NORWAY: An Introduction to Corporate/M&A

The Current State of the Norwegian M&A Market

Contributed by Ole K. Aabø-Evensen at Aabø-Evensen & Co

Entering 2022 Norway has been hit by increased headwinds resulting from increased inflation following the COVID-19 pandemic, as well as geopolitical uncertainties after the Russian invasion into Ukraine resulting in a substantial increase in international commodity prices (oil and gas), as well as the international sanctions regime implemented against Russia and thus the global stock-markets starting to take a dive. Sellers became concerned that inflation and increasing interest rates as well as a drawn-out war will result in a downwards pressure on the deal multiples. Consequently, we observed an increasing number of sellers considering exit, to postpone kicking off such processes in order to wait and watch how long the Russian-Ukraine conflict would last and what impact the conflict would have for Europe both on a short and long term.

Nevertheless, at the end of 2022 it is fair to say that the Norway M&A deal activity has continued to remain surprisingly strong throughout most of the year, and the M&A deal appetite seems relatively resilient both for industrial and financial players. The question is to what extent this trend will continue if we continue to face further geopolitical turmoil, with rocketing inflation numbers followed by additional interest rate hikes.

As per mid-December 2022, the Norwegian M&A transaction volume was up 2.23% compared with 2021, of which the Norwegian M&A market is dominated by small and medium-sized transactions. So far in 2022, 70% of the deals did not disclose the deal size, 37% of the deals had a deal value less than EUR20 million, 42% had a deal value between EUR20 million and EUR199 million, 15% had a deal value between EUR200 million and EUR1 billion, while just 5% of deals had a deal value exceeding EUR1 billion. These figures indicate a reduction in number of large cap deals, while small cap – mid market has remained relatively stable and/or in fact increased compared to the previous year.

Throughout 2022, industrial players continued to take a large stake of the total M&A volume, and seven out of the ten largest disclosed Norwegian M&A deals so far in 2022 had industrial or strategic investors on the buy side, which is an identical number to the 2021 deal count. In 2022, three out of the ten largest Norwegian M&A deals involved financial sponsors either on the sell side or on the buy side.

Per Q4 2022, the sectors with the highest level of activity were TMT, energy, business services and the consumer sector. These four sectors together represented 56.6% of deal volume so far in 2022, and where the oil and gas industry has seen the highest growth, with a 70% growth in deal activity from 2021 to the last 12-month period. The industrial sector and the construction sector were also quite active, during 2022.

Access to capital continues to be high with a lot of dry powder sitting ready to be used. Still, market players have become increasingly concerned about inflation and that increased interest rates are expected to result in a downwards pressure on the deal multiples. In addition, the Norwegian labour government has started to introduce new and increased tax for certain industries which is expected to have a negative impact on the deal activity with certain sectors like aquaculture, renewable wind energy, etc. However, during the next 12 to 24 months, we expect the technology, services and energy sectors will be “driving” much of the Norwegian M&A activity. However, some investment bankers seem to be concerned about clear reductions in the 2023 deal pipeline, which can be taken as a signal that the deal volumes will be reduced during the first half of 2023, even if it is too soon to have a firm view on this.

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

As of 1 September 2022, certain amendments to the STA with regard to disclosure requirements for derivatives with shares as underlying instruments have been implemented. According to the new rules, the materiality thresholds and disclosure requirements that apply for acquisition of shares in listed companies now also apply for derivatives with shares as an underlying instrument, irrespective of such equity derivatives being cash-settled or settled by physical delivery of the underlying securities. As from the same date, borrowing and lending of shares has 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 disclosure obligations under the STA have, until 1 September 2022, also included an obligation to disclose information in relation to “rights to shares”, regardless of whether such shares have already been issued or not. This is a stricter disclosure and filing obligation than those set out in minimum requirements of the Transparency Directive and, from 1 September 2022, this obligation has now been abolished. As from the same date, Norwegian law no longer has mandatory disclosure obligations for warrants and convertible bonds not linked to any issued (existing) shares.

Having said that, the most imminent expected 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 the Parliament can be expected to adopt these amendments into Norwegian legislation. We do not expect the proposed changes to be implemented until 2023 at the earliest. However, earlier in 2020 the Ministry issued a bill and a draft resolution to Parliament in which the Ministry follows 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, now expiring on 1 January 2023.

In October 2021 the of Justice and Public Security and the Ministry of Défense 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 informs the notifying party that the transaction has been approved or that the matter has been considered by the King in Council.