In Sweden, the private equity sector has grown considerably since the 1990’s. The investors have become more numerous, and the funds have grown in size. As their annual returns have exceeded those of public markets, more and more investors have shown interest in private equity, in turn leading to record levels of capital flowing into the sector. In 2016, private equity firms around the globe together held a total of SEK 4 trillion in dry powder—i.e. uninvested capital.
Sweden was a pioneer in the private equity sector and today the country is home to some of Europe’s leading firms. The development can be divided into a number of stages. During the first stage, many new funds were established. These funds were relatively small, having approximately SEK 50 million to invest in unlisted companies. Consequently, private equity firms initially invested in smaller companies compared to today. The firms showed very good results and as the market matured, institutions such as insurance companies began to show interest in investing in the funds. Since Sweden was at the forefront globally, and showed promising results, the interest from international investors also increased. Since then, the private equity sector has continued to grow, and funds these days on average have a capital of SEK 2 billion.
The total net inflow of investments into Swedish private equity firms amounted to SEK 250 billion in the period 2007-2015.
Out of that sum, approximately SEK 200 billion have been invested in Swedish companies. We are an attractive market, not least because we have a well-functioning banking system oiling the wheels of the market and making acquisition financing possible.
Sweden’s private equity firms have together built up a total capital—including both invested capital and dry powder—exceeding SEK 600 billion. That figure makes us the third largest market for private equity in Europe. As the funds have gradually grown in size, so has the dry powder. The last five years have seen a particularly strong development.
On a global level, the share of dry powder in funds has increased considerably since 2012, and today we are experiencing record levels. In 2016, private equity firms were holding on to dry powder of SEK 4.27 trillion which had yet to be invested.
The increased access to capital has increased competition within the market, which in turn has affected the overall valuation level of acquired companies. In 2016, valuations hit record levels, averaging more than ten times company operating profit.
On average, it takes a private equity firm 3.3 years to invest all of its dry powder. In the U.S., that figure is slightly higher at 4.3 years.
Valentum continuously follows the development of the private equity firms and their funds. If you have any questions, or want to know more about a specific player in the market, do not hesitate to contact us.