The cash-rich Nordic nation is investing in high tech, telecom, finance, and retail
There's a serious new group of financial players on the prowl in Europe. One bought a big Danish bank last year and is looking for other acquisitions. Another is dipping into its $2 billion investment fund to take stakes in information technology, telecom, and other companies in the Nordic lands and Britain. A third has snapped up a handful of British toy, food, and clothing retail chains over the past year.
So are these investors rich Germans or newly minted Russian oligarchs? No, they are Icelanders -- denizens of a prosperous Scandinavian republic too small to spend much money at home. So they are busy making acquisitions all over Europe, and financial circles are taking notice. "If they want to invest, they have to go abroad," says Hampus Broden, a banking analyst at Stockholm broker Hagstromer & Qviberg. "They've made some smart buys and don't have trouble financing them."
The biggest deal yet came last June, when Hreidar Mar Sigurdsson, the 34-year-old CEO of Kaupthing Bunardarbanki, Iceland's biggest bank, spent $1.27 billion to take over Denmark's FIH bank. The move, financed through bonds and a share rights issue, gives Kaupthing access to blue-chip clients in Denmark, especially in manufacturing, as well as the Danish corporate lending market. Sigurdsson also wants FIH to expand to Sweden.
That's nothing new for the Icelandic bank, which has doubled in size every year since 1996. Within days of becoming top boss in December, 2004, Sigurdsson spent $80 million to help finance British real estate mogul Robert Tchenguiz' takeover of pub chain Laurel Pub Co., taking a 25% stake in the process. Kaupthing also has an equity stake in British clothing retailer Karen Miller Ltd. Yet Sigurdsson isn't known for shaking up boardrooms. He is quite content to let existing management keep their jobs as long as profits grow.
MOVING TOO FAST?
Investors have cheered these moves, bidding up Kaupthing's stock price 73% in the past 12 months. But some analysts think it's moving too fast for its own good. "When you expand at that pace, there's absolutely more risk than if you grow organically," says Hagstromer's Broden. Sigurdsson defends his approach. "It's not like the bubble in 1999, when people were just investing in dreams," he says. "These are old-fashioned companies. They produce something."
If Kaupthing has more capital than it knows what to do with, its homeland is in the same condition. Many Icelandic companies are cash-rich. Those listed on the Reykjavik stock exchange have raised about $7 billion in new capital in the past four years, an amount that's roughly 50% of Iceland's gross domestic product. Iceland's economy has expanded 5% annually over the past two years, making it one of the fastest-growing in Europe. At the same time, the maturation of Iceland's economy is forcing many companies to look overseas for growth. With the mainstay fishing industry facing stagnation, companies are diversifying.
Two commercial conglomerates are especially active buyers of European properties. Baugur Group is part of an Icelandic consortium that bought Copenhagen's flagship department store, Magasin du Nord, for $86 million in early 2004. It has also bought several British toy and food businesses. Burdaras Group has put together a $2 billion cash hoard and is targeting small and midsize IT, telecom, and financial companies. Burdaras managing director Fridrik Johannsson wants 75% of the company's investments to be abroad within several years, compared with less than a third today. "We do not expect to find enough opportunities at home," he says. The small world of Icelandic business is going global.
By: N. Peter Kramer
