07 October 2011
Volatile international IPO activity highlights need to cut red
tape for SMEs
Structural reforms are needed to make the IPO market more
attractive to small and medium-sized enterprises (SMEs) in the wake
of considerable volatility across European Exchanges since 2000,
according to a new report published by the City of London
Corporation today.
Trends in IPO Listings by SMEs in the EU, authored by
Colin Mason at the Human Centre for Entrepreneurship at Strathclyde
Business School, shows that the number and value of IPOs across
Europe remains well below 2006-2007 levels despite a recent
upswing.
This trend mirrors activity over the same period in the US
market, which unlike Europe has actually seen the population of
publicly-listed companies decline since the late 1990s with current
IPO levels below replacement rate. In contrast, IPO levels in
Greater China reached record levels in 2010 and with 492 listings
worth €98bn outperformed both Europe (380, €26.3bn) and the USA
(168, €29bn). In the first half of 2011 the volume of IPOs in
Europe exceeded that of China (229 cf. 206) but the value of the
Chinese IPOs was considerably greater.
The low number of European IPOs in recent years could be
attributed to cyclical factors such as market sentiment and
liquidity issues. However, the report also highlights several
structural issues that potentially act to discourage SMEs from
seeking an IPO including: the pricing of small IPOs, relatively
lower funding rounds for EU venture capitalists, a decline in
demand for venture capital in technology sectors, and - on the
supply side - a disconnect between business angels and venture
capital funds.
Stuart Fraser, Policy Chairman at the City of London
Corporation, commented:
“Helping the small and medium-sized business sector to grow is
one of the few economic policy aims to be shared across party,
national and regional boundaries. Viable SME growth is rightly a
priority given the benefits this brings to the whole economy.
Indeed, SMEs together account for 99.9% of all private sector
enterprises and 59.1% of private sector employment, providing over
13 million jobs in the UK.
“At a time when bank lending is constrained and bank finance for
SMEs has contracted, it is essential that other flows of funding
are accessible, liquid and function competitively. The IPO market
brings huge economic benefits but recent volatility in both Europe
and the US highlights the need for small but significant changes in
policy to boost the attractions of this route.
“Governments need to ensure that their intentions to deregulate
and cut red tape are delivered, in order to make it more attractive
to start and grow small businesses. In the UK, the cutting or even
the abolition of stamp duty on equity trading would cut the cost of
capital and boost aggregate market values. The regulatory
presumption that a smaller company is by definition a riskier
company needs to be challenged, and other measures to boost
liquidity will of themselves reduce – though they can never remove
- the risk of holding smaller company shares.”
Ends
Notes to editors
Download Trends in IPO Listings by SMEs in the
EU (PDF, 4mb)
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