The Nordic private equity market
The Nordic private equity sector is currently in a positive phase. The total volume of available capital is increasing and a growing proportion of the capital is coming from international investors. A good climate prevailed in 2005 and 2006 to obtain capital within the buyout sector and there was manifest competition among investors to participate in the best funds. In addition, private equity managers’ investment activities intensified with greater competition for investment objects as a consequence.
The Swedish market is the largest in the Nordic Region regarding size and growth. In 2005, Sweden was the country, after the United Kingdom, with the highest proportion in Europe of invested private equity capital in relation to GDP. Swedish private equity investments represented 1.06 percent of GDP compared with an average of 0.45 percent in the Nordic region.1)
The volume of procured capital is increasing in all Nordic countries with the exception of Sweden where a slight decline was observed from 2003 to 2005. Excluding loaned capital, a total of EUR 31.6 billion was managed by the Swedish private equity managers as per 30 June 2006. Equivalent amounts for Denmark, Finland and Norway vary between EUR 2.5 billion and EUR 5.0 billion. Of the managed capital, Sweden, Norway and Denmark together had EUR 19.8 billion available for new investments.2)
Position map of Nordic buyout managers
Source: CapMan and Öhman
Private equity investments as percentage of GDP, 2005
Source: European Venture Capital Association
The number of national and international players within the Nordic buyout segment has increased in recent years, and the Nordic managers are expected to meet greater competition from the international players in the future. Furthermore, the largest proportion of recent years’ newly raised capital has been placed in buyout funds, which indicates that competition will become even sharper.
It is estimated that 90 percent of the Swedish buyout investments are managed by the ten largest Swedish private equity managers. About half of the capital that investors have committed to invest in Swedish private equity funds is managed by three players – EQT, Industri Kapital and Nordic Capital1). The largest buyout players invest in the whole of the Nordic region, and in certain cases outside the region. Players who have an investment volume of less than 50 million euros per portfolio company most often act on a national basis.
Despite a considerable volume of capital being managed in private equity funds, the number of employees within the sector is limited. There are about 500 employed investment managers in Sweden, and the total number of investment managers in the Nordic region is approximately 1,000.3)
Investment activities
Buyout players often act as catalysts for companies that need to enter a new development phase. For example, divisions that no longer belong to the core activity of a group, a family company on the threshold of a change of generation, or under-valued public companies where development has stagnated. A common denominator for typical target-companies is that they are often well-positioned within their respective sectors, have strong cash flows and distinct development potential.4)
Unlike the other Nordic countries, Sweden is considered to be an investment area able to offer several investment opportunities within many different sectors. In Denmark, investments are made primarily in family-owned companies, and the average transaction value is normally less than in Sweden. Norwegian business is dominated by oil and gas-related companies. Finland’s proximity to Russia and Eastern Europe implies that investment opportunities are offered in companies that benefit from the growth prevailing in the region.4)
Sweden has the highest number of investments and a significantly greater volume of invested capital compared with the other Nordic countries. A predominant proportion, approximately 71 percent, of the Swedish funds’ invested capital in 2005 concerned buyout investments. About 45 percent of the Nordic private equity managers’ investments were made in sectors related to biotechnology and healthcare. The Nordic managers’ total investments amounted to EUR 4,715 million in 2005.
Nordic private equity managers’ investments, 2002–2005 (EUR million)
Source: European Venture Capital Association
Nordic private equity managers’ total investments broken down by sector, 2005 (EUR million)
Source: European Venture Capital Association European Venture Capital Association
Nordic private equity managers’ investments broken down by investment phase, 2005
Source: European Venture Capital Association
Nordic private equity managers’ investments broken down by sector, 2005
Source: European Venture Capital Association
1) Swedish Private Equity & Venture Capital Association
2) Nordic Innovation Centre, Nordic Private Equity – An Industry Analysis, November 2006
3) The Riksbank, “Venture Capital Companies in Sweden”, 2005
4) Swedish Private Equity & Venture Capital Association
5) Ibid.
6) 3i, Buyouts Preview, Autumn 2006