Transaction market conditions

Despite geopolitical concerns, the Nordic market is up 6% in the year to date, with the Danish market experiencing the strongest market uplift. Market drivers continue to be the same as in the previous year, being low interest rates, hopes of rising earnings and increasing M&A activity.

As long as short-term interest rates remain low, equity markets should continue to perform well and it will take years before interest rates reach normalised levels. This easy monetary policy has been, and will continue to be, the most powerful driver for asset prices, including the equity markets. Furthermore, the ECB, Bank of Japan and Swedish Riksbank are still leaning towards more stimulus and with rate hikes in the US and the UK still far away, equity markets will continue to get maximum support from central banks. 

Q1 reports point to a trend shift in the dismal earnings estimates with most companies confirming that Europe is recovering. The outcome matched expectations for the first time since Q2 2011 and estimates have been upgraded slightly for 2014 with even stabilising or growing Q/Q estimates for southern Europe. Thus, it has become clearer that the economic recovery has started to boost sales, earnings and margins. 

After several years with few initial public offerings, the IPO market revived during 2013 and has continued to flourish during the year. In the Nordics alone, for example, 11 companies have been listed on the primary stock exchanges in the year to date, with Carnegie having a higher level of activity than any other Nordic bank. Examples of public offerings, on which Carnegie has advised in 2014, include Com Hem, Oscar Properties, Bufab, ISS, OW Bunker and Recipharm. In addition, Carnegie is advising on several ongoing processes, including Scandi Standard, which is expected to start trading on Nasdaq OMX Stockholm on 27th June.

The Nordic region has seen 93 announced M&A transactions in Q1 2014. Despite the fact that this was slightly less than the Q1 2013 level of 102 transactions, the actual transaction volume was up by 115% compared to Q1 2013. This increase in volume was primarily driven by the completion of two large M&A transactions; Volkswagen’s acquisition of Scania and the acquisition of Nets by an investor group composed of Advent International, ATP and Bain Capital.

Conditions are encouraging for an increase in M&A transaction activity. Companies have stronger balance sheets, interest rates are low, access to financing is easier and valuations are rather high (increasing owners willingness to sell their companies). 

Historically there has been a strong correlation between the amount of M&A activity and stock market valuations as increased M&A activity, including bids on listed companies, typically enhances equity markets as it drives valuations and stimulates capital flow. 

 

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