How does the election affect corporate deals?
September 14 and Swedish entrepreneurs went to cast their votes. We can assume the majority of Swedish business owners leaned to the right when putting their votes in the ballots. But the Swedish people wanted a change and elected a red-green coalition.
How does this affect someone considering selling their company? Let’s speculate on what might happen during the following 4 years.
Profit restrictions in social services?
So far the emerged proposals have shown to be pretty toothless, even actually prove to be beneficial for the seller. For some time, potential buyers have been cautious about investing in the industry until the new rules became clear. They are now, and it is likely that some buyers will be on the offensive again, even though there are still some uncertainties.
Energy related company?
Currently, there definitely seems to be – as Carl Bildt once put it – a red-green mess. MP want to dismantle two reactors quickly (within 4 years), while S is interpreting the agreement more loosely. However, you can assume that S and MP will have difficulties getting the Riksdag to agree to fast dismantling. Decisions that can reasonably be made concern continued, or increased, subsidies for “green electricity”. Let us assume that wind farms will experience a new wave of success and solar energy might make a major leap forward. Companies in these sectors, or related to these sectors, will most likely be hot on the market shortly.
RUT and ROT companies
Naturally, everything is still up in the air, but if we are allowed to speculate…
Getting rid of RUT would be ill advised. The system creates jobs and enables normal families to be able to afford taxed household services. We believe RUT-deductions will remain unaffected. RUT companies will thereby become much more attractive for investors.
When it comes to ROT companies, the case is less clear. The ROT deduction was introduced to assist a volatile construction industry in extracting itself from a recession. If we look 4+4 years into the future, we can make the following assumptions:
– Substantial public investment in construction of new homes
– Improved economy increases the construction of industrial, logistics and office buildings.
– Future shortage of craftsmen
The above 3 points suggest a risk of imbalance in the system, and the government might need to cool off the construction market. Faced with such a scenario, the simplest choice is to stop ROT deductions. Problematic for construction related companies working mostly within ROT, positive for companies working mostly with new construction and/or commercial buildings.
The restaurant industry?
What will happen to the VAT rate for restaurants? It’s as difficult to predict as betting on red or black in a casino. Many rational arguments suggest keeping the current VAT rate. Many left leaning arguments want to reinstate the 25% VAT.
When VAT was lowered this had several effects:
– More employees
– Smaller proportion of money paid under the table in the restaurant business
– Improved potential for profitability for restaurant businesses
– In some cases somewhat lower prices, although not fully compensating for the decrease in VAT.
If the VAT is increased, the following will be most likely to happen:
– Restaurants will try to stealth increase their prices, but will not compensate for the whole VAT increase in real terms, at least not short term.
– Somewhat lower revenue in real terms
– Lower profits for restaurant related companies
Even though there is every indication that the current VAT rate will remain, it is reasonable to assume that a potential buyer of a restaurant business will want a safety margin for lower profits. In other words, buyers will remain cautiously interested until the issue is resolved.
General tax rules?
Every new government looks over the 3:12 rules, affecting how much tax business owners will have to pay after selling their company. It’s not unreasonable to assume that this government will do the same. And it’s not likely to be for the better. However, it is likely to take 2 years to investigate the matter and make a decision. If you are considering selling your company, it is probably wise to do so within the next 2 years, provided that other important timing parameters (profit level, buyer interest, growth opportunities, etc.) are in order.