Finnish Private Equity Trend Report

Finnish Private Equity Trend Report

This 2024 Finnish Private Equity Trend Report delves into the dynamic landscape of private equity and M&A activities in Finland. Year 2024 has been marked by resilience, strategic shifts and emerging opportunities, all set against a backdrop of global economic uncertainties and evolving investor priorities. 

In this report, we explore the key trends and developments that have shaped the market over the past year and offer insights into what lies ahead.

Introduction

  • Sector Resilience Amidst Uncertainty: Finnish M&A Market 
    Despite global economic challenges, the Finnish M&A market has shown remarkable resilience. While total deal values have declined, the number of transactions has remained stable, reflecting sustained interest and activity. Domestic private equity sponsors have played a crucial role in maintaining market momentum. International PE funds have also been present in many of the major deals, contributing to the market’s stability and growth.
  • Finnish PE Innovation and Sector Focus: Key Trends in Nordic Buyouts 
    Emerging areas like AI, defence technology and cybersecurity are gaining traction, driving innovation and creating new investment opportunities. Economic uncertainties have opened doors for acquiring distressed assets, while ESG considerations and digital transformation, particularly through AI, are becoming integral to investment strategies. Major deals highlight the market’s complexity and the innovative strategies employed by both domestic and international private equity sponsors.
  • Adapting to Economic Shifts: How M&A Deals are Evolving 
    The M&A landscape has adjusted to rising interest rates and economic volatility, with locked box mechanisms and W&I insurance remaining staples in Finnish auctions, alongside growing use of hybrid mechanisms. Earn-out structures address valuation gaps, particularly in high-growth sectors, with metrics increasingly tied to non-financial milestones like product development goals.
  • Public M&A: A Market on the Move
    The public M&A market has been exceptionally active, with a high number of takeover bids and intense competition for targets. Strategic bidding approaches are evolving in public tender offers.
  • Finland’s IPO Market: A Promising Outlook for 2025
    Finland’s IPO market is set for a comeback, with several companies preparing for IPOs. Optimistic estimates suggest a significant increase in listings, expected to drive market activity.
  • Merger Control: Increased Activity and Future Prospects
    Lowered merger control thresholds have led to more transactions requiring FCCA clearance. The potential future introduction of a call-in option could impact predictability and deal certainty in smaller acquisitions.
  • Fundraising and Policy Reforms 
    Fundraising remains selective, with investors favoring established managers. Political initiatives aim to attract more foreign investment, and reforms in Tesi’s strategy are set to reshape the market.
  • Navigating the Evolving Tax Landscape 
    Recent tax changes present both opportunities and challenges for M&A and private equity activities. Heightened tax scrutiny underscores the importance of thorough due diligence.
  • Debt Financing: Challenges and Opportunities
    Rising interest rates have posed challenges, but the growth of private credit has reshaped acquisition finance. Decreasing interest rates and emerging options could revitalize the market.
  • What’s Ahead: Summary for 2025

This report offers a comprehensive overview of these key trends and developments, providing valuable insights for investors, companies, and stakeholders navigating the Finnish private equity and M&A landscape. Explore the details and discover the opportunities and challenges that lie ahead.

Private Equity and Private M&A Activity

Resilience Amidst Uncertainty: Finnish M&A Market 

In 2024, the Finnish M&A market demonstrated resilience despite a challenging macroeconomic environment. Elevated interest rates, geopolitical tensions, and subdued global economy contributed to a more cautious deal-making landscape. Despite these headwinds, Finland maintained steady activity in both private and public transactions, driven by strong fundamentals in key sectors such as technology, software and renewable energy.

While the total deal value declined, the number of transactions remained stable, reflecting sustained interest in high-quality Finnish assets. Compared to the broader European market, the Nordic region demonstrated greater resilience, with Sweden leading in deal volume and Denmark in aggregate deal value. Although Finland lagged behind its Nordic counterparts, it benefited from a relatively stable economic backdrop and a strong reputation for high-quality assets, positioning it for a potential uptick in activity in 2025 (Datasite and Mergemarket, Deal Drivers: EMEA Q3 2024). The fourth quarter of 2024 saw a significant increase in deal activity compared to the same period in 2023.

Investor caution, particularly among international players recalibrating risk appetites amidst a strong U.S. dollar, rising energy costs, and global conflicts, tempered market momentum. However, there was still notable international private equity activity in Finland, particularly in deals targeting stable and high-growth sectors. At the same time, domestic private equity sponsors emerged as pivotal players, driving deal activity and supporting the Finnish M&A market through a period of global uncertainty.

Finnish PE Innovation and Sector Focus: Key Trends in Nordic Buyouts

Nordic buyout transactions, typically concentrated on sectors such as technology, software, healthcare and renewable energy, have continued to attract strong interest, with some variation across markets. Private equity (PE) activity is particularly focused on these sectors and is expected to grow further.

Emerging areas such as artificial intelligence (AI), defence technology and cybersecurity have also seen increased investment interest recently. These sectors are becoming increasingly attractive due to their high growth potential and critical role in the digital transformation of businesses. The integration of AI and cybersecurity into various industries is driving innovation and creating new opportunities for private equity investments.

In 2024, several major Finnish M&A deals involved PE sponsors. Many of these deals featured international PE sponsors, such as Summa Equity’s acquisition of Fortum’s Recycling and Waste Business for EUR 800 million, KKR’s acquisition of a majority stake in Accountor Software, a public takeover of Purmo Group by Project Grand Bidco (UK) Limited – an SPV owned by a consortium involving affiliated funds of Apollo and Rettig – and Triton’s contemplated public takeover of McGregor (pending).

Finnish PEs also played a significant role in notable transactions, bringing innovation to deal structures in the Finnish market. Examples include CapMan Growth’s public takeover of Innofactor, Vaaka Partners’ extension of its ownership in Tietokeskus through a continuation vehicle and DevCo’s EUR 616 million capital raise for its long-term single-asset vehicle holding Medix Biochemica.

The largest deals in the Finnish market are becoming increasingly complex, often driven by innovative deal structures and the involvement of international sponsors. However, Finnish PE firms continue to make their mark by focusing on tailored strategies, such as growth-focused investments and creative ownership models that align with local market needs and global investor expectations.

Adapting to Economic Shifts: How M&A Deals are Evolving

In the current M&A landscape, parties have increasingly adapted to rising interest rates and fluctuating economic conditions. While this has brought greater discipline to valuations and reduced pricing debates in certain sectors, broader economic factors still significantly influence valuation predictability and auction processes. Auction sales have become bumpier and less predictable compared to the peak M&A years of 2021-2022. However, high-quality assets remain an exception, continuing to perform well in competitive environments.

The locked box purchase price mechanism, coupled with W&I insurance, has been the standard approach in competitive M&A auction processes in Finland for several years. This remains largely true, although hybrid mechanisms blending locked box and closing accounts are gaining popularity among buyers seeking greater flexibility.

W&I insurance has become a fixture in mid- and large-cap deals and is increasingly penetrating the small-cap market, reflecting its growing accessibility and relevance. Depending on the characteristics of the deal, parties are often prepared to share the cost for W&I insurance.

Earn-out mechanisms are still in use to address valuation gaps, especially in industries with high growth potential or uncertainty, such as tech, healthcare, and renewable energy. The performance metrics underlying earn-outs have become more customised and are increasingly tied to non-financial milestones, such as product development or regulatory approvals.

Distressed Deals and Future Focused Strategies

Economic conditions and market uncertainties have opened opportunities for acquiring distressed assets, which private equity firms have actively pursued. Unlike in Sweden, there have not been major restructurings or recapitalisations in the Finnish market. As the economy is expected to pick in 2025, it remains to be seen whether Finland will navigate this period without major bankruptcies.

Environmental, Social, and Governance (ESG) considerations remain a critical focus, with firms increasingly integrating these factors into their investment strategies. Furthermore, the adoption of digital technologies and generative artificial intelligence (GenAI) continues to transform dealmaking, with many firms acquiring tech assets to enhance their processes and targeting tech-driven companies in their investments.

Public M&A

Surge in Public M&A Activity: A Market on the Move

The public M&A market has been fairly active in Finland, with an exceptionally high number of takeover bids launched since the autumn of 2022. The general decline of valuations in the Helsinki Stock Exchange and the First North Growth Market, combined with the abundance of dry powder available to private equity investors, has made many companies’ valuations attractive, accelerating market activity.

Notable Bidding Competitions for Acquisition Targets

In addition to the number of takeover bids, competition for acquisition targets has also been exceptional. Since autumn 2022, there have been three notable bidding competitions: one for Caverion (bids by the Bain-led consortium and Triton), one for Uponor (bids by Aliaxis and Georg Fischer), and one for Purmo Group (bids by Apollo led consortium and Haier Europe Appliances). In 2023, there was also a public non-binding proposal for Rovio, quickly followed by a takeover bid by Sega. In summer 2024, a non-binding indicative offer was presented for Innofactor in addition to the tender offer made by CapMan-led consortium.

Strategic Bidding: Navigating Increased Competition

A distinctive feature of the recent public tender offers is the increased competition for targets, leading to more strategic bidding approaches. This is evident in the number of takeover bids launched without the support of the target company’s board of directors. For example, in the takeover bids for Caverion, Rovio, Uponor, and Purmo, one of the two offerors announced their willingness to purchase the target company without board support at the time of the announcement (Triton for Caverion, Playtika for Rovio, Aliaxis for Uponor, and Haier Europe Appliances for Purmo).

In Finland, it has traditionally been uncommon to announce a public offer without the target board’s support, as it was assumed that the offeror would need board support to achieve sufficient acceptance, perform due diligence, and obtain necessary authority approvals to complete the tender offer. However, the development of strategic bidding strategies has shown that bidders can successfully navigate these challenges, as evidenced by recent bids that proceeded without initial board support.

Irrevocable Undertakings: The Power of Major Shareholders

Strategic bidding approaches also extend to irrevocable undertakings. According to established practice, the offeror of a takeover bid collects irrevocable undertakings from major shareholders in the target company to accept the bid. These shareholders, who negotiate giving irrevocable undertakings, are often better positioned than other shareholders. They can tip the scales in terms of bid completion and leverage this position in negotiating the offer price. Their shareholdings often form blocks that the offeror is interested in buying during the offer period, rather than purchasing shares from retail investors in the market. The position of major shareholders is particularly emphasised in competing bids, where they can influence the competitive situation and any increases in the offer price through share sales, undertakings, and related terms and conditions.

In the tender offer for Innofactor, a new form of strategic use of irrevocable undertakings was employed. The main shareholder of Innofactor that participated in offering consortium accepted a condition in the irrevocable undertaking that required an offer price at least 100% higher than the offer price from the offering consortium to terminate the undertaking. This meant that a competing bidder would have had to offer at least twice as much as the consortium offered to have the irrevocable undertaking terminated or to lower its condition to completion below the customary squeeze-out level (over 90 % of all shares and votes).

Future Outlook: What Lies Ahead for Public M&A

Despite the active public tender offer market in recent years, there is some pressure for valuations of companies on the Helsinki Stock Exchange and the First North Growth Market to increase, which might affect their attractiveness as target companies. However, as valuations are still low compared to many other markets, we expect good companies to continue attracting interest, particularly as the M&A market has been generally sluggish and PE funds are becoming more active again.

Finland’s IPO Market Set for a Comeback: Promising Outlook for 2025

IPO activity in Finland has been subdued during the past few years, with no real IPOs taking place. In 2023 and 2024, only six new companies – Tekova, Solar Foods, Canatu, Kalmar, Mandatum and Arvo Sijoitusosuuskunta – were listed on the Nasdaq Helsinki Stock Exchange and Nasdaq Helsinki First North Growth Market. However, all these listings were technical listings or listings through demerger or, in the case of Canatu, a de-SPAC transaction.

The outlook for 2025 appears more promising, with several companies having recently initiated IPO preparations. Optimistic estimates suggest that around 40-50 companies are considering an IPO during the next few years, with approximately 30 occurring in 2025 and 2026.

Valuations in the Nasdaq Helsinki Stock Exchange and Nasdaq Helsinki First North Growth Market remain low, but the trend is expected to reverse as interest rates decrease. If geopolitical tensions remain stable, several factors indicate that the IPO window could open at the end of Q1/2025 or at the beginning of Q2/2025, with the first IPO ITF-announcements expected already in the near future. If the first IPOs are successful, it is likely that more companies will soon follow to announce their IPO plans. 

With the reopening of the IPO market, also dual track exit strategies are expected to become attractive again for PE funds. Over the past decade, PE funds have played a significant role in driving IPO activity Finland and are anticipated to continue being an important driver of market activity.

Fundraising Environment and Policy Reforms

Fundraising: Navigating 2025 with Cautious Optimism

Fundraising is expected to remain selective, with investors prioritizing established managers who can demonstrate robust track records and sector-specific expertise, which may contribute to a more concentrated private equity and buyout fund market. Established funds with proven track records and larger capital reserves are likely to secure the majority of investor commitments, leaving smaller funds and new teams with limited access to capital. Rising interest rates are likely to impact financing costs, compelling sponsors to explore creative deal and financing structures to mitigate debt burden risks.

As Finland seeks to attract more foreign investment into Finnish private equity funds, political initiatives are underway to introduce a new, non-transparent fund structure designed to appeal to international investors. If implemented, this new structure could significantly increase Finland’s visibility in the global private equity market and support broader economic growth by bringing additional foreign capital into Finnish industries.

Strategic Shifts: Reforming Finnish Industry Investment

A working group under the Finnish Ministry of Economic Affairs has proposed a reformed investment strategy for Finnish Industry Investment (Tesi). The updated strategy, still in draft form, was originally expected to take effect in February 2025. This initiative is part of a broader restructuring that consolidates several governmental investment bodies under Tesi.

The proposed reform includes a significant increase in Tesi’s annual investment capital. Under the new investment plan, Tesi aims to deploy EUR 1.8 billion in investments between 2025 and 2029. These investments are projected to attract an additional EUR 12 billion in private growth capital to the market.

Alongside the increased capital, Tesi’s investment focus is expected to possibly undergo a certain shift. The proposed changes have initiated considerable discussion within the Finnish market. 

Merger Control Activity

Increased activity in Q4/2024

The Finnish merger control thresholds were lowered at the beginning of 2023, leading to an increase in the number of transactions subject to merger control. A transaction now requires the Finnish Competition and Consumer Authority’s (FCCA) prior clearance if the combined Finnish turnover of the parties exceeds EUR 100 million, and the Finnish turnover of at least two of the parties exceeds EUR 10 million for each.

Since 2023, the number of transactions subject to merger control has slightly increased. The FCCA gave clearance to 58 transactions in 2024, up from 51 in 2023, with particularly active enforcement during Q4/2024. This trend is expected to continue into 2025 as also the beginning of year 2025 indicates. In 2024, 57 transactions were cleared unconditionally during Phase I review (maximum handling time 23 Business Days), and one with remedies after Phase II review. The Phase II review, which related to health care markets, was cleared subject to a divestment.

Anticipating 2025: Call-in Option on the Horizon

In recent years, the FCCA has published several studies and reports on the concentration of the health care markets and veterinary markets, highlighting the need for better tools to prevent harmful concentration in these and other markets. In a recent study, the FCCA noted that serial acquisitions by private equity firms are part of an efficient and functioning economy. However, the FCCA considers it problematic when the market concentrates among a few players, especially when merger control is not applicable to individual transactions due to the current turnover thresholds.

The FCCA has consistently stated that it cannot effectively intervene in harmful market concentration with its current tools and has advocated for a so-called call-in option, similar to those used by other Nordic and EU competition authorities. This call-in option would allow the FCCA to request a transaction for review even if the turnover thresholds are not met.

Although the call-in option was rejected during the latest amendments to the Competition Act in 2023, the Minister of Employment of the Finnish Government has recently publicly promised that the FCCA’s call-in option will be investigated in spring 2025. Therefore, it is possible that the call-in option for the FCCA will be on the Finnish Government’s agenda already in 2025.

Debt Financing

Overcoming Recent Challenges

Over the past year, the acquisition finance landscape has faced a series of challenges, primarily driven by rising interest rates. These hikes have made it difficult for sponsors to secure debt financing to buyout transactions on attractive terms. Banks have scrutinized potential deals with heightened diligence, focusing on credit quality and risk mitigation. While debt financing has been available, it has come with higher costs and potentially more restrictive terms compared to, for example, 2021. This has posed an obstacle to some buyout activity, especially for transactions heavily reliant on debt to meet funds’ return requirements.

Simultaneously, private credit has experienced significant growth, reshaping the landscape of acquisition financing for buyout transactions. Non-bank entities such as private credit funds have increasingly stepped into the role traditionally held by banks, offering direct loans for buyout transactions without the need for intermediaries. This shift has been particularly pronounced in the market for leverage finance to private equity-owned vehicles, where sponsors appreciate the understanding and possible flexibility of private credit lenders. Despite the increased use of private credit, there are some drawbacks for sponsors, such as higher call protections and the complexity of these deals compared to customary Nordic bank financings. Nevertheless, the continued expansion of private credit underscores its growing importance and influence in the acquisition finance arena.

Anticipations for 2025

Looking ahead, the acquisition finance market is poised for potential revitalization. The prospect of decreasing interest rates could serve as a catalyst for renewed financing initiatives. This shift may encourage buyout funds to refinance deals that were structured under less favorable conditions and employ greater leverage in financing new acquisitions. The substantial reserves of dry powder within private credit funds are expected to support this activity, providing ample capital to fuel buyout transactions alongside bank financing, which is anticipated to remain the largest source of debt for buyout transactions.

Exploring Emerging Opportunities

While NAV facilities, subscription credit lines, and collaborations between private credit and traditional bank lenders have not become mainstream in Finland yet, there may be increased interest in these non-traditional forms of financings. The potential adoption of these options depends largely on the development of interest rates and the possible increase of international private credit activity in the Finnish market. Introducing these forms of financing could offer buyout funds new avenues for securing capital, enhancing the flexibility and efficiency of financing strategies.

Addressing Impending Maturities

Adding to the complexity of the current landscape is the approaching maturity of leveraged deals executed in previous years, particularly those from 2021. As these maturities loom, the leveraged finance market is under pressure to activate, providing refinancing solutions to prevent borrowers from facing significant repayment obligations. This impending wave of maturities may increase M&A activity and underscores the need for a dynamic and responsive financing environment, where lenders and borrowers can collaborate to navigate the challenges and opportunities ahead.

In conclusion, the acquisition finance market has faced significant hurdles, but the evolving dynamics present both challenges and opportunities. By staying informed about trends and proactively preparing for upcoming shifts, buyout funds can strategically position themselves to seize new opportunities and thrive in the changing landscape.

Tax Changes Impacting M&A And PE In Finland

As the landscape of M&A and private equity in Finland evolves, staying informed about recent tax changes is crucial. These changes present both opportunities and challenges, and understanding them can help in making more informed decisions. On the right, some key tax developments that are particularly relevant for PE funds and M&A activities are highlighted.

What’s Ahead: Summary for 2025

As we look towards 2025, the Finnish private equity and M&A landscape is poised for significant developments and opportunities. Here are the key trends and expectations for the coming year:

Economic Outlook and Market Resilience 2025

Finland’s economic outlook is improving, with nominal GDP expected to grow by 0.8% in 2025 and 1.8% in 2026. The unemployment rate is projected to decrease, providing a stable economic backdrop for increased M&A activity (Bank of Finland). The Finnish market is emerging from recession, with lower inflation and interest rates likely to spur investment and growth.

Complex and High-Value Deals in Resilient Sectors

The trend towards more complex and higher-value deals is expected to continue, driven by available capital and the search for high-growth opportunities. Private equity firms will likely focus on sectors with long-term resilience, such as green transition and digital infrastructure.

Auction Dynamics and Structured Processes

The importance of well-structured auction processes will continue to grow, driven by heightened competition among buyers and increased focus on deal certainty. Comprehensive preparatory activities signals a shift toward greater transaction readiness and efficiency, enabling sellers to move swiftly when market conditions and opportunities align. The need for flexible auction processes will remain in order to cater for larger group of bidders.

Dynamic and Competitive Public M&A Market in Finland for 2025

In 2025, Finland’s public M&A market is expected to remain dynamic and competitive. Despite potential increases in valuations, the relatively low prices compared to other markets will likely continue to attract interest in attractive companies.

Pressure to Exit and IPO Market Revival

The pressure to exit is mounting for private equity investors as overdue exits accumulate and fund investors demand returns. Finland’s IPO market is set for a comeback, with several companies preparing for IPOs. This resurgence is expected to reinvigorate dual track exit strategies and drive market activity.

Geopolitical Risks and Regulatory Changes

Geopolitical risks, particularly in Eastern Europe, may continue to affect investor sentiment. Regulatory changes may also be on the horizon in Finland and the EU, particularly around ESG disclosures and increased scrutiny on portfolio emissions.

Fundraising and Policy Reforms

Fundraising will remain selective, with investors favoring established managers with robust track records. Political initiatives, such as the proposed non-transparent fund structure, aim to attract more foreign investment into Finnish private equity funds. Reforms in the investment strategy of Finnish Industry Investment (Tesi) are set to reshape the market landscape.

Merger Control and Regulatory Tools

Lowered merger control thresholds have led to a rise in transactions requiring FCCA clearance. The potential introduction of a call-in option could further impact merger control activity, providing the FCCA with better tools to address market concentration. However, this call-in option could also negatively impact predictability and deal certainty, as it would allow the FCCA to request a transaction for review even if the turnover thresholds are not met, potentially leading to increased scrutiny and longer transaction timelines.

Debt Financing: Challenges and Opportunities

Rising interest rates have posed challenges for securing debt financing, but the growth of private credit has reshaped the acquisition finance landscape. Decreasing interest rates and emerging financing options could revitalize the market, providing new avenues for securing capital.

Navigating Tax Changes

Recent tax changes, including lower transfer tax rates and extended tax benefits for foreign key employees, present both opportunities and challenges for M&A and private equity activities. Heightened tax scrutiny underscores the importance of thorough due diligence and compliance.

2025 is anticipated to be a year of cautious optimism, with dealmakers balancing opportunities with evolving risks. The Finnish private equity and M&A landscape is set to navigate an evolving yet promising market environment, driven by strategic investments, regulatory changes, and economic recovery.

Contributors: