funds raised in the Nordic region ( million) 12, 1, 8, 6, 4, 2, Nordics Sweden Finland Norway Denmark l 26 l 27 Figure 7: Total amount of funds raised in Europe ( million) 12, 1, 8, 6, According to Joachim Hoegh-Krohn, Chief Executive of Argentum, both venture and buyout markets in the Nordic region attracted new investors in 26 and 27. The venture market has been rather innovative and a leader in adopting new technologies in many areas, while on the buyout side deal flow was driven by generational shifts and increasing interest for private equity. 4, 2, l Other Europe l Nordics As in 26, the amount raised by Swedish private equity firms represented most of the total funds raised in the region (7% in 27 compared to 79% in 26). Finnish private equity firms came second with 15% of the total funds raised, followed by Norway and Denmark with 1% and 5% of the total respectively. More than half (56%) of the funds raised in the region were originated domestically, while 36% came from other European countries and 8% from other continents.

14 12 4. Fundraising: a Swedish Story? Sweden was the only country in the region in which the proportion of funds raised from foreign LPs was higher than funds raised domestically. Both in 26 and 27, more than 6% of the funds raised by Swedish private equity firms came from abroad, while in Denmark, Finland and Norway, 75% or more of the funds raised came from domestic sources. According to Heikki Westerlund, CEO of CapMan Group, the figures reflect both the sophistication and the loyalty of Nordic LPs. The Nordic and especially the Finnish institutions have high allocations to private equity on a European level. They are also very loyal to the local teams, with which they have successfully invested in private equity for some 2 years. The main countries of location of non-nordic European LPs providing funds to the Nordic private equity firms in 27 were Germany, the United Kingdom, Switzerland, France and Luxembourg. Outside Europe, primarily LPs from the US and Japan contributed to the Nordic fundraising. Figure 8: Origin of funds raised (as a % of total funds raised) 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % l Funds raised outside Europe l Funds raised from other European countries l Funds raised from other Nordic countries l Funds raised domestically Funds of funds, pension funds and insurance companies were the main sources of funds for Nordic private equity funds in 27. Altogether, they contributed up to 56% of the funds raised in the region. However, this concentration was highly influenced by Swedish figures. Country figures show that funds of funds were not among the three main sources of funds in Denmark, Finland and Norway.

15 13 Figure 9: Sources of funds in the Nordic region (as a % of total) 35% 3% 25% 2% 15% 1% 5% % Corporate Investors Private Individuals Government Agencies Banks Pension Funds Insurance Companies Fund of Funds Capital Markets Others l 26 l 27 About half of the funds committed by funds of funds, pension funds and insurance companies came from foreign LPs. Their commitments to Nordic private equity funds represented 61% of the total funds raised from abroad. Twenty-two funds reached final closings in 27, with a total of 5.1 billion. By amount raised and by number of funds, buyout funds came first with ten funds raised worth 3.6 billion, followed by development and expansion funds with three funds worth 178 million, and balanced funds with four funds worth 153 million.

16 14 5. Investments In 27, investment activity in the Nordic region increased sharply compared to 26 in terms of both value and volume. The amount invested went up 41% to reach 8.3 billion while the number of investments increased 18% to 1,69 deals, invested in 1,111 Nordic companies. Figure 1: Investments ( million) 9, 8, 7, 6, 5, 4, 3, 2, 1, Nordics Sweden Denmark Finland Norway l 26 l 27 Market statistics, equity value Figure 11: Investments in Europe ( million) 8, 7, 6, 5, 4, 3, 2, 1, l Other Europe l Nordics In 27, the Nordic market represented 12% of the European investment market, up from 9% in 26. There was a higher proportion of venture activity in the Nordic private equity market than in the average European market. In 27, 23% of the total amount invested in the Nordic region went into venture, compared to a European average of 17%. On a country level, Denmark stood out as the most venture-focused country in the Nordic area with the venture sector attracting more than 3% of the total amount invested in Denmark in 27. Finland and Norway followed with a share of venture in total investments of about 25%. The Swedish market, similar to the European average, was characterised by a lower share of venture (17%) and higher share of buyout investment values (over 8%). These patterns are illustrated on Figure 12 and Figure 13. Market statistics, equity value

17 15 Figure 12: Proportion of buyout investments in the total amount invested in private equity in Buyout/Private Equity Denmark 2.% Finland 1.7% Norway 1.6% Sweden 5.5% Nordics 1.7% Country Figure 13: Proportion of venture investments in the total amount invested in private equity in Venture Capital/Private Equity Denmark 4.3% Finland 2.8% Norway 2.6% Sweden 5.6% Nordics 15.3% Source: EVCA based on PEREP_Analytics Market statistics The position of the bubble marker vis-à-vis the left scale represents the proportion of buyout or venture investments out of the total amount invested in the country. The size of the bubble marker represents the size of the buyout or venture market compared to the whole European segment. The figure mentioned close to the country name is the proportion of investments in the European total. The line reflects the European proportion of buyout or venture investments in the total amount invested in Europe in 27. Country In terms of number of companies financed, the share of venture companies receiving private equity financing in 27 was highest in Norway (86%). The main countries driving activity growth in the Nordic area were Denmark and Finland, whose growth in investments contributed 79% to the total growth in the region by amount. However, by number of deals, Sweden was the main contributor to activity growth, representing 43% of the total increase.

18 16 5. Investments Figure 14: Main geographic drivers of activity growth between 26 and 27 (in %) 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % l Sweden l Norway l Finland l Denmark Growth by amount Growth by number of investments Growth by number of companies invested Source: EVCA based on PEREP_Analytics Market statistics As in 26, the sector attracting the most investments in the region in 27 was life sciences. It represented 28% of the total investment by amount, and 23% by number of companies financed. Business and industrial products took the lead over communications in 27 by amount invested. By number of companies financed, life science deals were followed by computer and consumer electronics, and business and industrial products. Figure 15: Investments by sector ( million) Life sciences Bus. & industrial prod. Communications Bus. & industrial services Consumer goods and retail Computer & consumer electronics Consumer services: other Transportation Energy and environment Financial services Construction Chemicals and materials Agriculture Real estate Unknown l 26 l 27 Market statistics, equity value 5 1, 1,5 2, 2,5

19 17 Figure 16: Number of companies invested by sector Life sciences Computer & consumer electronics Bus. & industrial prod. Communications Energy and environment Bus. & industrial services Consumer goods and retail Consumer services: other Chemicals and materials Transportation Financial services Construction Agriculture Real estate Unknown l 26 l 27 Market statistics, equity value Almost 9% of the deals made by Nordic private equity firms in 27 were local, above the European average of 84% (see Figure 18). However, by amount invested, the Nordic market was slightly less domestic than the European average, with 64% of the total amount invested by Nordic private equity firms being invested domestically, compared to 68% on average in Europe. Figure 17: Proportion of domestic investments in the total amount invested in Domestic/Total Denmark 1.9% Finland 1.6% Norway 1.6% Sweden 5.7% Nordics 1.9% Country Market statistics, equity value

20 18 5. Investments Figure 18: Proportion of domestic investments in the total number of investments in Domestic/Total Denmark 1.9% Finland 4.9% Norway 3.6% Sweden 1.8% Nordics 21.2% Country Source: EVCA based on PEREP_Analytics Market statistics The position of the bubble marker vis-à-vis the left scale represents the proportion of buyout or venture investments out of the total amount invested in the country. The size of the bubble marker represents the size of the buyout or venture market compared to the whole European segment. The figure mentioned close to the country name is the proportion of investments in the European total. The line reflects the European proportion of buyout or venture investments in the total amount invested in Europe in 27. In the Nordic market, 27% of the amount invested, or 2 billion, went to companies located outside the private equity firm s country of location. Out of these 2 billion, 4% were invested in companies located in other Nordic countries, while the remaining 6% were invested outside the Nordic area, mainly in western European companies. Germany alone attracted two-thirds of the amount invested outside the Nordic area by Nordic private equity firms.

21 19 Figure 19: Investments in and from the Nordic area in 26 ( million) 9, 8, 7, 6, 5, 4, 3, 2, 1, Figure 2: Investments in and from the Nordic area in 27 ( million) 9, 8, 7, 6, 5, 4, 3, 2, 1, Industry statistics 26 Market statistics 26 Industry statistics 27 Market statistics 27 l Intra Nordics l Europe (outside Nordic area) l Outside Europe l Domestic Industry statistics: aggregation of the figures by country of location of the private equity firm in charge of the deal, equity value. Market statistics: aggregation of the figures by country of location of the portfolio company, equity value. Investments into Nordic companies by private equity firms located outside the region reached 2.2 billion in 27. This means that the region as a whole was a net receiver of capital in 27. At country level, as in 26, Denmark, Finland and Norway received more financing than they provided, with net inflow of 398 million, 228 million and 22 million respectively. The balance continued to be negative for Sweden, with a net outflow of investments of 659 million. Table million Local investments Foreign investments Net inflow Local investments Foreign investments Net inflow of foreign private of local private of foreign private of local private equity firms equity firms equity firms equity firms Denmark Finland Norway Sweden , Total Nordics 1,513 1, ,188 2, Market statistics and industry statistics, equity value

22 2 6. Divestments Figure 22: Divestments in Europe in 27 (by amount at cost) 88% 12% Compared to 26, the value of divestments in the Nordics increased by 53% to reach 3.2 billion in 27, driven by the increase in sales to other private equity houses, which contributed to 79% of the total increase in divestments. Sales to other private equity firms took the lead for the first time as the main divestment method with 29% of the total amount divested, followed by trade sales with 27%. l Other Europe l Nordics Market statistics, amount at cost By number of divestments, trade sales grew by 59% on the 26 amount and represented more than one third of the total number of divestments. Sales to other private equity firms were the third most used exit route after repayment of principal loans. It is worth noticing that the predominance of sales to other private equity firms in the total amount divested came from divestments of Nordic companies by foreign private equity firms. Indeed, the most used exit route by Nordic private equity firms to exit Nordic companies was trade sales, both by amount and number of divestments. Figure 22: Divestments ( million) 3,5 3, 2,5 2, 1,5 1, 5 Nordics Denmark Finland Norway Sweden l 26 l 27 Market statistics, amount at cost

23 21 Figure 24: Divestments by method (in % of total divestments) Divestment by trade sale Divestment by other means Repayment of principal loans Sale to another private equity house Divestment by public offering Sale to management (MBO) Divestment by write-off Sale to financial institution l Amount divested in 26 l Amount divested in 27 l Number of divestments in 26 l Number of divestments in 27 Market statistics Figure 25: Trade sales by country in the Nordic region in 27 (as % of total number of divestments) Figure 26: Public offering by country in the Nordic region in 27 (as % of total number of divestments) 49% 36% 13% 2% 15% 29% 23% 33% l Denmark l Finland l Norway l Sweden Market statistics l Denmark l Finland l Norway l Sweden Market statistics

24 22 6. Divestments Figure 27: Write-offs by country in the Nordic region in 27 (as % of total number of divestments) Figure 28: Flows of divestments in the Nordic region (in million) 3,5 38% 3, 8% 2,5 2, 17% 1,5 1, 37% l Denmark l Finland l Norway l Sweden Market statistics l Outside Europe l Europe (outside Nordic area) l Intra Nordics l Domestic Market statistics Altogether, exits from Nordic companies represented 12% of the total amount divested at cost in Europe in 27, and 14% by number of deals. With 1.7 billion divested from Swedish companies, Sweden was the most active market by amount in the region, as well as by number of divestments with 188 deals recorded. The Nordic area was the second most active region in Europe after Germany for divestments by flotation, which represented 26% of the total European amount divested by IPO. By number of deals and number of companies divested, divestments by trade sale in the Nordic area came at par with divestments by trade sale in the UK. The total number of small divestments (below 15 million divested at cost) increased by 26% between 26 and 27, while the average divestment size of small divestments decreased slightly, from 2.4 million to 2 million. As a result, the total amount divested in this category remained stable. Like in 26, most of the companies divested were in the small size category, less than 15 million. Divestments in the range of million doubled in terms of amount divested, number of deals and number of companies. The total number of divestments from Nordic companies by foreign private equity firms increased sharply in 27, reaching 57 compared to 15 in 26. The total amount divested by those private equity firms increased substantially as well, from 69 million in 26 to 1 billion in 27. However, in the last two years, the Nordic divestment market remained mainly local. In 26, in each country of the region, most of the divestments from domestic companies were made by local private equity firms. In 27, the situation changed slightly in Finland and Norway, where the total amount divested from local companies by private equity firms located outside the country reached a higher level than divestments by local private equity firms. In Finland, most of these divestments were made by Nordic private equity firms, while in Norway they were made by private equity firms located mainly in the United Kingdom.

25 7. The Nordic Venture Market 23 Both investment and divestment activity reached high levels in 27 in the Nordic area, driven by good macro - economic conditions and an overall positive sentiment. According to Rolf Hauge Kjaergarard, Senior vice President of Vaekstfonden, the positive macroeconomic outlook and optimism were the key drivers of activity in 27. Juha Mikkola, Senior Partner at Eqvitec partners added that overall, the entrepreneurial spirit has increased during the past few years after a very long hangover which resulted from the IT bubble during the early 2, favouring thus the development of the Nordic venture market. Despite a positive macro environment and growth in activity, there remained several barriers to venture activity. Mr. Kjaergaard stated that entrepreneurs had unrealistic high valuation expectations which restricted investment levels, while for Mr. Mikkola, lack of management talent was the biggest barrier to activity in the Nordic market, where international sales and marketing skills were still missing in many businesses. Venture investments On the investment side, the Nordic venture market was one of the most active venture markets in Europe in 27. About a quarter of the 6, venture deals registered in Europe were made in the Nordic region, for a total value of 1.9 billion. Between 26 and 27, venture investments measured by amount increased by 5%, driven by growth in the average deal size from 1.2 million in 26 to 1.3 million in 27. Figure 29: Venture investments by countries 2, 1,8 1,6 1,4 1,2 1, Nordics Denmark Finland Norway Sweden 1,6 1,4 1,2 1, l Amount invested in 26 (left scale: million) l Amount invested in 27 (left scale: million) l Number of investments in 26 (right scale) l Number of investments in 27 (right scale) Market statistics, equity value

26 24 7. The Nordic Venture Market Figure 29: Total venture investments in the Nordic region ( million) 2, 1,8 1,6 1,4 1,2 1, l Seed l Start-up l Expansion Source: EVCA based on PEREP_Analytics Market statistics With 255 investments made into Nordic companies, worth 53 million, the Nordic seed market was the second most active seed market in Europe after Germany. This came as no surprise as Nordic countries have some of the highest R&D spending ratio on GDP in Europe (2.8% on average in the Nordic region in 26, compared to 1.9% on average in the Euro zone according to Eurostat). Seed investments represented 31% of the total amount invested in seed companies and 37% of the total number of investments made in the seed segment in Europe in 27. However, there were two times more seed companies financed in the Nordic region than in Germany, representing close to 5% of the total number of seed companies financed in Europe. As in 26, the two main sectors targeted in the Nordic venture segment were life sciences and computer and consumer electronics. They represented 55% of the total number of venture investments in the region and 48% of the total number of companies financed. Table 3: 27 Venture Investments in the Nordic Region Amount as % of Number of investments Number of companies the European segment as % of the European segment as % of the European segment Seed Start-up Expansion Total Venture Source: EVCA based on PEREP_Analytics Market statistics However, by amount invested, business and industrial products came first, with 23% of the total. Compared to the whole of Europe, the predominance of investments in the business and industrial products sector is a peculiarity of the Nordic venture market. Indeed, only 9% of the total European venture investments by amount were made into business and industrial companies in 27.

27 25 Figure 3: Sectoral distribution of venture investments ( million) Real estate Agriculture Construction Chemicals and materials Transportation Financial services Consumer services: other Unknown Consumer goods and retail Bus. & industrial services Energy and environment Computer & consumer electronics Communications Life sciences Bus. & industrial prod. l 26 l 27 Market statistics, equity value The Nordic venture market was highly domestic. In 27, 97% of the total number of investments were made by local private equity firms. The amount invested was a different story, particularly in Denmark where the biggest venture investments were made by foreign private equity firms. Indeed, 67% of the total amount invested in Danish venture companies in 27 came from private equity firms located mainly in the United Kingdom, while close to 9% of the venture deals made in Finland, Norway and Sweden, were made by local private equity firms, with the remaining 1% being mainly investments from private equity firms located in other countries of the Nordic region. Venture cross-border deals thus remained rather limited in the Nordic area. Figure 31: Flows of venture investments in the Nordic region ( million) 2, 1,8 1,6 1,4 1,2 1, l Outside Europe l Europe (outside Nordic area) l Intra Nordics l Domestic Market statistics, equity value

28 26 7. The Nordic Venture Market Venture investments Figure 32: Venture divestments in the Nordic area in 27 88% 12% In 27, 211 venture-backed companies were sold in the Nordic region for a total amount of 636 million. Activity was driven by Sweden, which represented more than 7% of the total amount divested in the region. By number of companies, Sweden and Norway were almost at par with 38% and 37% of the total number of exited companies, respectively. l Other Europe l Nordics Market statistics, amount at cost Trade sales accounted for the lion s share of venture exits, with more than half of the total amount at cost divested from venture-backed companies, and slightly more than one third of the total venture companies divested in 27 in Europe. Divestment by public offering came second, representing 11% of divestments by amount and 1% of the total number of deals. With one quarter of the total venture trade sales in Europe, the Nordic region registered the highest number of trade sales in Europe. Figure 33: Venture divestments in 27 in the Nordic region Nordics Denmark Finland Norway Sweden l Amount divested (left scale: million) l Number of divestments (right scale) Market statistics, equity value

29 27 Figure 34: Venture divestments in 27 in the Nordic region Trade sale Public offering Write-off Sale to another private equity house Sale to financial institution Sale to management Other means l Amount divested at cost (left scale: million) l Number of divestments (right scale) Market statistics, equity value

30 28 8. The Nordic Buyout Market Sentiment in the Nordic buyout market in 27 was also positive. Investments increased by nearly 4% compared to 26, and divestments reached a higher level than in 26. According to CapMan Group CEO Heikki Westerlund, the general drivers behind the growth have been consolidation in various sectors, privatisations of public services and functions, family successions and increased entrepreneur activity. These trends apply to all Nordic countries and are cross-border. When looking in detail at the value drivers, Jan Johan Kühl, Managing Partner at Polaris Private Equity, said that the good macroeconomic environment, good financing conditions and a high number of sellers favoured the activity in 27. Omid Ghanei, Investment Controller at Altor Equity Partners added that due to a much higher level of export-oriented industries, the Nordic companies were better positioned to face the high levels of global growth compared to weaker domestic markets in Europe and the US. Moreover, high productivity and strong finances with a good transparency made Nordic companies more attractive to investors. Buyout investments The 27 Nordic buyout market represented only 11% of the total European buyout market by amount invested, ranking fourth after the United Kingdom, France and Germany. However, it increased rapidly between 26 and 27 (+38%), to reach 6.4 billion. The growth was driven by a sharp increase in the average deal size from 14 million in 26 to 23 million in 27. Altogether, a total of 25 Nordic companies were financed in 27 through 28 deals. Figure 35: Buyout investments by country 7, 4 6, 35 5, 4, 3, 2, 1, Nordics Denmark Finland Norway Sweden l Amount invested in 26 (left scale: million) l Amount invested in 27 (left scale: million) l Number of investments in 26 (right scale) l Number of investments in 27 (right scale) Market statistics, equity value

31 29 Figure 36: Buyout investments in the Nordic region ( million) 7, 6, 5, 4, Most of the buyout activity in the Nordic region was in the mid-market segment in 27, while this segment represented only 4% of the total Nordic buyout market the year before. There was a slight increase in the number of mid-market deals while average deal size grew by 55% compared to 26, reaching 51 million. Large and mega deals were rather stable by amount. 3, 2, 1, l Replacement capital l Buyout Market statistics, equity value Table 4: 27 Buyout investments in the Nordic region Amount as % of Number of investments Number of companies the European segment as % of the European segment as % of the European segment Replacement Capital Buyout Small Mid-market Large Mega Total buyout Market statistics

32 3 8. The Nordic Buyout Market Figure 37: Buyouts split by investment size 3,5 2 3, ,5 14 2, ,5 8 1, Small Mid-market Large Mega l Amount invested in 26 (left scale: million) l Amount invested in 27 (left scale: million) l Number of investments in 26 (right scale) l Number of investments in 27 (right scale) Market statistics, equity value Figure 38: Sectoral distribution of buyout investments ( million) Life sciences Bus. & industrial prod. Bus. & industrial services Consumer services: other Consumer goods and retail Communications Transportation Computer & consumer electronics Energy and environment Construction Financial services Chemicals and materials Agriculture Unknown l 26 l 27 Market statistics, equity value 5 1, 1,5 2, 2,5

33 31 Life sciences (including healthcare) was the most targeted sector by buyout firms investing into Nordic companies. It attracted close to one third of the total amount invested in buyout deals in the region and represented 19% of the total number of deals. It is likely to remain the prime sector invested in the coming years. Both Jan Johan Kühl from Polaris Private Equity and Thomas von Koch from EQT Partners consider healthcare one of the most appealing sectors. Business and industrial products came second, with 18% of the total by amount, and ranked first by number of companies with 21% of the total. Compared to Europe as a whole, the predominance of life sciences in buyout investments remains a Nordic feature. The total amount invested in Nordic life science companies represented 35% of the total buyout investment amount in the sector in 27 in Europe, and 26% of the total number of life science buyout companies invested. The predominance of life sciences over the other sectors was driven by Sweden and Denmark. In the past two years, the Nordic buyout market was mainly driven by investments made by local private equity firms. In 27, between 68% and 93% (depending on the country) of the total number of investments in each country of the region was made by local private equity firms. By amount, most of the deals were also made by local firms, apart from Finland where 53% of the total amount invested in buyouts came primarily from non-nordic European private equity firms. In 26, most of the buyout amount into Denmark and Finland came mainly from non-nordic European countries as well. Figure 39: Flows of buyout investments in the Nordic region ( million) 7, 6, 5, 4, 3, 2, 1, l Europe (outside Nordic area) l Intra Nordics l Domestic Market statistics, equity value

34 32 8. The Nordic Buyout Market Buyout divestments Figure 4: Buyout divestments in the Nordic area in 27 88% 12% In the buyout segment, Nordic divestments reached 2.4 billion or 12% of the total European buyout divestments. Thomas von Koch, Senior Partner at EQT Partners, said that attractive valuation levels drove the market. Sales to other private equity houses represented a third of the total buyout divestments in the region by value. Trade sales came only third at 19%, preceded by repayments of principal loans which accounted for 23% of the total amount divested in the segment. l Other Europe l Nordics Market statistics, amount at cost By number of companies, trade sales ranked first with 31% of the total. The proportion of divestments by public offering in the total amount divested was particularly high compared to the European average, representing 16% of the total amount divested by buyout firms, compared to a European average of just 1%. Figure 41: Buyout divestments in 27 in the Nordic region 3,5 16 3, 14 2,5 2, 1,5 1, Nordics Denmark Finland Norway Sweden l Amount divested (left scale: million) l Number of divestments (right scale) Market statistics, amount at cost

35 33 Figure 42: Buyout divestments by method in the Nordic region in Trade sale Public offering Write-off Repayment of principal loans Sale to another private equity house Sale to financial institution Other means l Amount divested at cost (left scale: million) l Number of divestments (right scale) Market statistics, amount at cost