The transaction market: M&A

In this edition of Summer Perspectives, we talk to Aleksander Rygh Pedersen, senior attorney at Arntzen de Besche and chairman of Gnist Capital, about developments in the transaction market.

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Compared to the record years of 2021 and 2022, the transaction market in 2023 is characterized as relatively weak due to great uncertainty in the market. However, the first quarter of 2024 indicated the beginning of a positive trend with an increase of 22% (measured in number of transactions), compared to the previous quarter. How has the development been in Q2 2024?

The first half of the year has shown a slight decrease in the number of transactions compared to the same period in 2023, with a relatively even distribution between the first and second quarters. This development is consistent among all law firms, both among the five largest and the medium-sized ones. At the same time, we observe increased activity during the previous six months within structured sales processes. It is therefore reasonable to expect that this will result in more announced transactions in the future. At the same time, we see that in several sales processes it takes longer to reach a final agreement than previously. There is little doubt that the uncertain times we live in now create so much uncertainty among many players that the willingness and ability to carry out M&A transactions is less than a couple of years ago. However, we believe it is only a matter of time before activity picks up again - particularly due to the need for the largest players to restore market dynamics.

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Several players note that the gap between the buyer's and seller's price expectations has been reduced in 2024 compared to previous years. Has this harmonization affected AdeB's transaction volume, and do you find that it is easier to reach agreement between the parties than before?

In our experience, the gap between buyers' and sellers' expectations has not become significantly smaller than before. However, we do observe a reduction in this gap for the most attractive companies. This is particularly evident in some sectors where processes are slow and there is limited competition between potential buyers. On the other hand, in other sectors, particularly in advanced technology, it is more of a seller's market.

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On August 6, the Norwegian krone fell against the euro for the fourth day in a row, and at the time of writing the exchange rate for one euro is 11.812. Has the weakening of the Norwegian krone increased the appetite of foreign investors and buyers?

The weak Norwegian krone has undoubtedly helped to open the eyes of new buyers to Norway as an attractive country in which to invest. The other side of the coin is that this development has also created uncertainty among some major players, particularly with regard to the stability of the Norwegian market. The weak Norwegian krone is therefore largely offset by other political and market turmoil. Overall, we do not see a significant effect of the weak krone.

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In January this year, Finansavisen reported that "PE funds are overflowing with capital". Have you noticed an increased willingness to invest among PE funds lately?

This has been pointed out for some time and has been cited as one of the reasons why the M&A market will revive. However, we have yet to see the full effect of this, and PE funds are probably more cautious than "throwing" money around. At the same time, we have observed a shift in PE funds' M&A mandates, which probably reflects a need to expand the investment horizon and thus increase investment opportunities. This change includes an increased focus on early-stage investments as well as an expansion in the type of investments, investment horizons and required returns.

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Which sectors are the primary drivers of transaction volume in the Norwegian M&A market so far in 2024?‍

As far as we are concerned, energy and technology undoubtedly stand out as the most active sectors. We see this as a general trend in the market.

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‍Whatis your best tip for completing a successful transaction?

Good preparation is crucial, especially on the seller's side. Many people are often surprised at how demanding it can be to manage a transaction process in parallel with the day-to-day running of the business. This can be solved through careful internal resource planning, early set-up of data rooms and early involvement of advisory teams.

In addition, I am a strong supporter of open communication between the parties and their advisors throughout the process. This helps to resolve misunderstandings or points of clarification on an ongoing basis, and it also builds trust between the parties.

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‍‍‍Looking into the glass ball, how do you think the second half of 2024 will develop?‍

I'm optimistic about the second half of 2024 and expect a gradual improvement in the market, with the start of several major transaction processes. At the same time, I think we need to be realistic and recognize that it will probably take until the calendar has passed 2025 before we are back to the desired level of activity.

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The South or Norway?

Definitely the south! But this year it was a holiday at home as a new father of two ☀️

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Hiking or boating?

Hiking - preferably in winter with a splitboard 🏂

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Shellfish or barbecue?

Barbecue - but preferably with shellfish on the grill 🦞