Hammer to fall

Hammer to fall The global credit market meltdown and volatility in the equity markets have been hitting the headlines as much in Northern Europe and Sweden as anywhere else. However, compared with some other Western economies Sweden has continued to enjoy stable public sector financial conditions and strong private sector fundamentals, even if economic growth is expected to be slightly weaker in 2008.

The Nordic banking system is still working well and local banks are providing financing, especially to clients with strong historical relationships. The financial strength of the banks is a far cry from the situation back the early 1990s, when more than one of the major Swedish financial institutions was teetering on the brink of bankruptcy.

There are some reasonably uncontroversial factors that have contributed to Sweden (so far, at least) getting off relatively lightly in a falling market. Domestic Nordic banks seem to have been relatively unaffected by the subprime crisis, with no major writedowns to date. And in contrast with several other smaller European countries, Swedish acquisition finance is still largely dominated by these ‘local banks’, except for the largest transactions.

Nordic banks have also traditionally been willing to take and hold more of the debt on their own balance sheets and to lend with a larger senior portion than is typical in the London market.

Finally, the Swedish market, with relatively few major players, is still very much relationship-driven, and the confidence generated by these relationships is clearly paying off in the present market.

In addition, the Swedish M&A market has been benefiting for some time from the presence of cash-rich, deal-hungry local industrial players, as well as a growing cadre of private equity actors, who together have supported relatively high deal volumes.

Swedish industry is still strong, although the export industries have been hit by the weak US dollar. Following a number of very good years in their respective industries, the strategic players are now in a position both to finance acquisitions and distribute money to shareholders. The ‘return of the industrialists’ is therefore not just an article of faith, but an established fact in Sweden.

Recent trends have been towards more new listings than taking companies private, but some large public-to-private buyouts have taken place as well. Some see signs indicating increased buyout activity ahead. During the first quarter there have been nine public bids on the Stockholm stock exchange and current indications are that more should be expected.

The government’s initiative to establish Stockholm as a regional financial centre, Finansplats Stockholm, has been on the agenda for some time. It is perceived by some as a cornerstone in building up Stockholm as the clear financial centre of the northern European region. The consolidation of markets in the Nordics and the Baltics orchestrated by OMX has contributed to this impression. In light of this year’s Nasdaq/Borse Dubai bid for OMX, the government has proposed new legislation that, if passed, will prevent exchanges from introducing certain ‘excessive’ regulatory provisions.


On taking office, the current centre-right coalition government announced that it aimed to decrease its ownership in certain state-owned entities. The state’s holdings in Nordea, SBAB, OMX, TeliaSonera, Vasakronan and Vin & Sprit were identified for prospective privatisation.

The ;rational ;for ;making ;these divestments and, not least, the timing in a slow market, have been debated in the media. A portion of the government’s holding in TeliaSonera was sold off last year and there is currently speculation in the media about a possible public bid by France Télécom for all of TeliaSonera, as well as the ongoing divestment of the real estate company Vasakronan. And earlier this year the government announced its acceptance of Borse Dubai’s bid for OMX.

Recently, the government agreed to sell the beverage company Vin & Sprit to Pernod Ricard. The total value of the transaction, including the well-known Absolut vodka brand, was equivalent to SEK55bn (£4.62bn). In early April, the Swedish and Danish governments and CVC Capital Partners declared their intention to combine the businesses of the Swedish Post and the Danish Post. The new group to be formed is said to have a turnover of about SEK45bn (£3.78bn) and over 50,000 employees.

A global downturn in M&A activity of 40 per cent has been reported for the first quarter. Even if Swedish deal volume for the first quarter 2008 is down by 36 per cent as compared with 2007, the situation in Sweden still looks better than it does in many other markets. So overall Sweden and the Nordic region do seem to be suffering somewhat less than others, and perhaps for reasonably identifiable reasons. But there is no denying a certain background anxiety in the markets, and a nagging suspicion that what is happening in New York and London will eventually have a greater impact in Stockholm.

Biörn Riese is a partner and chairman of the board at Mannheimer Swartling in Finland