Focus on Finland, Part 2: Investments to Finland
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.
