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Small and medium-sized companies are enjoying the first benefits of the strategy introduced in 2010 by NYSE Euronext and the market ecosystem, which facilitates their access to capital markets. The merger with Deutsche Börse will create a unified pan-European market of almost 1,400 SMEs for a total of 1,800 listed companies.
Around 80% of the companies listed on NYSE Euronext European markets have market capitalization of less than €1 billion. Their contributions to innovation, growth and job creation make them an essential component of the European economy, and yet they face huge challenges when it comes to financing. Today, 92% of their financing needs are met by bank loans, 7% by private equity and only 1% by the financial markets. "In the wake of the financial crisis, many found that their traditional sources of financing had dried up, or were offering far less attractive solutions," says Marc Lefèvre, Head of Listings, Europe, NYSE Euronext." To finance their growth and investments, these companies must have access to affordable capital; they need available and functional financing solutions from the financial markets."
Unfortunately, the European capital markets don't always operate as they should to offer SME-ISEs1 the resources they need for their development. Too few investors, brokers and analysts show interest in this market segment, particularly as European reforms such as Basel III and Solvability II have led the major players in the financial sector to turn away from smaller caps.
Creating a favorable ecosystem for SMEs
“It is crucial that we develop a more positive environment for small and mid-caps," insists Mr. Lefèvre. Improving the market environment means revising certain regulations at European level. NYSE Euronext supports the adoption of a "Small Business Act" under European securities law to make listing easier for SMEs. "Today, a company with capitalization of €150 million must meet the same requirements as petroleum giant Total," says Mr. Lefèvre. In particular, it would be helpful to simplify the Prospectus directive, extend deadlines for publishing financial statements, and adapt accounting standards.
Increase in IPOs in 2010 and 2011
With regard to its own markets, NYSE Euronext introduced a strategy in 2010 on all its European markets to facilitate access for SMEs and ISEs. This strategy focuses on three areas: education, sales and regulations (see box below).
Initial results are encouraging: more than 50 new SMEs joined NYSE Euronext's European trading platforms last year, and another 30 or so during the first seven months of 2011. Close to two-thirds of NYSE Alternext market entries were supported by venture capital funds, which now view the stock exchange as a natural pathway for their investments.
The market contributed a total of more than €4.3 billion in new funding to small and medium-sized companies listed in 2009 and 2010, through market introductions and secondary operations, and €1.1 billion so far in 2011.
New impetus with the NYSE Euronext – Deutsche Börse merger
The merger with Deutsche Börse will further support this strategy, as almost 1,400 of the 1,800 companies listed on the unified pan-European market are small and medium-sized companies. "They account for 80% of our respective listings, which places them at the core of our business and at the center of our strategy. We've made a firm commitment to increase the visibility of SMEs and ISEs and give them access to a larger pool of liquidity," affirms Mr. Lefèvre. NYSE Euronext will profit from the experience of its German partner and its strong culture supporting intermediate-sized companies, the famous "Mittelstand."
1Small- and medium-sized companies – Intermediate-sized companies