Private Equity 2024 Comparisons

2023 Activity

The 2023 Norwegian M&A market rebounded strongly after a very challenging 2022. The first half of 2023 was relatively robust, with nearly 500 transactions registered with Mergermarket, followed by almost 430 transactions in the second half. Despite the challenges of 2022, including rising inflation and geopolitical unrest, 2023 saw improved sentiment and sustained M&A activity, despite tight monetary policies and ongoing geopolitical uncertainty. There was a notable increase in foreign buyers and domestic activity, with the highest sector activity in TMT and AM&M, and increased activity in oil and gas, especially in the first half of 2023.

In contrast, equity capital markets struggled. IPO activity decreased in 2023, with only ten IPOs/listings (six on Euronext Growth), compared to 33 IPO/listings in 2022 (15 on Euronext Growth).

2023 deal activity was dominated by technology (18%), services (business support services, consulting services, engineering services, etc) (14%), energy (10%) and the construction sector (10%).

2024 Activity

The Norwegian M&A market has maintained robust activity levels in 2024, with transaction volumes almost matching the first half of the previous year. Over 200 transactions were registered with Mergermarket in both quarters, though Q2 saw a decline in deal activity of approximately 15%.

As for 2023, sector activity was driven by TMT and AM&M. Domestic activity remained steady, with a slight decrease in foreign buyers and likewise a small uptick in outbound transactions.

Equity capital markets have struggled in 2024 due to unfavourable market conditions and lower investor appetite. The first half of 2024 saw only seven IPOs/listings (three on Euronext Growth), mirroring the first half of 2023.

Private M&A activity in Norway is expected to remain relatively strong, owing to the resilient Nordic and Norwegian economies, intraregional activity, an optimistic deal pipeline, and sufficient capital available on the financing and equity markets. These factors make Norway and the Nordic region currently among the safest investment regions in the world. Norwegian businesses are likely to continue attracting significant interest from US and European private equity investors.

According to Mergermarket, approximately 70% of the deals made in the last 12 months (LTM) were private, as opposed to public deals.

The Norwegian private equity market features all types of transactions found in mature global markets. Historically, deals involving the oil and gas and supply industries have been significant. While the recent decline in oil prices and the green shift have dampened the deal activity within this sector, the stabilisation of oil prices amid geopolitical turmoil in Europe has increased demand for fossil fuels. As a result, deal activity within the oil and gas industry, and, in the near future, deals in the supply industry, will likely increase.

The Norwegian market continues to be significantly affected by cross-border transactions, of which two-thirds have a cross-border element historically. In 2023 and so far in 2024 we have seen an increase in domestic transactions, and for some months reaching almost a 50/50 split between domestic and transactions with a cross-border element. Also, looking at inbound and outbound cross-border transactions, historically we have seen a consistently higher average of inbound transactions (foreign companies buying Norwegian targets) compared to outbound transactions (Norwegian companies buying foreign targets), but in Q2 2023 we saw a higher number of inbound transactions than outbound.

Companies with high environmental, social, and governance (ESG) scores are more active across industries. M&As are increasingly influenced by ESG considerations, affecting target selection, due diligence, valuation, financing and post-closing integration and governance. EU regulations, including the Sustainable Finance Disclosure Regulation, heighten the importance of ESG. The Norwegian Government Pension Fund continues to accelerate divestments from companies with high sustainability risks and enforcing transitions towards net zero, while the Norwegian government has set clear ESG expectations for state-owned companies, as outlined in the White Paper “Meld. St. 6 (2022-2023)”.

The economic uncertainty over the past years has misaligned buyer and seller expectations, with sellers still expecting historical price levels. However, this gap seems to be closing.

The global private equity market’s record high exit backlog has affected the Norwegian market, with a relatively modest exit space in recent years. With stabilising inflation and interest rates, a weak Norwegian krone (providing international investors considerable discounts), and the high exit backlog, the number of private equity deals in Norway is expected to continue to improve in the second half of the year and into 2025. Historically, most exits have taken the form of trade sales to industrial investors or secondary sales to other private equity funds, rather than IPOs.

In the last few years, we have seen a significant rise in continuation vehicles in the market (including among Norwegian fund managers), also adding a new dynamic to the secondary market. These vehicles have evolved into strategic tools for creating liquidity for existing limited partners and ensuring timely returns. Continuation vehicles offer an alternative to forced exits, allowing fund managers to extend the holding period of high-potential assets. This approach maintains stability in portfolio companies and aligns with the investment horizons of LPs, who typically can elect to roll over or exit. Given the current market dynamics, continuation vehicles are expected to remain prominent and continue evolving, offering flexibility and strategic options that enhance the resilience and adaptability of private equity funds.

Ownership in Bank or Life Insurance Company

Norway has a long-standing administrative practice that restricts any single shareholder from owning more than 20–25% of a Norwegian bank or life insurance company (or financial groups comprising such entities), unless the shareholder is itself a financial institution.

On 11 July 2024, the European Free Trade Association Surveillance Authority (ESA) decided to take Norway to the EFTA Court over domestic law and administrative practice regarding the ownership ceiling practice. ESA holds that the practice violates the EEA Agreement that exists between Norway and the EU. Norway has adopted amendments to the Financial Institutions Act effective from 1 July 2024, but the ownership ceiling practice is maintained. The Ministry of Finance has also tasked the FSAN with reviewing the ownership control framework; however, with expectations that the FSAN will propose maintaining the ownership practice unless the EFTA Court orders the practice to be unlawful under the EEA Agreement.

Should ESA’s stance be validated by the EFTA Court, it could pave the way for full acquisitions of various Norwegian financial institutions. This includes potential buyouts by private equity funds, contingent upon relevant regulatory bodies deeming such entities fit for qualified ownership stakes.

Withholding Tax on Liquidation Proceeds for Foreign Shareholders

Under the current Norwegian tax regime, liquidation proceeds distributed from a Norwegian entity are not taxable for foreign shareholders (unless the shares are owned as part of a taxable business in Norway). An expert committee appointed by the Norwegian government has proposed to introduce withholding tax on liquidation proceeds to foreign shareholders. It is not clear if and when such rules will be introduced, but if the rules are introduced they will have an effect on the level of taxation when exiting investments in Norway through liquidation. However, certain exemptions are expected for corporate shareholders resident within the EEA.

EU Directives and Regulations

In order to comply with its obligations under the EEA Agreement, Norway must adopt and implement certain EU Directives and Regulations. On 11 June 2024, the Norwegian Parliament adopted a new PRIIPs Act, implementing Regulation (EU) No 1286/2014 (PRIIPs), which has been in force in the EU since 2018. The Norwegian act is expected to enter into force later in 2024.

The new PRIIPs Act also implements Regulation (EU) 2019/1156 on facilitating cross-border distribution of collective investment undertakings (CBDF), which has been in force in the EU since 2019. CBDF is linked to the entry into force of PRIIPs, meaning both will become effective simultaneously.

To address the shortcomings of ELTIF 1.0, “ELTIF 2.0” was adopted by the EU on 10 January 2024. The implementation date in Norway remains uncertain.

The AIFMD II entered into force in the EU on 15 April 2024. AIFMD II includes a regulatory framework governing credit funds, which represents a significant development by allowing direct lending funds access to the Norwegian market. AIFMD II sets a transposition deadline two years after the EU implementation date, and it remains to be seen whether Norway will implement it within this timeframe.

The EU sustainable finance framework has had a notable impact on private equity funds and transactions, also in Norway. The implementation of the EU Taxonomy Regulation and the EU Sustainable Finance Disclosure Regulation (SFDR) in Norway in early 2023 has contributed to driving the focus and importance of ESG considerations for private equity funds. The objective of the SFDR is to provide transparency to investors about the sustainability risks that can affect the value of their investments and about the adverse impacts such investments have on the environment and society with a view to supporting EU climate and sustainability neutral targets, with the results that ESG considerations now play a more significant role in shaping private equity funds’ investment choices and exercising of active ownership. The implementation of the EU Corporate Sustainability Reporting Directive into Norwegian legislation, which takes effect from 1 January 2025, is poised to further strengthen this trend.

In April 2024, the European Parliament adopted the EU Listing Act, introducing amendments to the EU Prospectus Regulation, the EU Market Abuse Regulation and the EU Directive and MiFID II and MiFIR. The EU Listing Act aims to facilitate the listing for companies of all sizes, including SMEs, and reduce post-listing requirements. The amendments to the Prospectus Regulation are expected to take effect in Norway in the first half of 2025, pending the completion of the EU legislative process. The timing for implementing other aspects of the EU Listing Act in Norway remains uncertain.

General

Most Norwegian private equity transactions involve limited companies. Thus, the main company-specific acts that regulate M&A transactions are the Private Limited Companies Act and the Public Limited Companies Act. Depending on the deal in question, other general legislation supplements the aforementioned, mainly the Contracts Act, the Sale of Goods Act, the Accounting Act, the Taxation Act, the Employment Act and the Competition Act.

Listed Targets

The regulatory framework differs significantly for listed and non-listed targets. In respect of non-listed targets, the parties are largely free to agree on the terms of the sale and transaction agreements. For targets listed on the regulated markets (Euronext Oslo Børs and Euronext Expand), the Securities Trading Act and the Securities Trading Regulations (supplemented by rules and guidelines issued by Euronext Oslo Børs) provide a comprehensive and mandatory set of rules. These rules do not apply to targets listed on Euronext Growth (non-regulated market), yet market practice suggests that such acquisitions to a large extent are structured similarly to acquisitions of listed targets, despite no equivalent set of mandatory regulations.

Norway has implemented (with some exceptions), inter alia, the EU Prospectus Regulation, the Market Abuse Regulation, the Markets in Financial Instruments Directive, the Markets in Financial Instruments Regulation, the Takeover Directive and the Transparency Directive. These rules contain, inter alia, offer obligations and disclosure obligations that dictate the sales process for companies listed on regulated markets; see 7. Takeovers.

Government Ownership and Control

The Norwegian government is a major owner in the Norwegian economy through significant holdings in many listed companies, and non-listed entities through investment companies such as Argentum, Investinor and Nysnø Klimainvesteringer. Through two government pension funds, the Government Pension Fund Norway (GPFN) and the Government Pension Fund Global (GPFG), the government invests heavily in foreign and domestic companies. In some areas, such as the retail sale of alcohol, the government retains a monopoly.

AIF

Norway has implemented the EU Alternative Investment Fund Manager Directive (AIFMD) through the Norwegian Act on the Management of Alternative Investment Funds (the AIF Act). The AIF Act applies to managers (AIFMs) of alternative investment funds (AIF). Private equity funds generally fall under this definition. Generally, AIFMs are required to be authorised. However, certain exemptions apply to so-called sub-threshold AIFMs, which may register with the FSAN and only be subject to the AML regime and certain disclosure obligations. To qualify as a sub-threshold AIFM, the AIFM cannot manage AIFs with aggregated assets under management equal to or exceeding an amount equivalent in NOK to:

• EUR500 million, when the portfolios comprise unleveraged AIFs with no redemption rights exercisable during a five-year period following the initial investment; or
• EUR100 million, for AIFs other than those mentioned above.

Sub-threshold AIFMs cannot market their AIFs to retail investors in Norway, nor passport their services into other EEA member states.

The FSAN supervises licensed and registered AIFMs in Norway.

Acquisition of Control

Notification requirements apply to the acquisition of control of listed companies and non-listed companies of a certain size. In addition, if an AIF’s voting share of non-listed companies reaches, exceeds or falls below 10%, 20%, 30%, 50% or 75%, the AIFM must notify the FSAN as soon as possible (at the latest within ten business days).

AIFs are also subject to the asset stripping provisions under the AIFMD/AIF Act, meaning that there are limitations on distributions, capital reductions, share redemptions and acquisition of own shares by EU-incorporated portfolio companies during the first two years following acquisition of control by an AIF, individually or jointly together with other AIFs.

There are other provisions of the AIF Act that also apply, but the aforementioned often impact private equity funds.

Merger Control

In accordance with Norwegian merger regulations, companies must notify the Norwegian Competition Authority (NCA) of concentrations where the combined Norwegian annual turnover of the undertakings concerned exceeds NOK1 billion and at least two of the undertakings concerned have an annual Norwegian turnover exceeding NOK100 million.

Transactions triggering a notification cannot be closed until they have received clearance from the NCA.

The NCA may also, within three months of a final agreement/acquisition of control, call in for review transactions falling below the turnover thresholds if the NCA has reason to assume that competition will be affected. It is also possible to voluntarily notify the NCA of a transaction, although this is rarely done.

No notification is required to the NCA if the parties meet the thresholds for a mandatory notification to the European Commission under the EU Merger Regulation, or if they need to make a notification to the EFTA Surveillance Authority.

Foreign Direct Investment

The current Security Act (SA) provides that entities handling classified information, controlling information, information systems, objects or infrastructure that are of vital importance to fundamental national functions, and/or engaging in activities that are of vital importance to fundamental national functions, shall be designated as subject to the SA. Then, where at least one-third of the shares in that company are subject to an acquisition, whether by a Norwegian or foreign acquirer, the acquirer must notify the relevant ministry or National Security Authority about the transaction.

In addition, entities providing goods/services of significant importance to fundamental national functions or national security interests may be made subject to the SA. In either case, the relevant provisions of the SA only apply where the target entity has been designated as being subject to the SA by formal decision. There is currently no public register of entities that have been designated, and so an acquirer must ask about designation during due diligence.

A number of changes to the SA have been proposed, but are not in force yet. These changes include: (i) a standstill obligation, preventing the closing of an acquisition until the relevant ministry has provided its approval for the investment; and (ii) a lowering of the threshold for when a notification is required, to a ten percent stake, with recurring filing obligations arising when the ownership stake passes one-third, fifty percent, two-thirds and ninety percent.

The EU Foreign Subsidies Regulation

The EU Foreign Subsidies Regulation does not apply to purely Norwegian transactions, unless the target also operates in EU. The relevant thresholds are:

• the acquired company, one of the merging parties, or the joint venture must generate turnover (on group level) in the EU of at least EUR500 million; and
• the parties to the transaction must have been granted combined aggregate foreign financial contributions of at least EUR50 million over the past three years.

The European Commission takes the view that foreign contributions received from the Norwegian government are relevant for determining whether the latter threshold is met. Where the thresholds are met, notification must be made to the Commission. The Foreign Subsidies Regulation has been relevant in large-scale Norwegian transactions since coming into force, for example Permira’s and Blackstone’s offer for the outstanding shares in Adevinta.

Anti-bribery, Sanctions and ESG

The regulatory landscape is still influenced by the sanctions against Russia and Russian nationals by Norway, the EU, the UK and the USA, as well as Russian countermeasures to those sanctions. In the last year we have seen more focus from regulators on circumvention risks, and a surge of measures and countermeasures continues to impact the attention bidders pay to sanctions and export control issues during due diligence.

The Norwegian Act relating to enterprises’ transparency and work on fundamental human rights and decent working conditions (Transparency Act) entered into force on 1 July 2022, and intends to promote companies’ respect for fundamental human rights and decent working conditions in their own operations and in their supply chains and business partners. With the adoption of the Corporate Sustainability Due Diligence Directive (CSDDD) in the EU, the scope of the due diligence obligation will be broadened, as the CSDDD covers environmental impacts in addition to human rights and labour rights. This directive will be transposed into Norwegian law, possibly through a revision of the Transparency Act.

Non-compliance with the Transparency Act and the CSDDD could lead to enforcement or infringement penalties, and it is expected that Norwegian authorities’ control and enforcement will increase going forward. With the Corporate Sustainability Reporting Directive (CSRD) entering into force, companies are required to provide detailed sustainability disclosures, including environmental, social and governance (ESG) data. They must ensure transparency in their reporting processes and verify the accuracy of their information through independent audits. The main risks for companies include potential legal penalties for non-compliance and reputational damage from inadequate or misleading reporting. Additionally, failure to meet CSRD requirements can result in diminished investor confidence and increased scrutiny from stakeholders.

In the Norwegian market, buy-side due diligence is typically red flag-focused. In structured sales processes, where sell-side requests vendor due diligence (VDD), a more detailed VDD is often conducted, particularly regarding financials.

Due diligence is normally conducted by a legal, financial and tax team. Sometimes, separate teams are engaged for other key areas depending on the transaction, and we are seeing increasing use of ESG due diligence advisers. Other than business-specific issues, key areas of focus for legal due diligence in private equity transactions include:

• corporate;
• GDPR;
• anti-trust;
• anti-corruption;
• environmental, social and governance (ESG); and
• regulatory matters.

There has been an increase in focus on ESG, anti-corruption, and trade sanctions for target groups operating in high-risk jurisdictions, in particular due to the Russian-Ukrainian war and related sanctions.

As AI tools are advancing rapidly and testing and integration into due diligence processes accelerate, there are still several challenges that hinder full implementation into Norwegian processes (eg, legal complexity, language and nuance), keeping them in a trial phase. While AI tools can process vast amounts of data, enhancing efficiency and accuracy to provide early crucial insights, we expect these tools to be complementary to legal advisers in due diligence processes rather than fully replace them.

VDD is common for private equity sellers in structured sales processes. Conducting a VDD helps in identifying and addressing any material findings before the transaction commences. Presenting a VDD report to potential bidders gives them detailed information early, enabling informed offers within tight timeframes and providing some level of comfort related to the target’s business.

In Norway, VDD reports typically take the form of traditional issue-based reports or more descriptive fact books of the target group. Such reports are normally provided by sell-side legal advisers in structured sales processes.

When VDD reports are available, advisers often rely on them and conduct buy-side due diligence on a confirmatory or “top-up” basis (ie, to verify or further explore the VDD findings).

The final buyer and finance provider are often offered VDD reports for reliance.

Private equity funds in Norway typically acquire companies through share purchase agreements as well as shareholder agreements applicable to joint investments by the fund, any co-investors, and management shareholders. Prior to negotiating long forms, the parties typically enter into a term sheet and non-disclosure agreement.

Compared to auction sales, the terms of the acquisition in privately negotiated transactions are generally quite similar. In auction sales, the transaction agreement typically contains fewer conditions precedent as bidders will use this as a tool to make their bid more appealing to the sellers.

In public deals, to reduce transaction risk, the acquisition is often carried out by material shareholders and members of the management and board owning target shares agreeing to pre-accept the offer, followed by a public offer. A transaction agreement entered into by the bidder and the target board setting out the terms and conditions for the offer is the norm for friendly takeovers in the Norwegian market, where, inter alia, the board pre-agrees to recommend the target’s shareholders to accept the offer. Close to 75% of all voluntary tender offers approved by Euronext Oslo Børs from 2008 to July 2024 (completed and uncompleted) were made on this basis. If the bidder is unable to achieve 100% control through a voluntary tender offer, the bidder may, on certain conditions, opt for a squeeze-out; see 7.6 Acquiring Less than 100%.

In Norwegian acquisitions the private equity-backed buyer entity (acquisition vehicle) is almost exclusively structured as a Norwegian private limited company (aksjeselskap), set up as a single purpose vehicle (SPV) for the transaction (BidCo). Foreign funds with foreign managers also often invest in the BidCo structures through separate holding structure in, for example, Luxembourg or the UK.

Depending, inter alia, on the transaction financing model and other commercial factors, the Norwegian acquisition structure usually consists of either only BidCo or also a set of holding companies (MidCo and/or TopCo).

If organised under Nordic law, a one-tier structure is normally applied where the investment is made by the limited partnership through a set of Norwegian holding companies.

The choice of acquisition structure is usually determined by which structure would allow for the most efficient return on investment upon exit. This depends – in addition to tax efficiency in respect of the acquisition, duration of investment and exit (such as rules on deductibility of interest, withholding tax, VAT and thin capitalisation) – on a number of factors, including financing, governance structure, the existence of co-investors, risk exposure, corporate liability, disclosure concerns, and regulatory requirements. Normally, if external financing is obtained, a structure that provides a single point of enforcement of the pledge of shares in BidCo for the finance provider is applied (eg, a BidCo, MidCo and/or TopCo structure).

The private equity fund itself is rarely involved in the documentation of the transactions (save for execution of equity commitment letters to confirm that the BidCo structures will receive necessary funding to consummate the transactions). Most often, the designated investment team and in-house legal counsel of the fund manager are involved, particularly in the initial stages of negotiation, but outside legal counsel normally leads the process. Larger deals and add-on acquisitions require the investment team to rely to a great extent on outside legal counsel.

General Trends

In Norway, private equity deals are normally financed by a combination of third-party debt financing and equity, with the equity portion increasing in recent years, particularly in highly leveraged deals. The proportion of debt varies based on factors such as the fund’s track record, deal size and robustness, the credit risk, business sector, relationship with debt providers, and the target group’s future prospects of creating revenues, profits and debt service capacity. Generally, initial leverage rarely exceeds 40-50% in the current market.

Additionally, bond issues and direct lending have become more prominent in the capital structure (either replacing bank debt or in pari passu or super-senior structures). This shift is driven by increased awareness among domestic and foreign investors of the benefits of the Norwegian bond market and the structuring of direct lending within a Norwegian legal framework.

Leveraged Buyouts

In leveraged buyouts, debt financing is generally provided to the acquiring entity (BidCo) to finance the acquisition, and sometimes also to the target group to refinance existing debt and finance general corporate or working capital requirements. Typically, debt providers will not accept co-investors or management investing directly in BidCo due to their requirement for a single point of enforcement in connection with a pledge of shares in BidCo, which is one of the reasons why there is usually a holding company above BidCo.

Acquisition Debt

Term loans, bonds or direct lending are commonly used to finance acquisition debt as well as refinance the target group’s existing debt. Generally, the group’s working capital and corporate financing requirements are met through working capital facilities, such as revolving credit or overdraft facilities, which are often structured as senior debt. Any sponsor equity financing is often structured as equity and/or subordinated debt.

Provision of Funds

A private limited company may, under certain conditions, provide funds, guarantees or security for acquiring its own shares or shares in the company’s direct or indirect parent company.

Thus, both BidCo’s acquisition debt and the target group’s refinancing debt can be secured by pledging BidCo’s shares and its shares in the target, along with guarantees and security from the target group.

Banks and other lenders now require fewer financial covenants, though they remain more extensive in Norway than in, for example, the London market. The leverage ratio covenant is almost always required, often supplemented by either the interest cover ratio covenant, cash-flow cover ratio covenant or an equity-based covenant – while the capital expenditure (capex) covenant is rare.

Banks show greater flexibility on other covenants, like acquisition restrictions and asset sales, but are still stricter than the London market. Bond issues often include incurrence covenants and the most used covenant in these tests is the leverage ratio covenants, but we are now also seeing an increasing presence of financial maintenance covenants, in the form of leverage ratio or minimum liquidity covenants.

It is not uncommon for sellers to require an equity commitment letter to provide contractual certainty for the equity-funded portion of the purchase price from a private equity-backed buyer. Similarly, to avoid any financing conditions and ensure debt funding certainty, private equity funds frequently obtain debt commitment letters from banks and direct lenders on a “certain funds” basis before bidding or signing acquisition agreements.

In most Norwegian private equity deals, the fund holds a majority stake. Acquiring minority stakes in listed companies has occasionally occurred in recent years, but it remains rare.

Club deals involving a consortium of private equity sponsors are rare in Norway, largely because deal value does not necessitate risk distribution across other private equity funds – a strategy often used to avoid exceeding investment concentration limits or similar restrictions.

Co-investments by other investors alongside the fund (including external investors and existing limited partners) are, however, quite common. These investments are usually passive, with no direct involvement from the co-investors in the companies.

Primary Consideration Structures

Locked-box accounts are the predominant consideration structure in Norwegian private equity transactions. In auction processes, locked-box accounts are by far the most common, as they simplify bid comparisons for sellers. These accounts are usually audited (at least partially) and typically covered by a warranty.

Completion account mechanisms are also used, where the preliminary purchase price is based on an estimate of the completion accounts balance sheet, and subject to a “true-up” adjustment post-transaction to reflect the final agreed values. The final completion accounts are rarely audited.

A fixed purchase price is sometimes applied. Deferred considerations such as earn-outs are commonly offered by private equity-backed buyers, unlike private equity-backed sellers, who require a clean exit. Earn-outs are sometimes used to bridge gaps in purchase price negotiations. A private equity-backed buyer may, more often than industrial buyers, offer earn-out or other forms of deferred consideration, especially when investing in start-ups (or other companies where valuation are based on future earnings). They will often require selling management members to re-invest a substantial portion of their proceeds, settled via sellers’ credits rather than cash. Security for deferred consideration is rarely provided by private equity-backed buyers, although certain operational undertakings related to earn-outs may be negotiated.

Escrow

Use of escrow arrangements is rare in the Norwegian market and private equity deals, regardless of whether the seller or buyer is a private equity player – primarily because most private equity deals now include warranty and indemnity (W&I) insurance.

Leakage Provisions

Whenever locked box accounts are applied, leakage provisions are usually also included, regardless of whether the seller is backed by a private equity firm (although leakage provisions may be more refined in private equity deals).

In a completion accounts mechanism the post-transaction “true-up” adjustment will adjust for relevant leakage.

Locked-box consideration structures are commonly used in Norwegian private equity transactions. Interest on the locked-box amount is normally applied and predominantly in auction processes, usually in the range between 2–5%, depending on, inter alia, the cash flow of the target group in the relevant period.

Leakage occurring during the locked-box period is usually not charged with interest.

Separate dispute resolution mechanisms for locked-box consideration structures are not common. For completion accounts structures, a separate dispute resolution mechanism is almost always used to resolve disagreements.

In private equity transactions, conditions precedent relating to regulatory approvals, such as no intervention by the NCA or FDI, are always included (if relevant). Other typical conditions precedent include:

• no material breach occurring in the period between signing and closing; and
• due diligence-specific findings, such as key third-party consents.

Material adverse change clauses (MACs) are sometimes included in private deals, but their use has declined significantly in recent years. In public takeovers, MACs are usually included; in the period 2008–2023, 81 out of 96 voluntary offer documents approved by the Euronext Oslo Børs contained a MAC.

Transaction agreements for W&I-insured deals not subject to an auction process sometimes include a right for the buyer to terminate the agreement if new circumstances arise during the period between signing and closing which are not covered by the W&I insurance, unless the seller compensates the buyer for any downside.

It is highly unusual for private equity-backed buyers to accept “hell or high water” undertakings to assume all of the antitrust or other regulatory risks related to the completion of the transaction. Typically, the buyer can walk away from the transaction if merger control approval, FSR or FDI clearance is not obtained.

In conditional deals with a private equity-backed buyer, a break fee in favour of the seller is uncommon. For public deals, out of 97 voluntary offer documents approved by the Oslo Børs in the period from 2008 to July 2024, 57 involved a transaction agreement, of which 29 contained provisions for break fees.

There are no specific legal limits on break fees if applied to the sellers in private and public deals. However, Norwegian company law is not entirely clear as to the extent to which the target can pay a break fee. According to the Norwegian Corporate Governance Code – particularly relevant for listed companies – the target should be cautious of undertaking break-fee liabilities, and any fee should not exceed the costs incurred by the bidder. The market level of break fees is usually in the range of 0.8% to 2% of the transaction value.

Norwegian private equity deals rarely use reverse break fees.

In private equity deals the acquisition agreement can be terminated if conditions precedent are not met or waived within the agreed long-stop date. Termination rights are otherwise limited, with certain exceptions under Norwegian background law for cases like fraud, gross negligence or wilful misconduct, which are highly unusual.

Long stop dates vary, but typically reflect the expected time for obtaining regulatory approvals, plus a buffer of one to several months.

In Norwegian private equity transactions, a private equity-backed seller (or buyer) is hesitant to accept any deal risk and usually requires a clean exit. Such seller usually opposes accepting indemnities. To mitigate risk the warranty catalogue is usually covered under W&I insurance. If the deal is not insured, which is rare for private equity-backed sellers, they generally only offer fundamental warranties. In contrast, industrial sellers tend to provide more comprehensive warranties, regardless of insurance coverage. In auction processes, the number of conditions precedent is usually limited to no material breach, regulatory approvals and necessary third-party consents.

The main limitations on liability for the seller are linked to the buyer’s knowledge, financial thresholds (basket, de minimis and total cap) and time limitations; see 6.9 Warranty and Indemnity Protection.

With W&I insurance becoming the norm in private equity deals, warranties provided by private equity-backed sellers are usually comprehensive. This does not significantly differ where the buyer is also private equity-backed.

The following are the customary financial limits on warranty liability:

• de minimis: 0.1–0.2%;
• basket: 1–2% of purchase price; and
• total cap: 10–30% of purchase price.

In W&I-insured deals, the de minimis threshold is usually closer to 0.1%, and the basket closer to 1%. A private equity-backed seller will usually not accept a total cap of more than 10–15% unless the deal is W&I-insured; in this case, no recourse against the seller will apply.

The following are the customary time limits on warranty liability:

• general limitation period: between 12 and 18 months (24 months in case of W&I insurance);
• tax warranty limitation period: five years (seven years in case of W&I insurance); and
• fundamental warranties: three to five years.

Management co-investors are usually obligated under the existing shareholders’ agreement to provide the same warranties as the fund (usually the same liability limitations as set out above).

Full disclosure of the data room is typically allowed against the warranties, meaning that the buyer is considered to have knowledge of information presented fairly in the provided information. Exceptions are often accepted for fundamental warranties.

The following protections are typically included in acquisition documentation:

• pre-completion undertakings by the sell-side to secure continuation of the operation of the target group in accordance with past practice and to forbid share issues and similar between signing and closing; and
• post-completion obligations such as non-compete and non-solicitation undertakings; however, private equity-backed sellers very rarely accept non-compete or non-solicit undertakings.

To secure clean exits private equity-backed sellers typically avoid providing indemnities to buyers. Management co-investors and non-private equity sellers may sometimes provide indemnities, but they are typically treated similarly to private equity sellers.

W&I insurance is very common in private equity deals, with approximately 70% of the insured deals involving private equity players. W&I insurance is becoming increasingly popular for industrial players too.

For public deals, W&I insurance brokers report an increased use of W&I insurance where warranties are provided.

Escrow arrangements for a private equity seller are unusual because they conflict with the sponsor’s preference for a clean exit.

Litigation is not a common outcome of Norwegian private equity transactions. The most common cause for litigation is a breach of warranty.

With the rise in W&I insurance claims, we are seeing an increase in disputes related to completion accounts. These are often resolved outside of court through settlement agreements or expert decisions.

The majority of public-to-private transactions in Norway are completed by industrial buyers rather than private equity buyers. However, there are several successful examples of private equity public-to-private transactions (such as the acquisition of Adevinta by a bidder consortium comprising, inter alia, Permira and Blackstone (2024), KKR’s acquisition of Quantafuel (2023), and Altor and Marlin’s acquisition of Meltwater N.V. (2023)), indicating a general expectation in the Norwegian market that the number of private equity-backed public-to-private transactions may continue to increase in the future, also considering the significant number of IPOs during 2020 and 2021.

Once a target listed on a regulated market is made aware that an offer (mandatory or voluntary) for the shares will be made, the target’s board and CEO become subject to certain corporate action restrictions, and the board is required to make a statement with respect to the offer and its consequences for the target’s shareholders.

A transaction agreement is often entered into between the target’s board and the bidder in a friendly process. Such agreements are also common in deals involving Euronext Growth-listed targets.

Stakeholders in Norwegian companies listed on a regulated market are subject to disclosure obligations to the issuer and Euronext Oslo Børs if the proportion of shares and/or right to shares of a person or entity reaches, exceeds or falls below any of the following thresholds: 5%, 10%, 15%, 20%, 25%, one-third, 50%, two-thirds and 90% of the total issued share capital or voting rights of the listed company. The disclosure obligation also applies to equity certificates and depositary receipts (if Norway is the home member state of the issuer), entitlements to acquire shares, and financial instruments with similar economic effect as shares.

For non-Norwegian listed on a regulated market in Norway, the thresholds are determined in accordance with the applicable law in the respective company’s country of incorporation.

If a person, through acquisition, becomes the owner of more than one-third of the voting rights of a Norwegian company listed on a Norwegian-regulated market, the person is obligated to bid on the remaining shares (with a repeat trigger upon reaching 40% and 50% of the voting rights). The threshold is calculated on a consolidated basis with the respective shareholders’ closely associated persons (may include target shares held by affiliated or related funds or portfolio companies).

For non-Norwegian companies with a registered office within another EEA country admitted to trading on a Norwegian regulated market, the threshold depends on the laws of the country of incorporation of the company.

The most common form of consideration in Norwegian takeovers is cash. It is estimated that approximately 80% of completed voluntary offers are cash offers, while the remaining 20% comprise shares or a mix of shares and cash. Securities such as convertible bonds, warrants, and similar instruments are also permitted, but are rarely offered. We do see takeovers that include a roll-over structure, which may be available if agreed outside the offer (prior to entering into the transaction agreement) and the voluntary offer reflects the financial value of the consideration agreed outside the offer.

Mandatory offers must at minimum equal the highest price paid in the previous six months. Mandatory offers require a full cash consideration option. However, shares or other securities may constitute alternative consideration.

The most successful takeover offers in Norway are structured as a friendly offer where the bidder and the target board enter into a transaction agreement. Out of 97 voluntary tender offers between 2008 and July 2024, 80 offers (both completed and non-completed) were recommended by the target board, of which 57 involved a transaction agreement.

Norwegian takeover regulations allow for a wide range of conditions in voluntary takeover offers, such as those relating to financing and due diligence, although such conditions are likely to not be accepted by the target’s board and key shareholders. Mandatory offers must be unconditional.

Common conditions for launching the offer include obtaining pre-acceptance from key shareholders and board members, maintaining the target board’s recommendation of the offer, ensuring ordinary business conduct, addressing MAC, obtaining necessary regulatory and corporate approvals and achieving a specified acceptance rate (often set at 90% to facilitate the subsequent squeeze-out) – see 7.6 Acquiring Less Than 100%).

As part of a voluntary offer, a bidder may also request deal security measures such as no-shop/non-solicitation. In the event of a superior offer, the target’s board normally retains the option of withdrawing or amending its recommendation. It is permissible to charge break fees up to a certain level; see 6.6 Break Fees.

If an offer closes with less than 90% acceptance rate, repeated mandatory offer obligations may apply (see 7.3 Mandatory Offer Thresholds), but no additional governance rights beyond those triggered by the level of shareholding are granted.

Effective control of a Norwegian company’s operations and dividend levels is achieved through board control which is achieved at more than 50% of the votes cast. Effective control over new share issues, capital structure changes, mergers and de-mergers is achieved at two-thirds of the votes cast.

A bidder can squeeze out remaining shareholders if the bidder successfully acquires 90% or more of the target shares. A squeeze-out procedure usually takes one or two business days, with the consideration, as the general rule, being the cash equivalent in NOK of the tender offer price.

Debt pushdown is usually facilitated through dividend payments from the target being resolved after the bidder has conducted a squeeze-out and acquired 100% of the shares in the target.

It is common for the principal shareholder(s) to obtain irrevocable commitments to tender and/or vote if the bid premium is acceptable. These agreements are usually negotiated shortly before the announcement of an offer from a selected group of shareholders.

Undertakings usually provide the shareholder with the opportunity to withdraw if a superior offer is made. It is possible, however, to obtain unconditional undertakings if the principal shareholder(s) believes the offer is attractive.

In Norway, equity incentivisation of management is a common feature of private equity transactions, to ensure that the interests of portfolio companies’ senior management or key personnel align with those of the private equity fund, motivating them to create further value and maximise returns on successful exits.

The size of management’s investment varies depending on whether they are rolling over existing shares or injecting new capital. Management must have capital at risk in order to achieve a tax-efficient structure and typically subscribes at the same price as the private equity sponsor, although with different allocations of preference shares and ordinary shares. Selling members of management are often required to re-invest a significant portion of their sale proceeds (20–50%, or higher for key persons), subject to negotiations and individual exceptions.

Any gains realised by management on re-investments are, in principle, subject to capital gains tax. If, however, management holds the initial investment through separate holding companies and re-invests through that holding company, tax would be avoided (or more precisely postponed until distributions are made from the holding entity).

It is important both for management and for the private equity fund that management’s investment is made at fair market value, although the tax authorities have historically recognised that the shares acquired by management can be transferred at a reduced market value (typically a 20-30% reduction) to reflect the value impact of lock-up provisions, minority position and illiquidity. These reductions are typically calculated based on the Black-Scholes-Merton approach. If the incentives for the management are not granted at market price, any benefit achieved by management on the (re)investment would typically give rise to payroll tax as opposed to tax on capital gains (payroll tax is higher) for the management in question and also trigger social security contributions for the employer entity of up to 19.1%.

At fund level, incentivisation of key personnel is commonly equity-based. The AIF Act imposes certain remuneration restrictions on AIFMs.

The private equity fund and any co-investor’s investment (institutional strip) are typically comprised of a mix of ordinary and preference shares, with a significantly higher percentage of preference shares. Management’s strip often primarily consists of ordinary shares, although variation exists, such as requiring management to invest in both the institutional and management strip, with variations depending on the person’s role/significance. Institutional strips may comprise shareholder loans, but these are less common due to tax implications.

Preference shares normally entitle the private equity fund to receive its entire invested amount plus a predefined (preferred) return before ordinary shareholders receive distributions; once preferred return (including interest and investment amount) has been distributed, residual proceeds are allocated to ordinary shares.

Management is usually more heavily exposed to ordinary shares and may potentially earn a higher relative return on their investment in successful exits (reflecting the increased risk associated with the ordinary shares), but faces limited distributions if proceeds are insufficient.

Incentive schemes for management have evolved from option and bonus-based to predominantly investment-based models, although exit bonus arrangements (subject to payroll tax and social security contributions) are also applied.

Management typically invests via the Norwegian holding structure (TopCo or, if a MidCo level is in place, MidCo). For management, particularly for minority positions, it is common to establish a separate management holding company (ManCo) co-owned and (indirectly) controlled by the private equity fund.

Management co-investors are usually required to accept call options for their shares in the event that their employment in the target group is terminated. Leaver provisions are typically divided into:

• good leavers (eg, long-term illness, retirement, disability, death or involuntary termination without cause);
• bad leavers (eg, voluntary termination prior to exit, summary dismissal or material breach); and
• occasionally, “intermediate” or “very bad” leavers.

Generally, a good leaver receives fair market value for the shares, whereas a bad or very bad leaver must sell at a discount, typically the lower of cost and between 50% and 100% of fair market value.

Leaver provisions in Norwegian private equity deals are not always linked to a vesting model, but this is fairly common. The provisions are typically time-based, linked to the good leaver and/or intermediate leaver provisions and vary depending on how early the person in question terminates the employment. A vesting period of up to five years is common, with the underlying principle being that only the vested part of the shares from time to time may ordinarily be redeemed at fair market value, while unvested shares may only be redeemed at a lower value.

Management shareholders are often required to accept non-compete and non-solicitation provisions in addition to drag, lock-up and standstill, right of first refusal and leaver provisions (including price reductions triggered by leaver events). Non-compete and non-solicitation undertakings typically span 12–24 months, with 12 months becoming more common.

These restrictions are usually (together with other restrictive covenants) included in the share purchase agreement (or other transaction agreement), in the shareholders’ agreement, as well as in the employment/service agreement.

Certain regulatory limits on enforceability apply. Under Norwegian anti-trust regulations, restrictive covenants are generally acceptable if they last no longer than three years – depending on the transaction involving important goodwill or know-how – and are geographically limited to areas where the target previously operated.

Furthermore, the Norwegian Working Environment Act stipulates that non-compete clauses imposed by employers must compensate employees and cannot extend beyond 12 months post-employment, except for agreements entered into with CEOs. There is scope to treat restrictive covenants in the employment agreement separate from those applicable to the employee in its capacity as a shareholder and/or selling shareholder.

It is uncommon for management shareholders to be granted minority protection rights beyond what is provided under the Norwegian company legislation, unless they possess a significant minority interest and negotiation power. Under Norwegian company law, minority shareholders enjoy certain rights – either by holding one share, or by representing a certain percentage of the share capital and/or voting rights – including the right to challenge corporate resolutions in court, attending and speaking at shareholder meetings, as well as certain disclosure rights. While some of these rights can be waived in the shareholders’ agreement, others are statutory and cannot be waived.

Minority rights are often limited through mechanisms like different share classes with varied voting and financial rights, and by incorporating leaver provisions in the shareholders’ agreement. Pooling management investments into a separate ManCo (indirectly) controlled by the private equity fund also mitigates the influence of minority protections.

Management is rarely granted anti-dilution protection, veto rights or control over exits. Management may be granted the right to board representation or an observer seat, but in practice this does not give management shareholders any influence or control over the portfolio company.

Norwegian private equity funds typically seek control over portfolio companies to exercise active ownership, achieved through majority shareholding and typically governed by a shareholders’ agreement (which is also an alternative if a controlling interest is not obtained). The funds typically secure right to information, board control and all key decisions, including share issues, major acquisitions, business changes or asset disposals, borrowing, business plans and budget, and procedures for liquidation and exit. While the shareholders’ agreement may also include veto rights for the private equity fund, these are at the outset redundant where the fund possesses a controlling interest.

Pursuant to Norwegian law, a company and its shareholder(s) are separate legal entities, generally not liable for each other’s obligations. This applies regardless of the company’s structure, including subsidiary-parent arrangements. In general, the limitations on shareholders’ liability under Norwegian law are robust.

Case law predominantly supports maintaining the corporate veil, even where the company is engaged in high-risk business, reserving its piercing only for exceptional cases. There is no Supreme Court precedent for piercing the corporate veil. There is, however, a risk that a shareholder (and especially a parent company) may incur liability for a subsidiary’s environmental obligations under Norwegian environmental legislation.

The typical target holding period for Norwegian private equity investments ranges from three to five years, as funds aim to return capital with appreciation to investors within a reasonable timeframe.

Trade sales and IPOs have historically been considered the preferred exit strategies. Before 2020, trade sales to industrial investors or secondary sales to other private equity funds dominated in the Nordic countries, to a large extent replacing IPOs. The surge in IPOs during 2020-2021 declined significantly by 2022 and 2023. Comparative data for the first halves of 2024 and 2023 shows a stable IPO trend, as detailed in 1. Transaction Activity. The 2024 IPO activity remains much lower than the 2020-2021 peak, suggesting that the high activity was a driven by specific market conditions, rather than a shift in trends.

Typically, exits involve either a “dual track” process – ie, combining an IPO and sale process – or more commonly, a trade sale alone.

“Triple track” exit processes have traditionally been less common and if a recapitalisation (or refinancing) is not conducted independently from an exit, it is typically explored once it is determined that there is limited interest in the market.

Private equity sellers occasionally reinvest upon exit, particularly if the funds’ initial ownership period was short or if a future significant upside is anticipated.

We continue to see the increasing trend of investments being rolled over into continuation vehicles or later flagship funds in general partner-led transactions.

Drag and tag rights are typical in equity arrangements in Norwegian private equity deals to facilitate exits.

Institutional co-investors and management must usually accept drag mechanisms in the shareholders’ agreement for the relevant investment. The typical drag threshold ranges between 50% and two-thirds of the aggregate equity. In subsequent exits or sales, target shares are typically sold voluntarily, making the actual use of drag rights rare.

Institutional co-investors and management are generally granted tag rights if the private equity fund sells its stake in the portfolio company. These tag rights, like drag mechanisms, are included in the relevant shareholders’ agreement and typically have a threshold of 50% or more of the aggregate equity.

In an IPO exit, the private equity seller typically faces a lock-up period of six to 12 months.

It is uncommon for the private equity seller and target to enter into relationship agreements.