Norwegian transaction volume for 2018 was down 21 per cent compared with 2017. For Europe in total, the 2018 M&A transaction volume was down 1.01 per cent compared with 2018. The transaction volume in Denmark, Finland and Sweden increased by 4.3, 31.6 and 15.88 per cent respectively, compared with 2017. Even if the Norwegian M&A volumes retracted in 2018, the deal volumes reached the second-highest ever recorded, only surpassed by 2017. Active private equity funds, low financing costs, available capital in the market, volatile oil and gas prices, high equity valuations and a strong focus on technology all contributed to a stable deal making environment for 2018. Still, for 2016, 2017 and 2018, the market for public takeovers was in fact rather muted, with only eight public takeovers and attempted takeover offers issued in 2016, only five public takeovers and attempted takeover offers for listed companies issued in 2017 and only seven public takeovers and attempted takeover offers for listed companies issued in 2018, compared with 12 takeovers and attempted public takeovers in 2015. The most notable public takeover deals announced during 2017 were Qumei Investment AS’s €594 million acquisition of Ekornes ASA and ABRY Partners’ €411 million of Link Mobility Group. Another standout public takeover announced in 2018, was FSN Capital Partners’ €244 million acquisition of Safe Road ASA. For 2018, the stock market was influenced by more volatile and declining oil prices, combined with a more volatile stock market resulting from trade wars and protectionism. Oslo Stock Exchange’s main index ended down, with a 3.8 per cent decrease compared to 2017. However, until the beginning of October 2018, the stock market continued to be buoyant and the Oslo Stock Exchange’s main index increased 15.7 per cent compared with 2017. Resulting from this, the Norwegian IPO-market had continued to flourish for most of 2018. In total we witnessed 16 new listings on Oslo Stock Exchange and Oslo Axess compared with 18 IPOs for 2017.
Throughout 2018, industrial players continued to take a large stake of the total M&A volume, and eight out of the largest 10 disclosed Norwegian M&A deals for 2018 had industrial or strategic investors on the buy side, which is the same number as for 2017. Compared to 2017, the Norwegian market decreased 9.7 per cent in number of transactions involving private equity sponsors, (either on the buy- or sell-side), and the average reported deal sizes for deals involving private equity sponsors fell significantly. The market continued to be driven by new investments and add-ons, and in 2018, we witness an increase in number of private equity new investments and add-ons compared with 2017, while the number of private equity exits were down.
Since the second half of 2014 continuing throughout 2016, increasing volatility in the debt capital markets resulting from declining oil and gas prices pushing many high yield bonds towards default substantially impacted the plans for those who were planning to raise new acquisition financing in the Norwegian debt capital market. As a result, an increasing number of borrowers, in particular foreign sponsors, started to turn elsewhere than the high-yield bond market and traditional banking financing, when considering financing packages for new acquisitions. On large transactions, there has been an increasing trend of unitranche or term loan B-style loans spreading globally. Funds offering these types of new loan products now also market these products in the Norwegian market specifically towards private equity sponsors. However, since the beginning of 2017 and throughout most of 2018, we witnessed an improvement of the Norwegian high-yield bond market, which has made an increasing number of acquirers again consider high-yield bonds as a feasible alternative for raising acquisition financing.
Last years’ trend with increasing use of warranty and indemnity insurance used by vendors or buyers in an attempt to bridge the negotiation gap between them over important liability issues continued throughout 2018. Bidders also continue to use this type of insurance in the bidding process as a means to achieve competitive advantage. The insurance brokers all reported on increased interest among the various players about this type of products. We still expect to see an increasing use of insurance policies in the years to come.
In spite of the decline in deal volumes for 2018, it seems as if the appetite for M&A transactions will also continue to be strong in 2019, with a relatively robust pipeline of companies also coming out for sale this year. Overall, we are optimistic for the Norwegian M&A market for 2019. Investors continue to view Norway as a good place to invest, due to its highly educated workforce, technology, natural resources and well-established legal framework for M&A transactions. Nevertheless, Norway over the last four years has become more exposed to the force of world events than in previous years, and the views expressed above will, therefore, all depend on global macroeconomic developments. It is also worth noting that with the boom in IPOs witnessed during the last few years, combined with new companies expected to be developed for listings later in 2019, new targets for public M&A have and will become visible in the Norwegian marketplace in the near future. There is reason to believe that some of these new companies are likely to be taken into private ownership relatively soon after having been listed.
EU initiatives -amendments to the STA
The EU has over the last few years proposed and adopted several Directives, Regulations and clarification statements regarding the capital markets. Some of these are of such a nature that also Norway in some form will have to adopt and implement them in order to comply with its obligations under the EEA agreement. These initiatives from the EU, will, directly or indirectly, have an impact on the regulatory framework for public M&A transactions in Norway in the years to come. In 2015, the Norwegian government appointed an expert committee to evaluate and propose any relevant amendments to the existing Norwegian legislation resulting from the EU having amended the Transparency-, the MiFID I- and the Market Abuse Directives. The Committee has now delivered five reports to the Ministry of Finance.
In its first report, the Committee proposes implementing certain amendments to the STA with regard to disclosure requirements for derivatives with shares as underlying instruments. According to the proposal, the materiality thresholds and disclosure requirements that apply for acquisition of shares in listed companies shall now also apply for derivatives with shares as underlying instrument, irrespective of these equity derivatives being settled by cash or settled by physical delivery of the underlying securities. The committee further proposes that both borrowing and lending of shares shall become subject to the same notification regime for both the lender and the borrower. Soft-irrevocable undertakings will remain exempt from the disclosure obligations. The existing disclosure obligations under the STA also includes an obligation to disclose information in relation to ‘rights to shares’, regardless of whether these shares already have been issued or not. This is a stricter disclosure and filing obligation than what follows from the minimum requirements set out in the Transparency Directive, and the committee has proposed abolishing the obligation. If adopted by Parliament, Norwegian law will no longer have mandatory disclosure obligations for warrants and convertible bonds not linked to any issued (existing) shares.
In its second report, published in January 2017, the committee, inter alia, proposes several amendments to the STA in order to implement MIFID II and MIFIR into Norwegian law. In April 2018, the Ministry of Finance issued a white paper to Parliament based on the Committee’s second report, and, in June 2018, these rules were adopted into law by the Parliament. However, these changes do not contain any amendments that are directly relevant for bidders or targets in M&A processes in Norway.
The third report, which deals with the implementation of the Market Abuse Regulation, and includes proposals by which the STA rules governing market abuse are expanded. This includes more detailed regulations concerning inside information, by a proposal for new rules concerning ‘market sounding’ that occurs in preparation for a potential transaction, among others. It is also proposed that primary insiders will be personally obligated to publish information about their trading activities in listed financial instruments.
The fourth report was published in January 2018 and concerns the implementation of supplementary regulations regarding MiFID II and MiFIR.
Finally, a fifth report, was published in June 2018 and concerns the implementation of the new Prospectus Regulation and rules regarding national prospectus requirements
New takeover rules expected
On 23 January 2019, the Committee also submitted a report concerning the Norwegian rules on voluntary and mandatory offers, with particular focus on the current limited regulation of the pre-offer phase. This Committee report does not arise out of changes to EU rules but rather the need to review and update Norwegian takeover rules on the basis of past experience and market developments.
In its report, the Committee proposes, inter alia, a new requirement that a bidder must carry out certain preparations before it announces that it will launch an offer to acquire a listed company. The committee also proposes new content requirements for the notification that a voluntary offer will be made, including information on matters of importance for the market’s assessment of the offer and for the formation of the price. It is proposed to clarify that the Norwegian Takeover Supervisory Authority (now Oslo Stock Exchange) shall publish the notification immediately. Furthermore, a new requirement is proposed that the bidder must present a voluntary offer no later than four weeks from the publication of the notice announcing that an offer would be issued. At the same time, it is proposed that the Takeover Supervisory Authority may grant an exemption from this deadline in special cases. The Committee proposes that the minimum length of the offer period in voluntary offers be extended from at least two to at least four weeks.
The existing main rule that the offer price under a mandatory offer must correspond to the highest consideration paid or agreed by the bidder in the last six months before the mandatory offer obligation being triggered is proposed to be continued. However, the Committee proposes a separate regulation setting out rules for calculating the offer price in cases where there is a need for an exception from the above main rule or where it is not possible or reasonable to use the main rule for calculating the offer price. In this regard it is also being proposed that the offer price should be adjustable if the Takeover Supervisory Authority considers that (i) the stock prices during the period in question being kept at an artificial level, (ii) the stock purchase that is the basis for the offer price was not carried out on normal ‘commercial’ terms, or (iii) the mandatory offer obligation is being triggered in connection a restructuring of a company in serious financial distress. In the event of adjustment of the offer price where the stock prices have been kept at an artificial level, or where the stock purchase that is the basis of the offer price was not made on normal ‘commercial’ terms, the Committee proposes that the adjusted offer price shall be calculated on the basis of three-month volume-weighted average stock prices.
Further, the Committee proposes to introduce a general requirement that information published on a planned or submitted takeover offer must be correct, clear and not misleading. The scope of application is intended to be broad and comprises both the preparation phase and after a bid is launched and throughout the bidding phase.
The Committee also proposes a new right for the accepting stockholders to revoke their acceptances for a period limited to three trading days after a competing offer is made and disclosed, provided this occurs during the offer period for the original (first) offer.
Furthermore, the Committee proposes new rules on amending a tender offer, so that a bidder prior to the expiry of the offer period may amend the terms of such an offer in favour of the stockholders and also extend the offer period, provided the bidder has reserved these rights in the offer document itself and that these amendments are being approved by the Takeover Supervisory Authority.
The Committee does not propose to implement rules regulating the type of transaction agreements used in connection with takeovers of listed companies or similar commitments between a bidder and a target company. Nevertheless, the Committee proposes to implement a rule into the new legislation that authorises the government to issue more detailed rules in a separate regulation to govern the use of agreements in connection with mandatory and voluntary offers.
An amendment to the takeover rules is also proposed to clarify the scope and applicability of the rules on companies that are domiciled in another country and that have issued stocks traded on a Norwegian regulated market. It is also proposed to introduce an obligation for companies domiciled outside the EEA to ensure that if the non-EEA company’s stocks are listed on a Norwegian regulated market, the company will have a special obligation to provide information on its website about the rights of its minority stockholders.
According to the proposal, the Takeover Supervisory Authority will be authorised to issue fines of up to 10 million kroner for natural persons and up to 20 million kroner for legal entities for violation of a number of key rules, or up to 2 per cent of the total annual turnover in the last annual accounts for the same. If approved by the Parliament in the proposed form, this will, inter alia, apply to the obligation to provide accurate, clear and non-misleading information in connection with an offer, prerequisites for presenting an offer, the obligation to provide notification of a mandatory offer or voluntary offer, the obligation to make a mandatory or voluntary offer and requirement for minimum offer price in mandatory offers.
It is currently unclear when the Parliament can be expected to adopt these amendments into Norwegian legislation. However, we do not expect the proposed changes to be implemented into Norwegian law until 1 January 2020 at the earliest.
Proposed amendments to the Norwegian companies legislation
At the beginning of 2019, the Ministry of Industry, Trade and Fishery issued certain proposals to amend the rules of the Norwegian Companies Acts in order to implement EU Directive (EU) 2017/828 into Norwegian law. In addition, certain amendments are proposed with regard to transactions between a company and its related parties and also in relation to a company’s ability to provide financial assistance to its shareholders. Even though most of these amendments are not aimed at M&A specifically, some could have an impact both on the structuring and the financing (and on the financing structures) of M&A transactions. One such new rule, is the Ministry’s revised proposal for abolishing the requirement that a buyer (borrower) must deposit ‘adequate security’ towards the target company if the buyer receives any form of financial assistance from the target in the form of security for the buyer’s acquisition financing. If this proposal is adopted by Parliament in its current form, it looks as if Norway in the near future also will have implemented a type of ‘whitewash procedure’ that could work also for LBO-transactions.
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