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The flow of cross border M&A deals by Icelandic investment firms shows no signs of abating, as the country continues to punch above its weight overseas.

The recent £15 million secondary buy-out of discount outdoor retailer Mountain Warehouse not only saw NBGI Private Equity walk off with six times its original investment, but also another UK business come under Icelandic control.

Retail investment vehicle Arev took a majority stake in Kendal-based Mountain Warehouse to add to the company’s existing UK portfolio, which includes Ghost womenswear and Jones the Bootmaker.

Mountain Warehouse is the latest in a string of UK retail businesses to be acquired by Icelandic investors in the past few years. Others include House of Fraser, which was acquired for some £350 million by a consortium led by investment firm Baugur and including fellow Icelandic investor FL Group last year.

Baugur has been one of the more active investors in the UK in recent years, snapping up clothing retailers Karen Millen, Oasis, Jane Norman and MK One among others. There have also been rumours that Baugur is interested in buying Debenhams – it already has a 9% stake in the business – but this has been denied.

Further UK investments are a possibility; Baugur’s chairman Jon Asgeir Johannesson recently announced that the firm had a £600 million war chest for acquisitions. But Baugur’s focus is expanding, having recently acquired an 8.1% stake in US retail business Saks for $250 million (£123.5 million).

Icelandic investment firms such as Baugur have developed rapidly since the country’s economy and banks were deregulated in the 1990s. Icelandic investors have also benefited from the country’s high interest rates. The practice of carry trade - where foreign companies borrow in countries with low interest rates then park it in countries with high rates - has also boosted liquidity, enabling investment firms to build up substantial funds.

Expanding horizons

With these funds, Icelandic concerns completed 97 cross border deals, worth €9.8 billion (£6.6 billion) between 2004 and Q1 2007.

The flow of cross border deals by Icelandic corporates and Iceland-owned businesses shows no sign of abating, with more than half of senior managers considering a deal in the next 12 months, according to a recent survey by M&A intelligence and research service mergermarket.

Mergermarket found that the UK, Scandinavia and Central and Eastern European countries are the most favoured destinations for Icelandic acquirers. Denmark is the top target for 40% of respondents, with the UK second on 34%.

Much cross border activity is driven by the desire to increase shareholder value, with 57% citing that as the primary reason for deal making. Access to new markets was a key reason for only 20%.

Meanwhile, only 16% of Icelandic M&A specialists are planning to divest their operations in the next year, demonstrating that cross-border activity is part of Icelandic corporate plans for some time to come.

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