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Some thoughts on cross-border flows in the Nordic area and how should IR professionals tackle it? By Peter Preisler Senior Vice President 29 May 2000. Agenda. Trends in Nordic Merger and Acquisitions activities Flows in the Nordic stock market The role of IR professionals.

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slide1
Some thoughts on cross-border flows in the Nordic area and how should IR professionals tackle it?

By Peter Preisler

Senior Vice President

29 May 2000

agenda
Agenda
  • Trends in Nordic Merger and Acquisitions activities
  • Flows in the Nordic stock market
  • The role of IR professionals
nordic m a activity driven by common economic rationale
Nordic M&A activity driven by common economic rationale

Mature industries have come far in the consolidation of the industry

  • Relatively high concentration of companies speak against M&A boom among big caps, more likely to appear in mid- and small-cap segment of the market
  • Low valuations make acquisition strategies difficult, which means that key for M&A activity will be cash flow, and bids are more likely to come in cash

M&A among financials driven by scale economies

  • As Asset management is becoming a primary source for revenue generation among the banks, scale economies can be achieved when with increased geographical distribution
  • Internet banking adds a new distribution channel, and a potential for increasing revenue streams through value added services. Again, the potential for scale economies is obvious
nordic m a activity driven by common economic rationale1
Nordic M&A activity driven by common economic rationale

Nordic IT/Technology - watch out for a looming M&A craze

  • Nordic IT/Technology market extremely fragmented: Fight for market shares drive consolidation
  • High valuations make not only cross border Nordic M&A activity an option, but recent history shows focus on international growth
  • Significant scale economies in many areas such as ERP and software
trends in nordic m a s less m a activity in large cap old economy
Trends in Nordic M&A’s - less M&A activity in large-cap “old” economy
  • 13 Nordic Pulp & Paper stocks with a total sector market cap EUR 31.9bn
  • Average market cap EUR 2.5bn
  • Sector has already gone through the Nordic consolidation phase
  • Concentration is thus relatively high. The three largest companies in the Nordic universe (Stora Enso, UPM-Kymmene and SCA) make up 72% of the sector’s market cap
  • Further M&A activity likely to be on the margin as part of strategies where non-core business are being divested
  • Low valuation holds back activity during through years when cash-flow typically is tighter
  • Activity in 2000 (on the margin) as a result of positive earnings cycle, with free cash flow at hand
concentration relatively high the case for pulp paper
Concentration relatively high - the case for pulp & paper

EURm

10,000

9,000

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

0

Stora Enso

SCA

Rest of Nordic P&P

UPM-Kymmene

Three largest Nordic Pulp & Paper companies and rest of Nordic universe, market cap

trends in nordic m a s continued m a cross border activity in banks
Trends in Nordic M&A’s - continued M&A cross-border activity in banks
  • 13 “large” Financial stocks with a total sector market cap EUR 63.8bn
  • Average market cap EUR 4.9bn
  • Sector is in the middle of a period of Nordic cross-border M&A in order to seek out scale economies in asset management and internet banking
  • Low concentration for “old” economy large caps. The 10 smallest banks make up less than 50% of the sector’s market cap (48%)
  • Three largest banks MeritaNordbanken (NBH), Svenska Handelsbanken and SEB should be the drivers behind consolidation
  • Valuations low, but earnings are strong and stable throughout the Nordic bank universe, which gives a potential to expand geographically
even with high concentration many banks are left with few options but to seek partner
Even with high concentration - many banks are left with few options but to seek partner

EURm

16,000

14,000

12,000

10,000

8,000

6,000

4,000

2,000

0

SEB

Sydbank

Spar Nord

Swedbank

Jyske Bank

Unidanmark

Danske Bank

RealDanmark

Christiania Bank

Den norske Bank

MeritaNordbanken

Union Bank of Norway

Svenska Handelsbanken

Nordic banks, market cap

trends in nordic m a s the case for continued it tech consolidation
Trends in Nordic M&A’s - the case for continued IT/Tech. consolidation
  • 56 “large” Nordic IT/Technology stocks with a total sector market cap EUR 39.4bn
  • Average market cap EUR 703m
  • Apparent fragmentation! The three largest companies in the Nordic universe (TietoEnator, WM-Data and Framfab) make up 25% of the sector’s market cap
  • Acquisitions paid for in new shares made more difficult recently as relative valuations shift in favour of continental Europeans
  • With Nordic IT/Technology edge, valuation could easily swing back in favour of the Nordics setting off the next round of consolidation
  • Recent history shows that M&A activity is not limited to the Nordic region - rapid international presence driver for M&A outside Nordic
too fragmented to capture significant scale economies m a activity to continue
Too fragmented to capture significant scale economies - M&A activity to continue

EURm

20,000

18,000

16,000

14,000

12,000

10,000

8,000

6,000

4,000

2,000

0

Sigma

Tomra

Comptel

Framfab

WM-Data

F-Secure

Enea Data

TietoEnator

Icon Medialab

Navision Software

Remaining IT/Technology

10 largest Nordic IT/Technology & Rest of technology universe, market cap

recent trend support hypothesis for technology and financials
Recent trend support hypothesis for Technology and Financials

160

140

120

100

80

60

40

20

0

Financials

Consumer

Healthcare

Capital Goods

Basic Materials

Oil & Oil Services

Shipping/transport

Telecom/Technology

Property/construction

Number of Nordic transactions, 12 months

large deals in traditional sectors
Large deals in traditional sectors

18000

16000

14000

12000

10000

8000

6000

4000

2000

0

Financials

Consumer

Healthcare

Capital Goods

Basic Materials

Oil & Oil Services

Shipping/transport

Telecom/Technology

Property/construction

Mkt value, USDm

flows in the nordic stock market
Flows in the Nordic stock market
  • Three years ago investors used a country approach in the whole Europe, and in some degree the Nordic area was only one country
  • Today investors use a sector approach in the whole Europe (including the Nordic countries)
  • The different sector mix in the Nordic countries make it even more important to use a sector approach in the whole Europe

- Norway: Very cyclical (Oil & Oil Service, Shipping and Basic Material)

- Sweden: Financial and growth companies (Telecom Equipment, Technology)

- Finland: Some very cyclical companies and some very large growth companies (Telecom Equipment, Telecom Operators and Technology)

- Denmark: Defensive: Financials and Consumer companies

flows in the nordic stock market1
Flows in the Nordic stock market
  • Regional sector flows and business sector flows increases significant, local regions (i.e. Nordic area) flow also increases but at a lower pace
the role of ir professionals
The role of IR professionals

The vital link between the company and its investors

  • Rapid changes in the competitive environment has increased this need dramatically
  • The IR function must address threats and opportunities and how they plan to deal with them on a company specific level
  • An optimal dialogue between the company and its investors leads to a better pricing in the stock market
the role of ir professionals1
The role of IR professionals

Global investment trends and their use

  • The IR professionals must capture interesting areas of development within the company and effectively communicate these areas of competitive advantages to investors
  • The link between the new and the old economy
  • The internet challenge
the ir s role to unlock the treasures of the company
The IR’s role to unlock the treasures of the company

The use of investment trends

  • To attract investors by giving sensible examples from the company’s use of technology from the new economy
  • I.e. web enabling projects

The cost saving potential from the use of new technology

  • Communicate strategy plans and give investors incentive to invest in your strategy plans and give investors incentive to invest in your strategic goals
  • Show potential and competitive advantages from the merger between the new and the old economy. Like ABB or SKF
the ir s role to communicate between the company and its investors
The IR’s role to communicate between the company and its investors

A fruitful dialogue between stock market and company

  • Identification of important industry trends from market analysts
  • Discovery of potential M/A possibilities
  • Significant inflow of information to the different business areas within the company

The IR professionals hold the key to specific company information

  • Key personnel must be introduced to investors
  • Important developments must be communicated
  • The investors understanding of the company must be addressed at specific occasions like capital market days
the ir s role to communicate between the company and its investors1
The IR’s role to communicate between the company and its investors

The stock market and investors is an important source of market information

  • The IR must feed back information and market reactions to the company in order to improve the future communication
  • Understanding of the stock market’s logic will lead to better communication and higher stock prices
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