Nordic private equity and industrial technology groups have sparked a surge in merger and acquisition activity targeting firms operating in the digital, cloud, internet of things (IoT) and artificial intelligence (AI) domains.
The sharp rise in activity comes at a time of reduced capital-led investments, particularly in the tech startup sector, because of the Covid-19 pandemic. This is accelerating consolidation in the IT, digital, IoT and AI sectors across the region.
The emergence of private equity groups and industrial heavy-hitters has come as welcome relief to startup tech companies in particular, as more of them encounter difficulties in raising capital in new fund-raising rounds.
The magnitude of the fund-raising problems experienced by tech startups was highlighted in an investors’ survey released in July by the Finnish Venture Capital Association (FVCA). It found that more than one-third of Finnish startups risk running out of cash in three to six months’ time against the backdrop of deflated investment activity by native and foreign investors, impacted by the pandemic.
The FVCA is backing a proposed initiative by Tesi, a Finnish state-owned investment company, to establish a €250m fund to support more than 200 early- and advanced-stage startups by participating in new capital-raising rounds.
Private equity and venture capital investors have invested more than €5.2bn in Finnish unlisted startups and growth companies since 2015, but the pandemic means many promising Finnish startups now face difficult situations, said Pia Santavirta, FVCA’s CEO.
“Buyout investors focus on later-stage companies, whose growth paths typically involve acquisitions and the internationalisation of business operations that already have a strong foothold in Finland,” she said. “Venture capital investors, on the other hand, invest in startups, which often create something completely new and disrupt traditional industries.”
In the current wave of consolidation, Nordic private equity and venture capital groups are hotly pursuing acquisition opportunities that involve IT and fintech companies that hold lucrative contracts with state agencies. The Norwegian state spent almost €1bn on purchasing IT services in 2019, when the Norwegian Public Roads Administration alone shelled out more than €100m to procure operation and development-end IT services.
The Covid-19 pandemic has also increased investor focus on companies that provide sustainability and digitisation, said Magnus Silfverberg, CEO of Stockholm-headquartered data and analytics company Bisnode.
“Sustainable and digitised businesses are much more resilient and better equipped to face a pandemic threat such as the coronavirus,” said Silfverberg.
The €3bn acquisition of enterprise software provider IFS in July 2020 underscored private equity fund interest in resilient digital technology players with a growing global footprint.
TA Associates acquired a significant minority equity holding in IFS. The company, whose core business is concentrated on the digitising of enterprise operations, clocked up revenues of €565m in 2019.
But Nordic IT technology acquisitions are not just confined to traditional industry deals. In a transaction intended to expand its reach into the fintech market, Norwegian web-browser company Opera is acquiring all shares in Vilnius, Lithuania-based digital lender Fjord Bank.
The Fjord Bank deal will enable Opera to accelerate growth in the fintech domain across Europe by launching disruptive personal finance services, said Krystian Kolondra, executive vice-president at Opera.
“Looking at the fintech space in Europe, our view is that it needs more and bigger challengers that are able to deliver smarter and empowering solutions to consumers for their personal finances,” said Kolondra.
Opera entered the European fintech space in January when it acquired Estonian digital wallet and payment technology firm PocoSys. The Norwegian disrupter has rolled out testing on a new version of PocoSys’s mobile payment card and app, Pocopay, which Opera plans to launch in Europe in 2020-2021.
Bolt-on tech targets
Meanwhile, Nordic automated security giant ASSA Abloy has also scaled up its acquisitions scouting activity for specialised bolt-on tech targets in northern Europe.
The company added Dutch digital care services firm FocusCura to its expanding portfolio of tech support enterprises in July. FocusCura harnesses virtual reality and AI to deliver digital-based services for the elderly in care organisations and independent living technology devices for those living at home.
The acquisition reinforces ASSA Abloy’s presence in the digital care market in the Nordics and continental Europe.
“FocusCura is a strategic technological addition for ASSA Abloy,” said Nico Delvaux, CEO of ASSA Abloy. “The acquisition strengthens our current offerings in senior care, and also provides for complementary growth opportunities.”
The recent surge in Nordic M&A activity and consolidation has also amplified acquisitive interest in companies that operate cloud computing and managed services. From the buyer’s side, interest has emerged from private equity groups in Denmark and Sweden.
Trill Impact’s acquisition of Nordomatic is among the more significant deals closed in the cloud computing market in the second quarter of 2020. Nordomatic supplies cloud-based smart systems to the Nordic building management market and posted pro-forma revenues of €85m in 2019.