Focus on Finland, Part 3: Investments from Finland

Posted on June 4, 2010 by Bill Newman

Under the pressure of the global economy, many Finnish companies have transferred manufacturing from Finland to China and to other countries with lower labor costs. Recently there has also been transfers of R&D. In many cases, the transfers are executed by incorporating a new company overseas, but also through acquisitions and joint ventures. On the other hand, many Finnish companies, especially the high-tech sector, have marketed, or at the very least targeted, their focus outside Finland. Consequently, it is common that Finnish companies have subsidiaries and joint ventures outside Finland.As mentioned earlier, there are practically no limitations regarding investments made from Finland and Finpro in assisting Finnish companies, especially small and medium size companies, to invest overseas. Finpro also has locations in the United States.

According to the statistics of the Finnish Venture Capital Association, in 2009 private equity firms located in Finland made investments to Finnish and foreign companies at the value of 362 million euros, nearly equaling the amount invested during 2008. The amount was invested to 230 different target companies in 350 transactions and the value per transaction increased compared to the previous year. 82 million euros out of 362 million were invested into 171 venture capital stage companies in 257 transactions and 280 million euros were buyout investments made to 59 target companies in 93 transactions. 14% of the amount invested went outside Finland and only 2% outside Europe. Even though Finland has several incentives available for all companies located in Finland, the government is not that active in investing. In 2009, the share of investments made by public sector was 6% of the entire amount invested and 5% of the transactions.

Finnish companies have also been quite active in acquiring foreign companies. In the beginning of 2000, the Finnish paper company Stora Enso acquired the U.S. company Consolidated Papers with 70% premium. This transaction was not a success story for the purchaser and the North American operations have already been divested. Nokia has been active in acquiring U.S. companies like Intellisync Corp, Loudeye Corp, Twango, Meta Carta Inc., Navteq and the latest acquisition Novarra Inc. The number of the acquired U.S.-based high-tech companies indicates the strength of the U.S. high-tech industry and the purchase price of Navteq amounting to 8.1 billion shows that it is not only nickels-and-dimes that are spent.

 

A special thanks to Ville Heikkinen, Sullivan & Worcester’s Finnish intern, for his assistance in preparing this post.

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Focus on Finland, Part 2: Investments to Finland

Posted on June 2, 2010 by Bill Newman

Finnish companies together with the government are heavily investing in R&D. According to the Organization for Economic Cooperation and Development (OECD) statistics, Finland ranks second in the OECD in terms of R&D intensity – at 3.45% of gross domestic product (GDP) – and aims at 4% of GDP by 2010, leads the OECD in number of researchers in the labor force, ranks fourth among OECD countries in terms of scientific articles, and ranks above average in number of triadic patents per capita. However, R&D investments are concentrated in certain manufacturing sectors, especially electronics, and dominated by a handful of large domestic multinational companies. For example, Nokia, the Finnish power house in mobile business, alone accounts for almost half of overall R&D business. The number of R&D-oriented start-ups has not met the expectations and the problem is partly owed to a lack of risk capital.

Generally, Finnish companies are considered to have high expertise in technology while sales and marketing require more development. Due to the above mentioned lack of risk capital and need to strengthen their organizations, Finnish companies are actively seeking financing and active financiers outside Finnish borders. Traditionally, Swedish investors have been active in Finland, but investors from other areas are also of interest of Finnish companies and vice versa. Lower entry valuations and greater increase potential of the enterprise value, compared to their U.S. competitors, makes Finnish companies rather attractive targets, especially for U.S investors.

The new Finnish Companies Act, entered into force during 2006, makes the investment process very flexible including, inter alia, a possibility to increase share capital without issuing new shares and issuance of new shares without increasing share capital. The Companies Act also includes a possibility to make the investment into a so called invested unrestricted equity fund enabling more flexible return of the investment. Incorporation of a new company is an easy and fast process that requires Memorandum of Association with Articles of Association, investment of the minimum share capital EUR 2,500, and nomination of the board members. The minimum number of board members includes one ordinary member and one deputy member and the general coalition consists of 3-5 ordinary members. Without exemption of the National Board of Patents and Registration of Finland, at least one ordinary member and one deputy member must be domiciled within the European Economic Area.

According to the statistics of the Finnish Venture Capital Association, in 2009 Finnish target companies received investments from Finnish and foreign private equity firms at the value of 655 million euros – about 4% more than received during 2008. The 655 million euros were invested in 223 different target companies in 357 transactions and the value per transaction increased compared to the previous year. 87 million euros out of 655 million were categorized as venture capital investments and invested to 162 target companies through 251 transactions and the remaining 568 million euros were categorized as buyout investments invested to 61 target companies through 106 transactions.

During the first decade of 2000, many Finnish companies were acquired by foreign companies and/or investors. For example, GE acquired Instrumentarium, a Finnish medical device designer and manufacturer; Bank of America acquired Paroc Group, a manufacturer of mineral wool insulation products and solutions; Technitrol Group acquired LK Products Oy, a supplier of antennas for mobile phones and other wireless terminal equipment; and Google has acquired some smaller high-tech companies such as social mobile start-up Jaiku. Foreign owned companies are, equally with Finnish-owned companies, eligible for government incentives that are given in the form of cash grants, loans, tax benefits, equity participation, guarantees and employment training. The R&D incentives granted by Finnish Funding Agency for Technology and Innovation (Tekes) must, however, be returned in case there is a change of ownership in the company that has received such R&D incentives and no prior written consent of Tekes is received for the change of control.

Invest in Finland assists international companies in finding business opportunities in Finland and provides all the relevant information and guidance required to establish a business in Finland. One of their latest success stories was to assist Google in locating their data center in Finland. Further, private service providers have developed services to enable foreign investors to find and evaluate investment opportunities in Finland. One example of these kind of services is Technopolis Online.

 

A special thanks to Ville Heikkinen, Sullivan & Worcester’s Finnish intern, for his assistance in preparing this post.

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