Ole Kristian Aabø-Evensen and Lars André Gjerdrum of Aabø-Evensen & Co in Oslo look at implementation of EU legislation relating to the capital markets and key M&A trends
Constitutional obstacles that have prevented the implementation of certain EU rules relating to the capital markets in Norway have now been resolved
In the aftermath of the financial crisis, the EU has worked on a revision of several key directives and regulations in the capital markets area, in particular relating to the rules on the market for financial instruments, the issuer's disclosure requirements, market manipulation and new common European rules on short selling.
This work has resulted in the EU having proposed or adopted several new directives and regulations, e.g. (i) directive 2013/50/EU amending the Transparency Directive (directive 2004/109/EC); (ii) regulation (EU) No 596/2014 of April 16 2014 on market abuse (MAR), replacing the Market Abuse Directive; (iii) directive 2014/65/EU on markets in financial instruments (MiFID II), which replaces the MiFID I; (iv) proposed Market in Financial Instruments Regulation (MiFIR, replacing MiFID I); and (v) rules from the European Securities and Markets Authority (ESMA), including a public statement on shareholder co-operation and acting in concert under the Takeover Bid Directive. At the end of 2015, a new proposal for a regulation 2015/0268(COD) amending the current Prospectus Regulation (809/2004) was also issued. Some of these amended directives and regulations have been implemented in the EU since 2015.
In Norway, several of these revised directives and regulations have not yet been implemented due to some constitutional challenges relating to transfer of national authorities to a supranational financial supervisory system in the EU constitutes. A solution for Norway's association with the European financial supervisory system has fallen into place after the Norwegian Parliament in accordance with section 115 of the Norwegian Constitution with the required three-fourths majority approved to consent to the inclusion of Norway in the European financial supervisory system on June 13 2016.
We expect that most of the above EU initiatives now will come into effect also in Norway, following which the regulatory framework in Norway that relates to the capital markets again will be aligned with what applies within the EU. To implement the above EU initiatives, the Norwegian government has appointed an expert committee to evaluate and propose any relevant amendments to the existing Norwegian legislation. The expert committee will prepare three individual reports to Parliament, the first of which was delivered on February 1 2016, the second report is expected to be delivered by January 1 2017, and the last is expected by June 23 2017. In its first report, the committee proposed certain amendments to the Norwegian Securities Trading Act with regard to disclosures and periodical reporting, implementing the amended Transparency Directive. We expect Parliament to adopt the committee's proposed amendments into Norwegian legislation later in 2016, and that the new rules thereafter most likely will enter into force from early 2017.
Key M&A trends for 2016
Following a substantial decline in oil and gas prices, 2015 was not a great year for M&A in Norway. Even if we witnessed a strong year end close for Q4 2015, M&A volume showed a clear decline compared with previous years. A total number of 12 public takeovers and attempted takeover offers for listed companies were issued in the Norwegian market in 2015, with Knightsbridge Shipping’s €703 million merger with the Oslo Stock Exchange listed Golden Ocean Group being the most notable public takeover event for last year. Entering 2016, except for Golden Brick Silk Road’s €1.12 billion bid for Opera Software ASA, a bid that later was accepted by the shareholders of Opera Software but not completed due to regulatory issues and later amended to be structured as a $575 million asset transaction for certain business areas of Opera Software, the markets for public takeovers have been muted.
Recently, however, we have seen certain activity relating to ongoing reconsolidation within the offshore service vessel (OSV) industry, in which Aker has taken a stake in the Oslo Stock Exchange listed company Solstad Offshore and later having facilitated for a merger between the Oslo Axess listed company REM Offshore and Solstad Offshore, creating Norway’s second largest OSV company. We expect a further consolidation within the fragmented OSV industry, as many of the OSV companies struggle with the effects of reduced spending across the upstream value chain, contributing to overcapacity adversely impacting day rates and utilisation. In addition to Aker, certain other financial investors have indicated that they are prepared to take part in consolidating the OSV industry.
Compared to transaction data from 2014 the total M&A transaction volume in Europe during 2015 was up 0.6%, but with a substantial increase in the overall reported deal sizes. The Nordics experienced a 0.2% increase in deal volume but the total deal values fell by 10.1%. In both Sweden and Denmark M&A volume was up with around 10% compared with 2014 figures, while the M&A volume in Finland showed a 3.9% decrease. In Norway, the M&A volume was down 15.5% in 2015 compared with 2014 figures.
Entering 2016, Norwegian M&A activity continued to decline, and there were around 12% fewer transactions in first quarter 2016 compared with first quarter 2015. This decline followed from a clear retreat of foreign buyers resulting from a collapse in oil prices and a somewhat more negative outlook for the Norwegian economy. At the beginning of 2016, this also spilled over into the financial markets. So far in 2016, there has only been four new listings on the Oslo Stock Exchange and Oslo Axess, of which three were companies within the banking and finance sector, compared to nine new listings in 2015. At the same time, declining oil prices have improved Norway’s competitive position in the market due to the exchange rate development. Driven by a revival of the capital markets, the M&A market started to pick up at the end of the second quarter of 2016. European and American investors have now largely returned to the Norwegian M&A market, and as a result, the Norwegian M&A volume was up 1.8% compared with the same period in 2015.
In percentage terms, both the medical sector and the construction sector witnessed the largest growth in transactions compared to 2014 figures. However, the industry that has shown the strongest momentum in Norway in 2016 has been the industrial-sector. Together with TMT and the services sector these sectors were the most important for Norwegian M&A in 2015. During the first quarter of 2016, the sectors with the most M&A activity were; industrials, consumer and retail, TMT and the energy sector.
For 2015, the private equity market was mainly driven by new investments and add-ons. The number of exits declined in 2015 compared to 2014. The first half of 2015 was the most active period for the private equity industry, with 13 transactions, while the second half was slower with only eight announced transactions. Compared with 2014, this was a massive decline with 26 announced transactions for H1 2014 and 27 for H2 2014. For Norway, 2015 was in fact the year with the lowest number of private equity transactions since 2008/2009.
Ole Kristian Aabø-Evensen
Aabø-Evensen & Co
About the author
Ole K Aabø-Evensen assists industrial investors, financial advisors, private equity funds, as well as other corporations in friendly and hostile take-overs, public and private mergers and acquisitions, corporate finance, securities law and other corporate matters. Ole has extensive practice from all relevant aspects of transactions, both nationally and internationally, and is widely used as a legal and strategic advisor in connection with follow-up of his clients’ investments. Aabø-Evensen is also the author of a 1,500 pages Norwegian textbook on M&A and numerous articles on mergers and acquisitions in various international publications. In an annual independent peer review, published by Norway’s leading financial newspaper Mr. Aabø-Evensen has several times been named as Norway's No 1 M&A lawyer. Ole is a former partner and head of corporate legal services and M&A with KPMG in Norway.
Lars André Gjerdrum
Aabø-Evensen & Co
About the author
Lars André Gjerdrum is a partner at Aabø-Evensen & Co with focus on Capital Markets and M&A. He is highly experienced in the field of M&A and ECM transactions, including private placements, rights issues, IPOs and public M&A, and corporate and securities regulations. Lars André possesses a broad competence when it comes to both public and private transactions, including private equity transactions, due diligence assignments and cross-border capital markets transactions. He has been involved in several of the largest public ECM and M&A transactions in the Nordic market.
Previously, he worked as an attorney in the Capital Markets, M&A and Transaction department of Thommessen in Norway. Lars André has also worked as a foreign counsel at Latham & Watkins in London. He has in addition served as board member on several listed and unlisted companies.