DENMARK: An Introduction to Corporate/M&A

Economic Environment 

The Danish economy is anticipated to experience moderate growth in 2024, supported by strong fundamentals and government initiatives aimed at fostering innovation and sustainable development. Key sectors such as technology, renewable energy, and healthcare are expected to drive economic expansion. The business climate remains favourable, with Denmark continuing to attract foreign investment due to its stable political environment, skilled workforce, and commitment to environmental sustainability.

The Danish economy is projected to grow by approximately 1.5% in 2024 (according to the Danish Chamber of Commerce, February 2024), supported by robust domestic consumption, increased exports, and investment in key sectors. Unemployment rates are expected to remain very low, reflecting a strong labour and an economy which, despite inflation and economic challenges in other parts of the EU, remains strong.

After high inflation, the inflation has started to decrease in 2024.

M&A Environment 

While some very large transactions kept part of the market busy in the latter part of 2023, the general M&A activity decreased, in particularly within private equity. The market sentiment is that this was driven by private equity primarily being active in selling attractive targets whereas new acquisitions were depressed by high inflation, high interest rates and uncertain outlook.

The first months of 2024 remained relatively slow following which activity is rapidly increasing, and pipelines are reported to be long amongst all relevant corporate finance houses. Stabilisation of inflation, a stable to downwards outlook on interest rates and the above stable economic environment are key drivers for this trend.

The general sentiment is that the slower part of 2023 was more a postponement of transactions than cancellations thereof and in consequence such transactions will in increasing numbers reach the market in 2024 and into 2025 supported by an expected comeback to acquisition financing given the stabilisation in interest rates.

Renewable energy has suffered from the high interest rates and uncertainty in respect of political framework but is expected to benefit from Denmark being a hub for green technology and accordingly activity is expected to increase here as well.

Cross-border transactions remain active supported by the economic environment and Denmark being an open economy attracting both buyers of Danish assets and Danish companies seeking international expansion.

Public M&A has been relatively active, including, according to sources, approaches to listed companies which have not resulted in transactions.

Legal Environment 

Danish contract law is characterised with a high level of freedom of contract, provided that public M&A must follow the rules of Nasdaq Copenhagen, the Danish Capital Markets Act, the Prospectus Regulation, etc. Within non-public M&A (including when a listed company acquires a non-listed company) the freedom of contract means that transaction can be tailored to a large decree though corporate law must be complied with in respect of financing of acquisitions, requirements to the governing bodies of a company and similar. An import principle in Danish M&A is the caveat emptor principle mirrored by an obligation for the seller to loyally disclose information of relevance to a potential buyer. This places the burden of due diligence on the buyer since information in the data room in general is deemed known by the buyer limiting the scope of warranties – disclosure letters are not common as an alternative to disclosure of data room.

At the same time W&I insurance remain standard for almost any transaction where the seller is a private equity house increasing the requirement for due diligence in order to obtain satisfactory coverage. To facilitate processes, vendor due diligence and a stapled W&I insurance on basis thereof is close to standard in any structured sale process above a certain size.

Other Legal Considerations 

Generally, the regulatory environment is flexible allowing share transfers without notary, digitalised filings with the Danish business authority and a well-regulated by “easy to hire and fire” labour market. However, pitfalls do exist within employment law, tax law which is complex and affects how transactions should be carried out, permits, etc. In case of carve out or asset transfer transactions further legal challenges arise, including within GDPR where the Danish application can cause challenges.

While none of the above from a general perspective, including when comparing with other jurisdictions, are deemed adverse to M&A, diligence legal considerations must be made when conducting M&A in Denmark.

Regulatory Environment 

Merger clearances will be required whenever thresholds are met. In general, the Danish Competition Act is aligned with EU Competition law though, evidently, with lower thresholds for merger control.

Regulated industries may have additional approval requirements – as an example; financial businesses will require additional filings and approvals depending on the type of financial business.

Foreign Direct Investment regulation (FDI) is becoming an increasing topic. While only one know rejection of a transaction is known in the market (and under refiling), more and more transactions face filing requirements, including many transactions where a merger filing is not required. This is a delaying factor that must be considered and especially in smaller transactions and within venture capital often comes as an unexpected surprise where it can have a real impact if closing and thereby funding of the venture company is delayed.

In highly sensitive industries, FDI seems to serve as a pre-selector in terms of bidders with less positive outlook on an FDI approval either do not participate or are filtered out by the sell-side.