THE CONTEXT
Looking at M&A history from a global perspective, there are several general trends. In the 1980s, the M&A market was primarily driven by hostile take overs, demergers of earlier formed conglomerates and higher financial gearing as well as the application of new financial instruments. Up through the late 1990s, the M&A market was characterised by strategic expansion and liquid capital markets. The focus was on technology and growth supported by strong financials. The period between 2000 and 2005 was characterized by a focus on core competencies and profitability rather than growth and expansion. Structural changes in most corporate sectors were driven by increasing internationalisation and globalisation as well as by escalating technological development. As of 2005, a phase of global expansion coupled with consolidation is in evidence in a wide range of sectors, driven by strong economic growth in the Far East (especially China) and the strong purchasing power of private equity funds that are under pressure to invest.

Globally as well as in Denmark, there is a strong correlation between the stock market and the M&A market. In extension of this, the international M&A market is characterised by volatility, defined as strong growth in some periods followed by sharp falls and vice versa.

THE DANISH M&A MARKET
The Danish M&A market in general follows the international markets, although deal sizes are smaller. However, some of the largest deals in Denmark over the last few years are of sizes comparable to those seen in the US and larger European countries.
      Relatively few large companies and many small and medium-sized family-owned companies with a heavy niche focus characterise Denmark’s corporate sector. Nevertheless, many of these companies have very strong financials and are important players in their particular niche market.

Looking back over the last nine years, the Danish M&A market has fluctuated considerably. Following a peak in 2000, the market fell drastically in 2001 and 2002, especially in terms of deal value. The fall was mainly caused by the absence of “mega-transactions” in line with global markets. However, the market has expanded considerably again since 2003 to reach an all time high of USD 19.1bn in 2005. This record figure was in particular caused by a number of “mega-transactions” in 2004 and 2005. Among these were Icelandic Kaupthing’s acquisition of FIH Erhvervsbank A/S (USD 1.2bn) and Swedish Telia Sonera AB’s acquisition of Orange A/S (USD 750m) in 2004, as well as Swedish Vattenfall’s purchase of 35.3 per cent of the shares in the Danish utility and energy company Elsam for USD 1.5bn in 2005. Furthermore, other mega-transactions included the following private equity transactions in 2005: Nordic Capital’s acquisition of Nycomed Holding A/S (USD 2.4bn), PAI Partners’ acquisition of Chr. Hansen Ingredients (USD 1.4bn), Australian Macquarie Airport Group’s purchase of Copenhagen Airports (USD 2.6bn) and EQT and Goldman Sachs Capital Partners’ acquisition of ISS (USD 5.2bn) in 2005. The deal size is expected to remain high in 2006, not least because the start of 2006 saw a record high deal value in relation to the closing of the largest deal in Danish M&A history: the acquisition of TDC, the leading provider of communications solutions in Denmark, by five international private equity funds (Apax Partners, The Blackstone Group, KKR, Providence Equity Partners and Permira) at a price of USD 15bn (100 per cent). This indicates that the attitude of Danish shareholders to selling key assets has changed and that the market has reached a new level of maturity.

Sweden and Norway are the most active buyers of Danish companies measured by transaction volume. Swedish companies bought 20 and 32 Danish companies in 2004 and 2005, respectively, including TeliaSonera AB’s acquisition of Orange A/S and Karlshamn’s acquisition of Aarhus United A/S (vegetable fats and oils). Norwegian companies bought twelve Danish companies in 2005, where the most significant one was Telenor’s acquisition of Cybercity A/S. An interesting new acquirer in Denmark is Iceland, which bought eleven Danish companies in 2005, including Sterling Airlines A/S, Mærsk Air A/S, Illum (department store) and Merlin A/S (electronics retail chain). This Icelandic interest in Denmark seems set to continue in the near future. However, there is greater uncertainty due to an increasingly stretched domestic economy in Iceland.

The factors in Denmark that attract more and more international strategic and financial investors include the stable political environment, a transparent economy, strong growth and low inflation as well as an open mindedness to foreign investors. Denmark is a small economy that is very dependent on imports and exports and is therefore a very open economy. During the last 20 years, the ruling political parties have supported an open economy, a flexible labour market and free global competition. Furthermore, the liquid debt markets as well as banks are accustomed to high leverage levels in Denmark, which makes debt financing easily available. Additionally, in recent years many Danish companies have been able to demonstrate strong financials, which, together with robust business models and strong management teams, generally attract financial buyers.

In addition to the above mentioned mega-transactions involving TDC and ISS, some of the largest international private equity deals are: CVC Capital Partners’ acquisition of Danske Trælast in 2003 at a price of USD 800m and their 22 per cent stake in Post Danmark in 2005 at USD 200m. Several of the large US private equity houses have also been active: Advent International bought Ilva A/S in 2003 at a price of USD 99m, and together with Lehmann Brothers Communication they acquired Cybercity in 2000 at approximately USD 65m. Cybercity was sold again in May 2005 to the Norwegian Telecommunications provider Telenor for USD 230m. Another large US private equity fund is the Blackstone Group, which acquired Legoland in 2005 for USD 450m. Together with CSFB Private Equity and NIB Capital Private Equity, the Blackstone Group also engaged in another interesting deal, acquiring Nycomed Holding in a secondary buy-out from the Nordic private equity fund, Nordic Capital, at USD 1.1bn in 2002. In March 2005, 51 per cent of Nycomed Holding was sold back to Nordic Capital at a price of USD 2.4bn (100 per cent).

CONCLUSIONS AND OUTLOOK
The strong performance of Danish-based companies since early 2000 combined with the Danish market for mergers and acquisitions, becoming a mature market with a level of activity matching some of the traditionally larger markets such as Sweden, have generated a new and higher level of entrepreneurship.

The combination of a strong economic climate, low interest rates and a positive outlook for the future make Denmark an attractive place for investments and acquisitions for foreign companies. Over the past years, many Danish companies have, at the same time, developed strong financial results with healthy balance sheets and strong cash flows, which indicate that in the next couple of years, well-managed companies will remain attractive targets for outside strategic and financial strategic buyers in the ongoing global consolidation process.

As a large number of Danish-based companies are family-owned and were founded during the post-war period with no obvious successors from within the families, it is expected that the current market and pricing levels will lead to acquisitions of more of these companies by financial or trade players or via management buyouts. The substantial surplus of funds raised by private equity funds in 2005 and low interest rates (albeit expected to rise during 2006 and 2007) will ensure a robust underlying level of buyer interest with which trade buyers must compete in order to win.

Concurrently, the leading Danish-based companies are expected to participate increasingly actively in global acquisitions in their respective sectors and niches. Companies such as A. P. Møller-Mærsk, Novo Nordisk, DSV, ISS, Arla Foods and Danisco will continue to strengthen their global positions through a high acquisition pace.

So far, no indications of issues or negative impact to the Danish economy have been registered stemming from the large number of outside acquisitions in Denmark. On the contrary, it can be inferred that the higher level of activity in Danish acquisitions and the influx of foreign owners, whether financial or strategic, support the development of financially stronger, more focused and better managed companies in Denmark. This will benefit and bring added value to the whole of Denmark and to the Danish people.

The only obstacle to a continued positive outlook for Danish-based companies, a major global recession aside, seems to be the inability of national politicians (possibly caused by too much political opportunism) to decide upon the necessary political reforms for a restructuring of the future labour, social, tax and economic markets in a situation where the number of people engaged in active employment will fall dramatically due to the combination of low birth -rates in the 1980s and 90s and a continued rise in life expectancy.

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