Christoffer Gundersen

Number Crunch Q1 2020

Argentum 11-06-2020

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A time for private equity to shine

When looking back on Q1 2020 in Nordic private equity, we must consider that the situation changed drastically towards the end of February. All industries are affected by the coronavirus and especially Norway has been hit hard by the subsequent slump in oil prices. At the same time, several companies and individuals have been trying out new technology such as video conferencing or e-commerce lately, and we believe this will lead to lasting changes in consumer patterns.

Investments in the Nordic buyout segment remained stable in the first quarter compared to the same quarter in 2019, while venture investment fell 36 percent. This indicates a reduced willingness to invest among early-stage investors, and the activity is particularly low in Denmark and Norway. Looking at PE-backed exits, the picture is reversed: In the buyout segment, the number of exits in the period is down 50 percent, while venture exits remain stable. It is also worth noting that 10 out of 11 sales in the buyout segment occurred in Sweden.

Economic downturn drives innovation

Both deals and exits concerning Nordic venture tech companies were down around 50 percent in the quarter, which indicates an increased uncertainty among investors. How it turns out, we will see more clearly towards the end of the second quarter. If we look at how the venture industry developed during the financial crisis in 2008, there is still reason for cautious optimism. Back then, some of the most well-known venture companies emerge following the crisis, such as Uber, Airbnb, Slack, and Pinterest.

Online stores, grocery delivery services, remote working solutions, as well as software companies with recurring licensing revenues might be some of the winners in this crisis. Examples of Nordic companies that can benefit from this trend are Klarna,1 which facilitates digital payment; MatHem, which delivers groceries on the door in Sweden; and the study app Kahoot.2 Further on, we believe that health technology can have its breakthrough in the crisis because the healthcare sector will need innovative and effective solutions to reduce patient queues when the pressure after the corona crisis subsides.3 Digital patient platforms, e.g. Kry and Confrere, and A.I. applications in healthcare are technologic solutions that we believe will only increase in relevance.4

Physical meeting places and bankruptcies

All industries with physical meeting places have been directly affected by the crisis, including commerce, travel, events, and restaurants. Recent figures from the Brønnøysund Register Centre5 show that the number of bankruptcies fell in most industries after the corona crisis struck in Norway. This may indicate that business support packages from the Norwegian government have led to cost reductions and covered layoffs, both for companies that have experienced difficulties as a result of the coronavirus restrictions, but also businesses that already were in difficulties.

However, retail stores have seen a clear increase in the number of bankruptcies as a result of coronary restrictions in Norway: In April last year, retail accounted for one percent of bankruptcies, while this percentage increased to seven percent in April 2020. The fall in turnover is estimated at 55 percent in the same period. Virke6 expects several clothing stores will close their doors during this summer when holiday pay for employees kick in, and deferred taxes and fees need to be paid.

Oil price slump hit industries twice

The corona crisis, combined with a sharp fall in oil prices, has hit hard in the petroleum and maritime industries: Rystad Energy, a research and business intelligence company to the global energy industry, reported in mid-May that the market value of oil service companies is down 50 percent.7 For the broader maritime sector in Norway, a recent study from the Norwegian Maritime Forum shows that employment in the sector may face an 18 percent downturn until the end of 2022 as a result of the 'double crisis', compared with 2019.

Over time, particularly the service and supply industry has been in a consolidation phase and investors' interest diminished even before the corona crisis. In January, HitecVision, a major Nordic fund manager focusing on the energy industry, merged 20 of its oil service companies into a new industrial group, Moreld. In Argentum’s State of Nordic Private Equity 2019, HitecVision talked about the plans for Moreld to look at new energy sources such as wind energy in the long term. This sentiment was echoed by EV Private Equity in February, another large fund manager within the energy industry in the Nordics, exited four oil service companies - including Norway-based Halfwave - and announced that they would invest more in companies that contribute to lower greenhouse gas emissions.8