Biggest Nordic Bank Sees Rising Optimism Spurring More M&A Deals

  • Sees ‘marked’ change in willingness to make deals since summer
  • Says stock markets are rewarding companies with M&A agenda

Nordea Bank AB predicts companies will leave their fears about the impact of geopolitical events such as Brexit and Donald Trump’s victory in the U.S. presidential election behind and start making deals again.

The Nordic region’s largest bank is seeing rising confidence at companies after it has become evident “that the political turbulence and concern haven’t resulted in lower growth or lower economic activity,” Mathias Leijon, head of Nordea’s Corporate & Investment Banking unit, said in an interview at the bank’s headquarters in Stockholm on Feb. 23.

"They feel increased confidence and are ready to start pursuing an in-organic growth agenda through acquisitions and drive growth and earnings that way," he said.

Following the global financial crisis, the European debt crisis and then concerns about the impact of the U.K.’s Brexit vote and the U.S. presidential election, acquisitions have taken a back seat for many companies. The average annual Nordic M&A volume in the years 2009-2016 was just $79.4 billion, compared with $124 billion in 2008 and 147.6 billion in 2007.

According to Leijon, there has been a shift in the intensity of companies’ M&A discussions. While the deal pipeline and ideas among Nordea’s customers may have existed for many years, it’s now more of a question of “when you enter a much more intense dialog to actually make these transactions,” he said. “We see a marked difference now compared with 12 months ago and even a significant difference compared with the situation over the summer.”

In a lower-growth environment, acquired growth with clear synergies is a very attractive way to drive earnings and growth, Leijon said. The stock market has also rewarded companies that are pursuing an M&A-driven agenda, he said.

An improvement in leading macro-economic and sentiment indicators also point to a potential higher activity level, Leijon said.

The Swedish economy grew an average 3.5 percent in the first nine months last year, inflation has been rising and the purchasing managers’ index for the manufacturing industry is at the highest level in more than six years. According to Jefferies Group LLC, Swedish corporate lending growth accelerated to about 5 percent at the end of last year while “transaction activity and risk appetite appears to be recovering from event-driven low points last year.” 

“These conditions create a robust economic back-drop for corporate banking,” Jefferies said in a note on Feb. 24.

To grab a bigger share of the expected increase in M&A, Nordea is taking measures to improve its customer offering as it lags behind peers such as Svenska Handelsbanken AB and SEB AB in corporate client satisfaction. In Svenskt Kvalitetsindex’ 2016 survey, Nordea ranked the lowest among all Swedish banks in terms of satisfaction among corporate customers. The lender also saw the biggest decline of all banks in the survey, with its score dropping 9.5 index points to 55.4.

“We have to try to create a client offering where we, internally, are much faster, more agile and more flexible and manage to offer the customer the kind of content that they want at every given opportunity,” Leijon said. “If you look at league tables, there are many where we are No. 1 but we sometimes lack the required coordination, and that’s what we need to focus on.”

— With assistance by Ruth David

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