F&P Quarterly – We look forward to an exciting 2015

The time has come to summarize 2014 – an eventful year for the Swedish capital market, to say the least.

First and foremost, 2014 was an intense year for transactions. This was a pleasant surprise after a number of grim years that followed the Lehman-crash.

The IPO window finally opened up following a strong stock market and low volatility. In 2014, we saw more IPOs than for a long time: 18 IPOs were completed on the Nasdaq Stockholm main list. Com Hem, Hemfosa, Thule and Recipharm were the top runners with an accumulated market cap today of SEK 35 billion. Perhaps a bit surprising, only 6 of 18 listings had obvious ties to private equity firms: Com Hem, Thule, Munksjö, Inwido, Bufab and Scandi Standard.

Why so few? Many portfolio firms were acquired at high multiples during the “super cycle” 2003-2007 that preceded the financial crisis. The development of these firms has perhaps not lived up to the owners’ demand for yields, at least not yet. Granted the low growth environment, it has gradually become more important to continuously develop companies’ business model and actively focus on profitability. This process is contingent on a deepened knowledge about the shareholders, being perceptive to shareholders, as well as being able to converse the equity story and the financial targets during preparations, execution and aftermarket.

Within M&A, we saw some ten public takeover bids. The obvious dominance from foreign industrial buyers is especially interesting, including Volkswagen’s SEK 60 billion bid for the outstanding shares in Scania, Swiss Gerberit’s SEK 10 billion bid for newly listed Sanitec and US based Lexmark and GTCR’s bids for Readsoft and Cision, respectively.

With low global growth, strong balance sheets and an interest rate close to zero we can probably expect more similar deals during 2015. We will probably also see more bidding wars where media will play an active roll as opinion makers. To map target groups, opinion makers and positions, as well as prepare statements, scenarios and communication could be pivotal recipes for success.

In the light of an increased politicisation of “welfare earnings”, one of the greater challenges for 2015 continues to be education, health and social care. The short-lived social democratic/green party government, led by Stefan Löfven, was quick to flag for an investigation on the subject, which satisfied the constantly distained left party leader for the moment, but made the sector fairly anxious as a whole. The remarkable thing is that myths and anecdotes have been allowed to set the agenda, which has conveyed a situation where sector experts have faced heavy communicational opposition. This rather sadly and oppressively undifferentiated story is far from over.

During the autumn, Fogel & Partners conducted two interesting surveys.

In September, we took the temperature on industrial and financial markets prior to the Swedish general election.

Both markets showed concern regarding the possibility that a new government would be incapable of making decisions. An uncertain parliamentary situation with decision paralysis and political horse-trading posed a risk of conveying an unpredictable economical climate with a degenerated attitude towards investments.

That is where we are today. With a new general election around the corner that threatens to further worsen the situation – or at least not solving it.

In November, Fogel & Partners did a survey of all 540 listed companies in Stockholm.

The mapping showed that only 24% had a complete picture of who their shareholders actually were, and only 39% were confident that they had attracted the right type of investors. Only one third of all companies felt that their investors had a good understanding of their business.

You get the friends that you deserve, as the saying goes.

Do Swedish politicians and companies in fact share the same problems? Do they know their key audiences well enough to send the right messages?

The established parties underestimated the voters and partially focused on the wrong questions during the 2014 election campaign, and, correspondingly, Swedish companies lack knowledge about who their owners ultimately are.

In one case, a xenophobic party succeeded in attractive 13% from the established parties and simultaneously overturn the sitting Swedish government. And in the other, we saw an emergence of short-sighted hedge funds in the share register at the disposal of long-sighted owners, for the purpose of paying out as much dividends as possible.

Parties need to understand their electors, communicate their ideology and be politically congruent – but also deliver on campaign promises if they are to keep their electors for the next election. Listed companies need to identify, understand and listen to their shareholders. They need to create a credible and exciting equity story with clear-cut financial targets and guide their shareholders in an adequate manner, and, more importantly, deliver on their promises to obtain the right valuation.

Is it really that difficult?

With Christmas and New Year’s Eve around the corner, we want to send out our heartfelt greetings to all our friends, wherever they might be. Well aware that many people do not have a home to go to or a family to turn to during Christmas, we have decided to make a donation to Stockholm Stadsmission, which since its founding in 1865 has worked to make Stockholm a more humane city for everyone. With these words, we want to wish you all a merry Christmas and a happy new year and we look forward to seeing you during 2015.

 

Julsigill