Hot Swedish IPO Market Crowds Out Mergers for Funds Seeking Exit

If you’re a private equity fund in Sweden interested in exiting an asset, chances are you’re more likely to choose an initial public offering than a takeover.

That’s according to Ola Nordquist, who heads the Nordic operations of Permira Advisers, one of Europe’s biggest private-equity firms.

Ola Nordquist

Source: Permira Advisers

“For investors today, there are very few alternative places to put your money than into equities,” Nordquist said in an interview in Stockholm. “We’ve seen an unprecedented flow into that asset class.”

Thanks to a seemingly never-ending series of monetary stimulus injections, cash in Europe is cheaper than ever. And with easy access to credit, the stock market has so far offered some of the best yields available in a world characterized by record-low interest rates. The question is how long that can last, Nordquist said.

"As long as you have this environment you’ll have a technical dislocation toward equities,” he said. "You see multiples that are sometimes two to three times the average. You need to find strong growth to justify these multiples."

Private owners have relied on the stock market this year to exit a number of assets, including Pandox AB, which raised about 6 billion kronor ($691 million) in June, and Dometic Group AB, which brought in 5.7 billion kronor in November. Attendo AB was listed last month while Scandic is scheduled to start trading on Wednesday.

Permira, which sold Norway-based fish-vaccine maker Pharmaq for $765 million to Zoetis Inc. last month, will be wary of high valuations when looking at potential acquisition targets. There needs to be evidence of underlying growth, Nordquist said.

Sweden’s central bank has also warned that asset valuations look unsustainable. In a commentary last month, it said that while high valuations don’t necessarily lead to big asset price declines, “they do pose risks to financial stability by increasing the probability of such an occurrence.”

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