Transaction Trends Norwegian M&A Activity Depressed by COVID-19

EY | Transaction Advisory Services Transaction Trends Norwegian M&A update – Q1 2020

Norwegian M&A activity depressed by COVID-19

Transaction Trends, published by EY Transaction Advisory Also in this issue: Services, is a quarterly publication that aims to identify trends in the Norwegian transactions market. Data presented in this ► COVID-19: Responding to newsletter cover all transactions where the 500 largest companies volatility in Norway have participated as either target, buyer or vendor. This ► EY Capital Confidence makes Transaction Trends the most comprehensive transaction Barometer H1 2020: Key highlights newsletter available for the Norwegian market. During the first quarter of 2020, the 500 global M&A slowdown with a decline of largest Norwegian companies announced 39% in Q1 in terms of deal value. Last Twelve Months Number of a total of 18 transactions. This is in line Transactions by Industry The most active sectors for M&A during with the weakest quarters during the Source: Mergermarket Q1 were TMT and Engineering & financial crisis in 2008/2009, and can to Industrial Products, represented with 6 Automotive & 5 a large extent be explained by the growing Transportation and 3 transactions, respectively. uncertainty and eventual shut-down of Business & Prof. 5 However, these industries are also Services Norway towards the end of Q1 due to experiencing considerable contraction Consumer Products 7 COVID-19. Naturally, the number of compared to Q1 2019. Engineering & transactions is significantly below both 22 Ind. Products the number of deals announced in Q1 In this issue, we have included a Financial 4 2019 (36) and the average of deals this snapshot of how COVID-19 is impacting Services quarter over the past 10 years (30). the Norwegian economy, our current Government & 0 view on industry recovery times, as well Public sector Coinciding with the Norwegian M&A Life Sciences 3 as key highlights from the latest EY market decline, Mergermarket reports a Capital Confidence Barometer. Oil & Gas 14

Power & Utilities 7 Number of transactions LTM Source: Mergermarket 8 50 200 Real Estate 44 42 39 39 40 36 36 Retail 7 150 31 31 17 11 31 30 26 28 17 22 23 20 TMT 44 16 100 20 18 15 27 17 18 12 12 Travel, Leisure & 28 7 50 1 10 25 22 Tourism 15 18 16 13 10 13 11 9 14 11 Of which 27 0 0 Private Equity* 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 Public* Private LTM * Private equity deals represent deals where either the buyer or seller is a private equity investment company *Transactions where buyer, vendor and/or target is listed or have a parent company that is listed EY | Transaction Advisory Services Key highlights and market outlook

On 20 January, Glommen Mjøsen Skog BA agreed to acquire Over the last twelve month («LTM») period, the 500 largest 30.7% in Moelven Industrier ASA (the Norway-based provider companies in Norway announced a total of 127 deals. This represents a decline of 18 deals compared to the LTM level of building products and associated services) from Eidsiva AS observed per Q4 2019. The decline in LTM deal volume can and Felleskjøpet Agri BA, for a consideration of NOK 650m to a large extent be explained by the uncertainty caused by (USD 73.8m). Glommen’s shareholding in Moelven increased COVID-19. from 41% to 71% as a result of the acquisition, thus triggering Although lockdown of Wuhan commenced already on 23 an obligation for mandatory offer. This resulted in an January, market sentiment in Europe and the US remained additional 7% of shares being acquired from AT Skog in more or less unaffected up until 20 February. However, February 2020. from this date forward, market volatility caused credit markets to freeze and many M&A processes to temporary On 6 February, Grieg Seafood ASA agreed to acquire 99% in halts. Grieg Newfoundland AS, a Canada-based Atlantic salmon The speed at which the Norwegian deal market recovers will farming company, from Ocean Choice International L.P., Grieg to a large extent depend on the time it takes (1) to align Kapital AS, Kvasshogdi AS and Knut Skeidsvoll, for a buyer and seller price expectations, and (2) for credit markets to stabilise. In the current market, limited credit consideration of NOK 620m (EUR 61m). The agreement availability and disperse price expectations have put many includes a contingent consideration of NOK 930 based on M&A processes to a stand still. future harvest volumes. With lockdowns still imposed across Europe and the US, and On 15 February, the Norwegian real estate company Zurhaar several Asian countries reinstating strict preventive measures (e.g. Singapore), uncertainty remains high, thus & Rubb backed by the Birkeland family acquired 50% of the potentially prolonging an expected shares in Hallmaker Group from the private investor Truls Norwegian M&A market recovery. Torgersen. The company is one of Norway’s leading suppliers of steel and plastic halls, and has operations in Sweden, Poland, the UK and the US. The group is primarily known for delivering aircraft hangars worldwide, in addition to sports halls, construction halls and industrial buildings.

On 8 March, Qatar Petroleum agreed to acquire 25% of the On 17 January, the Swedish cash handling company Loomis shares in the Qatar Fertiliser Company (QAFCO), a joint announced the acquisition of 100% of the shares in Nokas venture established in 1969 by Industries Qatar and the Värdehandtering, a subsidiary of the Norwegian security Norwegian publicly traded chemicals company Yara company AVRAN Security (former Nokas). Nokas International. QAFCO is one of the world’s largest single-site Värdehandtering is a Sweden based cash handling company. urea producers with focus on the fertiliser products Nokas CMS, the deployer of ATMs in Nordic countries and a Ammonia, Urea and Urea Formaldehyde Condensate. Post subsidiary of Nokas Värdehandering, will not be included in the transaction, Yara will hold no shares in the company. The transaction. The transaction is subject to ownership deal value is reported to be USD 1bn. assessment of the Swedish Financial Supervisory Authority and the deal value is reported to be approximately SEK 80m. Top transactions last quarter (by deal value, USDm) Source: Mergermarket

Ann. Deal Dom. Deal Target Vendor Buyer Date Industry Value* Qatar Fertiliser Company Engineering & USD 20 Mar Yara International ASA Qatar Petroleum (QAFCO, 25% stake) Industrial Products 1,000m

Moelven Industrier ASA Eidsiva Energi AS; Engineering & USD 15 Feb Glommen Mjøsen Skog BA (30.7% Stake) Felleskjopet Agri BA Industrial Products 74m Ocean Choice Grieg Newfoundland AS International L.P.; Grieg 6 Feb Grieg Seafood ASA Consumer Products USD 67m (99% Stake) Kapital AS; Kvasshogdi AS; Knut Skeidsvoll Real Estate, Truls Torgersen (Private USD 15 Feb Hallmaker Group AS (50%) Birkeland family Hospitality & investor) 15m Construction Business & USD 20 Jan Nokas Värdehantering AB AVRAN Security (Nokas) Loomis Sverige AV Professional 8m Services

* Deal values are sourced from Mergermarket and calculated as the sum of the consideration paid by the acquirer for the equity stake in the target plus the value of the net debt in the target, where applicable. Inclusion of net debt in the deal value will depend on the stake acquired (if the acquirer targets a stake of less than 50%, deal value is the value of the acquired stake only) or the target company type (net debt is not added when the target is a bank, insurance company or financing company)

Transaction Trends 2nd edition 2020 | 2 EY | Transaction Advisory Services Activity Breakdown

Norwegian buyers accounted for 67% of the deals made in Q1 Buyer Region Source: Mergermarket 2020, somewhat below the average for the last twelve month period (“LTM”) of 73%. The increase in foreign bidders was Q1 2020 LTM mainly driven by investors in other Nordic countries and the 11% 8% rest of Europe, however, also a rise in investors from the 9% Americas and the Asia-Pacific areas were observed during Q1 11% 2020. 4% 6% 5% Despite increased uncertainty in the M&A market towards the 6% end of the first quarter, the relatively high share of cross- 67% 73% border transactions (67%) highlights that Norwegian companies continued to pursue cross-border M&A. In terms of deal activity by industry, we observe a general weakening across the board. Norway Americas Rest of Nordics Asia-Pacific Rest of Europe Other

Transaction Type Source: Mergermarket Domestic Cross-border

Q1 2020 33% 67%

LTM 41% 59%

2008 - 2020 34% 66%

Activity by industry Source: Mergermarket

Number of Transactions

Industry Q1 2020 LTM 2019 Avg. 2008 – 2019 Trend indicator

Automotive & Transportation 1 5 6 7

Business & Professional Services 2 5 5 8

Consumer Products 1 7 10 13

Engineering & Industrial Products 3 22 26 23

Financial Services 0 4 6 7

Government, Public sector & Organisations 0 0 0 0

Life Sciences 0 3 4 4

Oil & Gas 1 14 15 16

Power & Utilities 1 7 9 9

Real Estate, Hospitality & Construction 2 8 8 8

Retail 1 7 6 7

TMT 6 44 49 26

Travel, Leisure & Tourism 0 1 1 2

Total 18 127 145 130

Transaction Trends 2nd edition 2020 | 3 EY | Transaction Advisory Services

4% Activity Breakdown 5%

During the first quarter of 2020, the appetite for Norwegian Target Region Source: Mergermarket targets declined by 8 percentage points compared to the previous quarter (from 64% in Q4 2019 to 56% in Q1 2020). Q1 2020 LTM The relative share of targets situated in the Nordics (excluding Norway) remained in line with LTM levels. We also 17% 17% observe a small increase in the relative share of European, American and Asia-Pacific based targets compared to the 11% 9% LTM levels. 56% 60% 8% In line with the overall decrease in number of transactions, 11% 2% 4% the average deal size also decrease from USD 274 million in 6% the fourth quarter of 2019 to USD 223 million in the first quarter of 2020. Similarly, we also observe a fall in the number of deals above USD 100 million in the first quarter to Norway Americas only two transactions. Rest of Nordics Asia-Pacific Rest of Europe Other The number of transactions performed by publicly traded companies fell by more than 20% year-on-year compared to Q1 2019, to only 7 deals. The Q1 2020 level is also below the LTM trend and the average from 2008 -2020.

Deal value by range (est.) Average deal size (USDm, est.) Source: Mergermarket & EY USD 0-100 m Source: Mergermarket & EY > USD 100 m

25 770 23 21

16 15 14

261 274 8 223

2Q19 3Q19 4Q19 1Q20 2Q19 3Q19 4Q19 1Q20

Transaction Arena Source: Mergermarket

Public Private

Q1 2020 39% 61%

LTM 41% 59%

2008 - 2020 48% 52%

Transaction Trends 2nd edition 2020 | 4 EY | Transaction Advisory Services Public Market Update

Oslo Stock Exchange (“OSE”) saw two new listings in the first New listings Source: Oslo Stock Exchange quarter of 2020, Northern Ocean Ltd and BW Energy Limited, while Oslo Axess had none. Cloudberry Clean Energy AS and 28 28 26 Quantafuel AS was listed on Merkur Market. As such, the total number of listings thus far in 2020 amount to four, compared 24 21 to one listing in Q1 2019. The amount of equity capital raised 14 20 in Q1 2020 amounted to NOK 5.4bn, of which private issues 15 17 8 constituted 74%. 16 15 1 8 The Oslo Stock Exchange main Index (”OSEBX”) was down 25% 12 2 in Q1 2020, ending at 631.16. This is mainly due to market 12 3 8 uncertainty related to COVID-19, as well as a major decline in 13 11 6 4 the oil price (Brent), which closed at USD 19.19 at quarter-end 4 8 2 0 (69.7% down from 31 December 2019). As a result, the 2020 3 3 2 - YTD average OBX P/E multiple is relatively low compared to 2015 2016 2017 2018 2019 2020YTD the levels observed in recent years. Oslo Stock Exchange Merkur Market The value of the Norwegian Krone (NOK) depreciated Oslo Axess significantly compared to the levels observed in 2019 as a result of the decreased global risk appetite due to the uncertainty caused by COVID-19, and the significant weakening of the Brent oil price.

Issues by value, Oslo Stock Exchange & Oslo Axess Foreign exchange rates (indexed) Source: Oslo Stock Exchange Source: Norges Bank *Trade Weighted Index Private Employee Stock dividend NOKbn Public Repair IPO 1.2 59.6 60 1.1

50 45.9 46.0 1 40 GBP/NOK 0.9 SEK/NOK 30 27.3 27.8 TWI* 0.8 LTM Q1 2020 20 USD/NOK EUR/NOK 0.7 10 5.4

- 0.6 2015 2016 2017 2018 2019 YTD 2020 2015 2016 2017 2018 2019 YTD 2020

OBX Index Avg. OBX multiples Source: S&P Capital IQ Source: S&P Capital IQ

900 5.3 YTD 2020 EV/EBITDA 5.5 800 6.2 2019 6.5 700 2018 600 1.5 2017 500 Last quarter P/B 1.8 LTM Q1 2020 1.9 400 1.7 300 200 12.3 P/E 12.1 100 15.4 20.0 - 2015 2016 2017 2018 2019 2020

Transaction Trends 2nd edition 2020 | 5 EY | Transaction Advisory Services COVID-19: Responding to volatility Immediate actions required to protect company performance

As the coronavirus (COVID-19) is rapidly spreading, uncertainty is increasing and immediate actions are required to protect short-, mid- and long-term results for companies. The coronavirus is spreading faster than prior comparable diseases, and restrictions are implemented in order to slow down the transmission. Companies have differing needs to react to this situation depending on their sector exposure to the effects of the virus and their preparedness.

OSEBX index -23% Crude oil price -53% COVID-19 cases 7,067

937 53.4 7 067 801 669 712 748 41.3 5 686 28.3 25.0

22.6 2 579

USD NOK - 163

21/02 06/03 20/03 03/04 17/04 21/02 06/03 20/03 03/04 17/04 21/02 06/03 20/03 03/04 18/04

USD/NOK Applications for unemployment Sick leave cases with COVID-19 +11% benefits (Norway) (confirmed or suspected, Norway) 352,499 37,978 11.7 10.5

9.3 9.3 10.3 USD/NOK

21/02 06/03 20/03 03/04 17/04

07/03 17/03 28/03 08/04 19/04

08/04 07/03 17/03 28/03 19/04

Industry Recovery time

► Severe consequences of precautionary measures even in areas without local transmission Not until

► Recovery period may last until winter, which is traditionally flu season Longest 2021 potentially triggering new outbreaks Tourism & Hospitality

► Global travel immediately impacted with high likelihood of sustained Q4 2020 / headwinds as summer vacation plans are changed or suspended Q1 2021 ► Domestic travel predicted to recover faster (~Q4) than long-haul and

international travels (~Q1 2021) Aviation & airlines

► Decline in oil prices driven both by long-term demand reduction and Q3 2020 short-term excess in supply ► Recovery expected with revival of consumer demand. However, long-

Oil & Gas term impact likely if low prices persist over 12 months

► Existing challenges such as trade conflicts and declining sales are Late Q2 / strengthened by acute decline in Chinese market activity and Q3 20202 persistent supply chain disruption

Automotive ► Tight inventories and complex supply chain will delay recovery

Q2 2020 ► Only moderate decline in private consumption, and increase in certain product segments and online shopping

► Impact may be localized, reducing the overall negative impact Consumer products

► Diversification of supply chain and structural market shifts accelerated. Q2 2020 Main impact stems from supply chain disruption in China

► Consumer electronics Recovery time differ by sub-sector and supply chain complexity Long time until recovery Medium time until recovery Shorter time until recovery Transaction Trends 2nd edition 2020 | 6 EY | Transaction Advisory Services Capital Confidence Barometer M&A – how do companies respond in the midst of a crisis? While focusing on the immediate implications of COVID-19 crisis now, executives also have to plan for next and think beyond

73% Executives have had to reassess their outlook for growth… expect the COVID-19 outbreak to have a severe impact on the global economy

52% …and are having to reconfigure operations as a response to are taking steps to change their COVID-19 now. supply chains

49% At a time when margins and cash flows were already have profit margins the same or pressured… lower than two years ago

72% …the C-suite still has ambitious transformation plans, with are undergoing a significant some of them on hold as execs anticipate what’s next. transformation program

When the situation becomes clearer, they will likely make 72% faster moves than ever before to reimagine, reshape and are conducting more frequent strategic and reinvent their business. portfolio reviews

And despite boardrooms focusing on an unprecedented global 56% health emergency, executives are also planning their future are actively planning to pursue M&A beyond the crisis. in the next 12 months

59% 59% 57% 56% 57% 56% 56% 56% 50% 52% 52% 46% 41% Global Capital Confidence Barometer 38% 40% 40% 35% average since 2010 is 46% 31% 29% 30% 25%

1H-10 2H-10 1H-11 2H-11 1H-12 2H-12 1H-13 2H-13 1H-14 2H-14 1H-15 2H-15 1H-16 2H-16 1H-17 2H-17 1H-18 2H-18 1H-19 2H-19 1H-20

Yes Average

The EY Global Capital Confidence Barometer is a regular survey of senior executives from Participant profile: large companies around the world conducted by Thought Leadership Consulting, a Euromoney Institutional Investor company. The respondent community comprises an independent panel of More than 2900 executives senior executives and select EY clients and contacts, including leaders of the world’s biggest, surveyed from February 4th as well as fastest-growing, companies. The 22nd Barometer provides a snapshot of our until March 26th findings, gauges corporate confidence in the economic outlook, identifies boardroom trends and practices in the way companies manage their Capital Agenda, and examines how Companies from 46 countries companies can future-proof their business. Respondents from 14 industries Click here to read the full report. 2088 (72%) CEOs, CFOs and other C-level executives

Transaction Trends 2nd edition 2020 | 7 Contact list - EY Transaction Advisory Services

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Stavanger Oslo M16002nordic

About this publication Transaction Trends is a quarterly publication that aims to identify trends in the Norwegian transactions market. Transactions covered in this publication are About EY public and private transactions announced by the 500 largest Norwegian EY is a global leader in assurance, tax, companies (DN500), defined as a transaction where either the buyer, target or transaction and advisory services. The vendor company is a Norwegian based company. Public transactions are defined insights and quality services we deliver help build trust and confidence in the as transactions where either the buyer, target or vendor company is listed on a capital markets and in economies the public stock exchange. All other transactions have been classified as private. world over. We develop outstanding Domestic transactions are defined as transactions conducted within a national leaders who team to deliver on our promises to all of our stakeholders. In so boundary, i.e. deals involving two or more incumbent nationals, while cross- doing, we play a critical role in building a border transactions involve companies from at least two different nationalities. better working world for our people, for Deal Value is taken as the sum of the consideration paid by the acquirer for the our clients and for our communities. equity stake in the target plus the value of the net debt in the target, where EY refers to the global organization, applicable. Inclusion of net debt in the deal value will depend on the stake and may refer to one or more, of the member firms of Ernst & Young Global acquired (for stakes of less than 50%, deal value is the value of the acquired Limited, each of which is a separate legal stake only) or the target company type (net debt is not added where the target entity. Ernst & Young Global Limited, a is a bank, insurance company or financing company). Our classification of UK company limited by guarantee, does not provide services to clients. For more private equity deals also includes deals involving venture capital investment information about our organization, please companies, as well as professional family offices. visit ey.com.

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