Selling your company in 2020 – our view of the market

2019 was another great year for selling a company, even if growth levelled off. A strong market and continued access to capital globally suggests 2020 could be a year of growth, but is it that simple? We asked Tomas Almgren, CEO of Valentum, for his view of the future.

First of all, what happened in the market for company transactions in 2019?

– The market was strong and there were 1155 transactions in the Nordic countries. That’s the highest number on record since 2010. But we’ve noticed a change in the trend, 2019 was the first year without growth. Valuations have levelled off, albeit at a very high level. Since 2010 valuations of unlisted companies have gone up 30-50%.

What does this say about the market in 2020?

– We think we might see some apprehension in the first quarter but there are no general signs of it slowing down. It’s still a seller’s market and it is driven forward by the interest rate and easy access to capital. There are few attractive places for investment. Additionally, in Sweden, there are more buyers, many new smaller venture capital firms have emerged.

On to company valuations. What can you expect to sell your company for?

– It varies enormously and it’s impossible to answer this question. But valuations are high, they’ve gone up 30-50% the last ten years, measured by how many years’ profits buyers are willing to pay. We’ve also noticed that companies valued at between SEK 200 and 500 million have gone up more than larger companies. This is because there are more buyers who seem to be willing to take greater risks.

Are any industries looking especially promising or unfavourable the coming year?

– Yes, there are big differences between industries. The hospitality sector is looking very promising in the Nordic countries, not least in the “fast casual” segment. The trend in software companies continues to point upwards and interest from US buyers is high. At the other end, interest in retail remains low. The construction sector has been slow for a long time, but we’re actually seeing increased interest in many companies. Companies that rely on property in Stockholm are still finding it difficult to attract capital.

The stock market is at a record high in many parts of the world. How does that affect the market in unlisted companies and what happens if there’s a downward correction?

– Stock exchange valuations influence the valuations of companies and the interest in buying companies greatly. But the market for unlisted companies lags behind and a smaller correction needn’t affect it too much. But yes, if there was a prolonged decline in the stock market there will be consequences. If you’re thinking of selling your company, now is a good time to act.

Finally, what’s your advice to anyone thinking about selling their company?

– First of all, be aware that the market right now is very attractive. There haven’t been better conditions in a long time and we don’t know what the future will hold. The large number of potential buyers offers many alternatives to the seller. Try to see beyond the price tag and take the knowledge and network a buyer can contribute with into consideration. In almost a third of our latest transactions, the winning buyer didn’t offer the highest price. It can prove to be a very clever deal, says Tomas Almgren.