The misterious phenomenon of high valuation. Opinion piece written by Oscar Sanchez, Partner at Norgestion

During this pandemic, we have the feeling that we are witnessing a phenomenon of high valuations when previous learnings would make us think that in times of crisis, we should be seeing better price opportunities.

These high valuations are directly related to the existing high levels of liquidity in general and, as far as Private Equity is concerned, to the enormous availability of funds raised just before this crisis, so still, very recently. In this context of success and development of the sector in Spain, the times in which this type of investors generated suspicion in the excessively traditional business community seem fortunately overcome.

In any case, in the last months we are observing that this phenomenon occurs mainly in what we have come to call resilient sectors, such as technology, health or food, where this trend of high multiples is concentrated. Even deals in very early stages have accelerated their sale processes in order to take advantage of this open window.

What about the rest? In my opinion, there are many other sectors that are not currently in focus but that can bring great joy to investors. We continue finding quality companies in more mature sectors or, if I may, less “fashionable” areas, which are not splashed by the phenomenon of high valuations and whose value expectations, which until 2020 followed a continuous upward trend, can reach more reasonable terms, conditioned by the current crisis.

There is no doubt that there are great companies in traditional sectors that will be targeted by investors on reasonable terms. In addition, I would like to highlight the role that private capital has always played in supporting companies in periods of crisis and that, given the current situation, it will surely reappear as an effective tool for maintaining employment and consolidating growth.

Opinion article written by Oscar Sanchez, Partner at Norgestion, for El Economista

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