Company transactions 2019 – Our view of the future

2018 was the eighth consecutive year of growth in the market for company transactions. So far, there are no signs of the transaction market slowing down, despite large falls in stock prices. Are we reaching the end of this cycle? We turn to Tomas Almgren, CEO at Valentum for answers.

Is it too late to sell your company?

– No, it’s not too late. Here at Valentum we are still noticing a huge interest in the companies we are in process with, and the valuations are still very high. But of course, there is some concern amongst the investors, especially regarding cyclical companies.

But sooner or later, there will be a recession. What is your take on the future?

– We are working with the hypothesis that spring 2019 will remain unaffected. It is difficult to predict the development any further into the future. A lot depends on the overall state of the economy, or if something unexpected happens that creates concern. There has already been a slowdown in highly cyclical sectors and amongst companies dependent on the construction industry. At the same time, we estimate that valuations of companies with unique business plans, or companies in non-cyclical sectors, may increase this spring.

But the stock market has declined, has that affected the valuations in the market?

– So far the effect is marginal. The valuations of unlisted companies move slower than the stock market. But if the stock market continues to fall it will affect valuations in the long run.

What drives this strong market?

– The main driving force at a macro level is the combination of low interest rates and large amounts of money in the market. A trend which is more specific to Sweden, is the growing number of financial buyers and private equity firms that invest in medium-sized companies. This trend has been going on for quite some time and in the long run it increases competition for companies, leads to higher valuations and thereby leads to more sellers.

Aren’t private equity firms worried about a potential slowdown in the economy?

– Absolutely, but as their funds have a fixed lifespan they have to invest their commited capital within a certain time frame. By contrast, many investors expect to own their investees throughout a whole business cycle, which is one of the main reasons why we believe that the valuations of companies with low cyclicality will continue to increase during spring.

Finally, what’s your advice to those thinking of selling their company?

– The market is still good: valuations are at an all-time high and there are plenty of financial and strategic buyers. However, it is difficult to predict how long this will last. If I had been given the same question a year ago I would have said that it looks stable six months ahead, but that anything after that is difficult to predict. In other words, the same forecast as now.