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Overpriced M&A Targets Driving Away Cash-Rich CEOs in Sweden

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Sweden’s biggest companies now have more cash than at any time in at least 15 years.

Using that money to go on an acquisition spree would be one way to deal with the excess funds. But with valuations on the country’s main stock index at their highest since 2002, it’s not so easy to pick the right target.

Our “balance sheet is now allowing us to think about bigger deals,” said Per Lindberg, chief executive officer at BillerudKorsnaes AB, a Swedish packaging company. At the same time, “the dollar has appreciated and we’re in a zero-interest economy, so every target is suddenly much more expensive.”

The fading appetite for acquisitions in the largest Nordic economy follows a spate of jolts to markets in which investors questioned the sustainability of asset valuations driven by historic monetary easing.

European bonds suddenly slumped at the end of April, and investors started selling out of some stock markets. Sweden’s main gauge has lost 6 percent since mid-April. The enterprise value of companies on the OMX Stockholm 30 index was 12 times earnings before interest, taxes, depreciation and amortization in the first quarter, topping valuations in the U.S. and the rest of Europe. The index gained 0.5 percent as of 9:28 a.m. in Stockholm.

Assa Abloy AB, the world’s biggest lock maker, says publicly traded companies in particular are growing too costly, and that it’s possible to find better value in private assets.

Private Assets

“Listed companies have very high multiples,” Assa Abloy CEO Johan Molin said in a telephone interview on April 28. “In unlisted companies, multiples are still at levels where you can get good synergies and good return on investment within a reasonable time frame. Therefore, it is mainly interesting to buy unlisted companies.”

Inflated prices haven’t put off everyone. Mining company Boliden AB’s CEO Lennart Evrell is still hunting for acquisitions.

“We’re short-listing a few and we have quite a lot following up and knocking on doors and expressing our interest,” Evrell told journalists on May 5. “We’re not going to buy anything because we just want to buy -- we’re going to wait for good timing.”

But given the high valuations, the upshot may just be that more companies return a bigger chunk of their cash to shareholders.

According to Jonas Olavi, an equity strategist at Alfred Berg Kapitalfoervaltning AB in Stockholm, “the endgame” is likely to be “more dividends and not necessarily more M&A.”

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