Nordics: Q&A with Magnus Hedberg
We’re delighted to welcome back Magnus to the Armstrong team. Based in Stockholm, Magnus will be focused on opportunities in the Nordics. We asked Magnus why the region is attracting UK investors.
Why will the Nordic markets be attracting UK investor attention in 2025 and are there any specific sectors UK investors should be looking out for?
Sweden and other Nordic markets are showing signs of recovery after a period of inflation and low growth. Former Swedish finance minister Anders Borg expanded on the cautiously positive macro outlook in his keynote speech at the recent Real Deals Nordics 2024 conference. Sweden’s Riksbank has already cut rates 4 times in 2024 (including a recent -50bps adjustment, not seen for the last 10 years), with further cuts expected next year.
For investors, debt remains available and fundraising activity is ongoing with several funds able to meet their target caps quickly (others report greater difficulties this year). However, despite the macro outlook, uncertainty remains. This in part explains the proliferation of bolt-on acquisitions (see our recent article on DD for bolt-ons) vs. platform investments. We expect dealmaking volumes to return in 2025; dry powder needs to be deployed, and investors will be under pressure to deliver exits (and returns) to maintain fundraising momentum.
Sectors to keep an eye on include:
- Digital transformation trundles on particularly in B2B software and associated professional services. The Nordics have historically seen consistent growth in the tech sectors (OECD is predicting similar future growth), and they have been early and enthusiastic adopters of new technology.
- Sustainability and the circular economy are important to both businesses and their customers. Companies that can articulate and demonstrate their ESG credentials will attract and retain customers (and importantly, talent).
- Industrials, though largely cyclical, include segments with strong regulatory drivers e.g. fire safety regulations and niche areas seeing strong growth from accelerating adoption curves e.g. access control / smart building technology.
- Professional and financial services including accounting services (ripe for roll-up strategies) and legal advisory / compliance services, e.g. areas like CSRD compliance.
You’ve worked in both regions, how easy is it for UK investors looking at opportunities in the Nordics?
We’re not reinventing the wheel when it comes to Commercial DD. Investors will always require answers to similar questions, whether it’s getting comfortable with the sustainability of certain market drivers, understanding where there may be headroom issues (e.g. in the vertical software space), the potential for a business to launch new products or enter new geographies (e.g. expanding out of a small domestic market in Sweden), etc.
We’re always trying to answer:
- what is the business today?
- where could it be tomorrow?
- how do you get there?
However, it may be more practical to take a modular approach to diligence; focusing on what really moves the needle. In the current uncertain climate, getting comfort around 3-5 key questions ahead of a bid can be incredibly valuable and especially when it needs to be delivered in a cost / time-efficient manner. The same of course applies to bolt-on work, where you may already know the market and competitive landscape but have a blind spot on customer feedback; we can provide the components of CDD as a stand-alone, always with a tailored scope.
If you were advising a UK investor looking at an asset in Sweden, is there anything specific to the region you would recommend considering when scoping due diligence?
There are a couple of things worth knowing…
The Swedish Foreign Direct Investment Review Act (Dec-23) is designed to prevent FDIs that may degrade Sweden’s security, public order, or safety. Investors need to notify the Inspectorate of Strategic Products (ISP) ahead of deals in particular sectors. These include; essential services, large scale processing of personal or location data, military equipment, dual-use items, security-sensitive activities, security-sensitive activities, emerging / strategic tech, and critical raw materials prospecting, extraction or enrichment. I would suggest checking whether a target falls into these categories, notify the ISP if necessary or even seek pre-emptive approval before going ahead. Investments from outside the EU in particular can be blocked or made subject to conditions for approval.
ESG is a key priority for Nordic investors, going beyond compliance into value creation. This will significantly impact exit opportunities and multiples; consider including this in your diligence and value creation plans.
What three words should a visitor learn to say before visiting Sweden?
“Hej” – hello
“Nej tack” – no thank you
“Sju” – seven; if you can master the “ske-sound”, you can consider yourself an advanced Swedish speaker!
Magnus Hedberg
[email protected]
+46 76 310 95 52