For some time now, a misplaced false dichotomy has circulated as part of the ecosystem narrative in capital markets. According to this, managers of private equity funds should be in opposition the proper functioning of public markets. Nothing could be further from the truth!
Martin Bresson is the Director of Public Affairs of Invest Europe.
It is true that PE managers from time to time pull out some of the companies they have invested in and it is also true that it sounds to some like annoying beeps on statistics on the proper functioning of (European) public markets. But these rare examples of voluntary delisting of a company as part of a movement to create medium and long term strategic value, as opposed to the short term goal of public procurement, is hardly a point of view. general opposition.
It is also true that at Invest Europe we strongly oppose those who advocate increasing administrative burdens for private companies, simply to create imaginary “level playing fields” with listed companies. Shooting yourself in the right foot to create balance with your already injured left foot is probably the worst strategy for moving quicklyâ¦ as it can âlevel things offâ.
So on this basis, let’s rectify things: for private equity fund managers, there are generally three types of exit options. First, the business can be bought or acquired by another (usually larger) private equity fund – this is especially true for venture capital funds that support start-ups bought as scale-ups by companies. growth funds.
Second, the business can also be sold to another business through a commercial sale – examples in the tech industry, such as selling Skype to Microsoft, also abound.
And third, privately funded companies have the option of becoming listed entities through Initial Public Offerings (IPOs).
Over the past decade, the former two have been significantly more popular than the latter. IPOs over the past five years have consistently accounted for less than 15% of all exits by volume and less than 10% by number of companies. This is not, however, peculiar to private equity outflows – it reflects the wider decline in public procurement, especially in Europe.
A decline which is in part due to the comparatively better performance of alternative asset classes such as private equity, but also rooted in an undeniably important regulatory problem that needs to be addressed: the inherent costs and complexity of listing. What recent review of the prospectus framework and the SME Growth Markets Initiative simply did not tackle in a sufficiently ambitious way.
So even though we represent the private side of the equation, we are among the recipients applauding with enthusiasm the final report of the European Commission technical expert group on SMEs (despite its somewhat outdated title) “Empowering EU Capital Markets for SMEs: Making Listing Coolerâ. Readjust the focus and re-mobilize efforts to allow SMEs to leave Public is in their best interest – and that of their shareholders – and, as such, very, very commendable.
Other initiatives such as Expanding Europe also rightly underlined the need to strengthen exit options and IPOs in order to contribute to the broader goals of technological sovereignty and economic growth. On this initiative launched by the French President, Emmanuel Macron, upstream of the French presidency and in which Invest Europe was actively involved, one of the 21 recommendations made is to âcreate an ecosystem favorable to the listing of technology companies on European stock exchangesâ.
Taking stock (!) Of these proposals and in order to ensure that European companies have attractive exit options and that the number of IPOs increases in the coming years, we believe that some measures and policy changes are still necessary and we look forward to working with the Commission and the French Presidency on these. The list below is certainly not exhaustive, rather an entry for ten:
Among the policy changes to improve IPOs we would like to see include a simplification of listing rules and requirements that would make European markets more attractive and economically attractive, especially compared to US markets. Another gap that has been identified by investors, Scale-up Europe and the expert group is the need for pre-listing support by drawing on the expertise and talents of other countries.
In addition, additional measures could be taken to facilitate the transition between the first stages of the exit process and the final introduction of the company on the public market, for example through the development of cross-funds through the next fund of IPO of SMEs.
All actions combined will give a real boost to IPOs for the ultimate benefit of the European economy. Such a push can give European public markets the boost they need and strengthen the entire financing ecosystem by providing private markets with an exit alternative that has long suffered from comparisons – and this would be to the advantage. mutual of the two private equity and Public markets.