Swedish Serial Acquirers Take Aim at Mom-And-Pop Firms in Europe

(Bloomberg) -- Swedish investment firms that specialize in snapping up small family-owned businesses are increasingly looking overseas as the race to find suitable targets heats up.

Companies such as Lifco AB, Indutrade AB and Embracer Group AB have earned the moniker serial acquirers based on an aggressive deal-making strategy that has seen their operational footprints explode in size.

The trick has been to find targets with valuation multiples that are much lower than those of the serial acquirer. That leads to what’s known as “multiple arbitrage,” meaning a quick revaluation of the newly acquired asset as it joins a bigger cluster of portfolio companies.

But that model has proven so attractive that suitable M&A opportunities in the Nordic region’s biggest economy are becoming something of a crowded trade.

“The Swedish market has faced higher competition because there are several who have taken inspiration from those on the stock exchange who have succeeded and now want to do it themselves,” said Jon Hyltner, a portfolio manager at Enter Fonder AB.

Hyltner, whose Enter Smabolagsfond has beaten 98% of peers in the past 12 months, says there’s now more difficulty in unearthing targets at attractive multiples in Sweden, which is why the likes of Indutrade have been actively buying in the U.K. and Germany.

Stockholm-based Storskogen AB, which added 43 businesses in the first half of the year, is another example. The privately-owned group is eyeing targets in Europe beyond the Nordic region and, further down the line, may also explore Asia and the U.S., according to its founder and chief executive officer Daniel Kaplan.

Kaplan, who likens his company’s acquired growth to that of Klarna Bank AB and Spotify Technology SA, says not even a “worst case” shuttering of the capital markets could derail the plans for expansion.

“We will have to use only our free cash flow and, assuming our profits remain intact, we would still likely be able to achieve sizable growth,” the CEO said.

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