Tim Wright – Head of European Private Equity - PowerPoint Presentation

Tim Wright – Head of European Private Equity Nordic M&A Deal Terms

Increasing significance and 2018 was a vintage M&A Year 15.7% (Q1-Q3) of European M&A"Intra Nordic" deals – still a majority but overseas investment increasing 2 The Nordic Place in the Global M&A UKM/95333875

PE was a key reason for the Nordic M&A growth Euro 21.2 bn in value across 224 buyouts Same reasons for growth as elsewhere in Europe massive amounts of dry equity powdercheap and plentiful debt Nordics remain highly attractive (not least because tech as a sector remains "hot") Nordics' comparatively stable macroeconomic environment Perceived as safe and open jurisdiction 3 The Nordic M&A Marketplace UKM/95333875

4 Impact on Deal Terms Whilst a lot of M&A remains intra-Nordic, overseas involvement is increasingNordics attracting Chinese investment due to liberal trade and investment policies and the range of potential targets This is showing in deal termsincreasingly competitive processes anyway accentuated by greater international involvement increases the influence of different approaches PE (and especially international London-based PE) is aggressive on terms when selling – especially when advised by London based law firms UKM/95333875

PE has been a buyer 5 UKM/95333875

6 So what has been the impact on Deal Terms? This is not one lawyer's view of market; this is based on a detailed analysis of over 2,000 private M&A deals Vintage: 2014 – 2018 Geographic split: 238 Nordic 967 other Northern European Warnings though:some sector bias – DLA's tech strength comes through PE – same thing ( 25% of our deals are PE v 15% market share) UKM/95333875

7 General themes Typical M&A terms are different between jurisdictionsThe key factors that influence legal terms are:- The geography of the transaction The type of the buyer – Trade or PEThe type of the seller – Trade or PEThe process – auction v non-auctionThe size of the deal Sector – by far the least important apart from a limited number of specifics UKM/95333875

8 Auctions: increasingly common Auctions more and more common especially lower down the marketFor sub Euro 50m EV deals 15 % were by auction. Above Euro 50m 37% were by auction. PE sellers are far more likely to use auctions: 64% of European PE exits over Euro 100m were by auction – in the Nordics it was 85% 16% of Trade sales over Euro 100m were by auction Auctions do drive better legal terms for sellers : Certainty on price Certainty of deal Warranty exposure UKM/95333875

Locked box mechanisms deliver certainty to sellers of price and have an extremely low incidence of claims compared to completion accounts where the opposite is true One of the more important battles for a buyer to winAuctions help win that battle – a locked box mechanism is 46% more likely in an auction as opposed to a non-auction process Locked box is seen more often (10 years ago it was uncommon) in the Nordics but its usage is a function of deal size:- 57% of Nordic deals over Euro 50m have locked box 31% of sub Euro 50m Nordic have locked boxAuction v non-auction has only a marginal impact on Euro 50m + deals – 8% 9 Deal Terms: the rise of the "Locked Box" UKM/95333875

10 Deal Terms: greater certainty at signing Many deals have to have a gap between signing and closing For a seller it is critical to ensure that a buyer has the least opportunity to walk (or equally importantly to threaten to walk away)A point of much debate is therefore around the material adverse change clause or "MAC" – which gives the buyer the right to walk away from the deal after signing if the situation in the target (or less commonly) the market changesMACs were found in 67% of Nordic auction deals v 33 % of European deals This is in stark contrast to the UK where only 8% of auction deals had a MAC in 2018The nature of the seller is key – a trade seller is more than 3 times more likely to give a MAC than a PE seller UKM/95333875

11 Warranties and PE Across the globe Trade Sellers will give warranties ………. PE less soUK is the most extreme exampleUS – PE houses will but liability limited to a general escrow ( typically 10%) France – picture is becoming more mixedNordics PE houses do but often tend to be limited unless there is a W&I policyWhat you tend not to see is Management giving warranties by themselvesWill this change? UKM/95333875

12 W&I: the continued rise In Europe it is a standard transactional tool in most Northern European jurisdictions and becoming widely acceptedIn the UK actually only a marginal increase in 2017 from 2016Nordics remain very popular for W&I UKM/95333875

13 Earn outs We see a greater use of earn outs:-37% in the Nordics v 25 % GlobalHowever less a feature of the heat of the market and more a reflection of the greater of the influence of the Tech sector where earn outs are more common Where used then they tend to be based on profits (63%) with turnover only in 23% of cases. UKM/95333875

We do think that there will be tensions as the impact of international counterparties and PE is felt more strongly.But the forces are not all pulling in the same direction:- European large cap PE is more likely to drive seller friendly terms US trade buyers and to a lesser extent Asian buyers would drive more buyer friendly termsProcesses are likely to become faster:-at the moment many formal processes do not last the full timetable; pre-emption is increasingly common even if there is a conclusion of Round 2 then the gap between a bidder being selected and signing can be a matter of days not weeks 14 Deal terms: the future UKM/95333875

Nordic tradition of short warranties continues compared to the longer Anglo-Saxon approach Time limits – remarkably consistent across the years and a bit more buyer friendly:- Sub 18 months – 3% (Nordics) 14 (UK) 9% (CE)18 months – 59% (Nordics) 57% (UK) 44% (CE)2 years - 97% (Nordics) 96% (UK) 75% (CE)Strangely in auction processes in the Nordics the time periods got longer – only 36% of auction deals were 18 monthsCaps are comparatively low - Auctions 66% had caps of 20% or lower v 47% in CE and 50% in the UK Thresholds are higher – most common being 0.75% to 1% - and 83% are triggers not excessesData Rooms are almost always generally disclosed 93% 15 WarrantiesUKM/95333875

The Nordic region tends to be more US in its approach to management incentives. This contrasts with the UK and France where separate management financial advice is standard and often provided by specialist firms. Why does it matter? Failure to appreciate places Nordic bidders operating outside the Nordics at a competitive disadvantageOn larger deals it is coming to the NordicsMore Anglo-Saxon players in the NordicsBridgepointHgVirtuvian 16 The continued rise of the Management Adviser UKM/95333875

They are already here They are already advising:- ATOS Medical (Nordic Capital); Broadnet (EQT); Dometic (EQT); Envirotainer (Cinven); Georg Jensen (Investcorp); Helly Hanson (Canadian Tire Corporation); Phadia (Cinven); Scandlines (First State / Hermes); Ullink ( Nordic Capital)17 The Rise of the Management Adviser UKM/95333875

Nordic economics tend to be less generousPot size is smaller - 6 to 8% compared to 15- 20% in the UK Tend to be more money multiple – less risky but as amount of investment is smaller so are receipts Lower risk but lower rewardNordic Schemes are spread more widelyMore use of warrants in the Nordics – very rare in UKLeavers are treated more harshlyeven good leavers tend to have time vesting conceptsRollover strip – more likely to be attacked Tax treatment is less good 18 Key differences between a UK and Nordic equity termsUKM/95333875

19 About DLA Piper $2.8 Global revenue in $USD billions for 2018 214K Pro bono and community engagement hours donated in 2018 40+ COUNTRIES 90+ OFFICES 8 GLOBAL PRACTICE AREAS Corporate Employment Finance and Projects Intellectual Property and Technology Litigation and Regulatory Real Estate Restructuring Tax Consumer Goods & Retail Energy & Natural Resources Financial Services Industrials Infrastructure, Construction & Transport Insurance Life Sciences Media, Sport & Entertainment Real Estate Technology 10 GLOBAL SECTORS UKM/95333875

We advise on mergers and acquisitions, IPOs, public and private equity and debt offerings, venture capital and private equity investments, corporate governance and corporate responsibility and other transactional matters. In addition to their core areas of practice, all of our lawyers are aligned to specific industry sectors Our lawyers have substantial experience in project managing intricate, multi-jurisdictional, corporate activities worldwide. Our clients benefit from our ability to flag potential pitfalls in each country, to advise on cultural differences and nuances, and to manage the most demanding due diligence exercisesEvery year since 2015 we have annually presented the results of a market-leading database of private M&A deals – at over 2,000 deals it is the biggest database of its type; allowing our lawyers and our clients to really understand what market is This year once again the results will be presented in over 15 global locations If you are interested in attending one of our seminars please contact Charlotte Marsden at Charlotte.Marsden@dlapiper.com Recognition Ranked #1 for number of Global M&A deals 2010-2018  Ranked #1 for number of European M&A deals 2013-2018 Ranked #1 for number of European Buy out deals 2018 Ranked #1 for Nordic M&A 2018 Ranked #1 for Danish M&A 2018 Global-wide TMT (Band 1) – Chambers 2018 European-wide TMT: Information Technology (Band 1) - Chambers 2017 " European Mid-Market Legal Advisor of the Year" 2007, 2010, 2011, 2012, 2015, 2016 ( FT/ Mergermarket European M&A Awards ) With almost 1,000 lawyers worldwide, our Corporate group advises many of the world's leading and emerging companies, as well as financial institutions and buyout and investment funds 20 DLA's Corporate practice UKM/95333875

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