NORWAY: An Introduction to Corporate/M&A

CONTRIBUTED BY OLE K. AABØ-EVENSEN AT AABØ-EVENSEN & CO

The current state of the Norwegian M&A market

Throughout 2021, the Norwegian M&A market continued to bounce back after the COVID-19 slowdown in the first half of 2020. As for the number of M&A deals, the 2021 Norway market was up 33.2 per cent compared with 2020, resulting in a record high number of announced M&A deals in the Norwegian market. During 2021, the total reported deal value also increased from €25.265 billion for 2020 to €41.247 billion for 2021, while the average reported deal size also increased from €308 million for 2020 to €320 million for 2021.

Throughout 2021, industrial players continued to take a large stake of the total M&A volume, and per Q4 2021, seven out of the ten largest disclosed Norwegian M&A deals for 2021 had industrial or strategic investors on the buy side, which is two less than for the 2021 deal count. Per Q4 2021, only one out of the ten largest Norwegian M&A deals involved financial sponsors on the sell side.

Private equity sponsors were increasingly active during 2021. Compared to 2020, the number of transactions in the Norwegian market involving private equity sponsors increased by 104% (either on the buy or sell side.) At the same time, the average reported deal sizes for deals involving private equity sponsors increased significantly. The market continued to be driven by new investments and add-ons, but for 2021 the number of private equity exits increased significantly compared with same period in 2020. However, the same also applied for the number of private equity new investments and add-ons.

Per Q4 2021, the sectors with the highest level of activity were TMT, business services, industrials and the consumer sector. These four sectors together once again represented more than 60 per cent of deal volume for 2021. The energy sector and the construction sector were also quite active.

During the pandemic, we’ve so far witnessed deals being negotiated and completed almost exclusively via digital platforms, which has contributed to sponsors and investors being able to continue doing deals even during lockdown periods under the ongoing pandemic. This has continued even after local travel restrictions were eased. Entering 2022, companies continue to actively explore M&A, divestures and other transactions. Access to capital continues to be high with a lot of dry powder sitting ready for use. Still, bidders continue to experience high valuation expectations for many assets, and fierce competition among bidders seems to continue, even though we have started to see market players becoming slightly concerned that inflation and increased interest rates will eventually result in downwards pressure on deal-multiples. However, we expect the technology sector will continue “driving” much of the Norwegian M&A activity during the next 12 to 24 months.

News and current legal issues expected to have an impact on M&A deals in Norway

From March 2021, the Market Abuse Regulation (MAR) has finally been implemented into Norwegian law. Following such implementation, listed target companies’ decision to delay disclosure of inside information has now been amended, so that an issuer only has to notify the Oslo Stock Exchange about its decision to delay disclosure after the relevant information has been disclosed to the market.

In October 2021, the Ministry of Justice and Public Security and the Ministry of Defence published a joint consultative paper proposing certain amendments to the Norwegian National Security Act. The Ministry now proposes to broaden the scope of the ownership control provisions by, inter alia, introducing a notification obligation for acquisitions of qualified ownership interests in suppliers with facility security clearance, as well as proposing to lower the threshold for the notification obligation from 1/3 of the shares/interests or votes in an undertaking to 10%. In addition, the Ministry proposes an automatic implementation ban of acquisitions that is subject to notification. The proposed ban shall be in effect from the time the notification is sent until the relevant ministry has announced to the notifying party that the transaction has been approved or that the matter has been considered by the King in Council.

However, the most imminent changes to the law that may have an impact on doing M&A deals in Norway are certain amendments to the Norwegian takeover rules proposed by a government-appointed committee in a report issued in early 2019 concerning the rules governing voluntary and mandatory offers, with particular focus on the current Securities Trading Act's limited regulation of the pre-offer phase.

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 such notifications immediately. Furthermore, a new requirement proposed is 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 shall 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 have been kept at an artificial level; (ii) the stock purchase which 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 with a restructuring of a company in serious financial distress. In cases of adjustment of the offer price where the stock prices have been kept at an artificial level, or where the stock purchase which 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 a three-month volume-weighted average stock price.

One of the more controversial proposals by the committee is 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. It remains to be seen if this proposal will be upheld by the ministry that is currently reviewing the committee’s proposal.

It is currently unclear when Parliament can be expected to adopt these amendments into Norwegian legislation. We do not expect the proposed changes to be implemented until 2022 at the earliest. However, earlier in 2020 the Ministry issued a bill and a draft resolution to Parliament in which the Ministry followed up on the committee’s proposal for a 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. At the same time, it resolved to repeal the ‘market-pricing’ alternative with a more balanced rule set out in a separate regulation. However, the repeal of the market-pricing alternative has not yet entered into force. Due to the COVID-19 pandemic, a temporary regulation for calculating the offer price was implemented with effect from 20 May 2020 and would expire on 1 January 2022. It has now been proposed that this temporary regulation will be prolonged until 31 December 2022.

From 1 January 2020, the Norwegian Parliament approved amending the limited liability companies legislation aiming to ease Norwegian AS-companies’ ability to provide financial assistance in relation to the acquisition of shares in such companies or their respective parent companies, firstly by introducing an exemption from the dividend limitation rule applying to an AS-company. However, this exemption rule will only apply if the bidder (as borrower) is domiciled within the EEA area and is part of - or after an acquisition of shares will form part of - a group with the target company. In such situations, the financial assistance may now also exceed the target company’s funds available for distribution of dividend. However, this group exemption will not apply if the target company is a Norwegian ASA-company.

Secondly, from the same date, the requirement for the buyer (as borrower) to provide "adequate security" for its repayment obligation will no longer be an absolute condition for obtaining such financial assistance from the target company. Having said that, due to the requirement that such financial assistance has to be granted on normal commercial terms and conditions, it cannot be completely ruled out that a bidder also in the future still may have to provide some sort of "security" for being allowed to obtain financial assistance from a Norwegian target company. Nevertheless, as long as it can be argued that the acquisition is in the target company’s best interest and such financial assistance can be justified in the absence of any security, after 1 January 2020 it will now be possible for a target company to grant financial assistance to a bidder without such security. Note that in order for a target company to grant such financial assistance, certain formalities will still need to be observed.