Deeper capital markets required for EU SMEs, says Hill

h2>Former financial services commissioner argues that young firms are too often required to seek out the “short-term fix” of bank debt

If Europe is serious about supporting jobs and growth, it requires deeper capital markets for funding companies. That is the message from former EU financial services commissioner Lord Jonathan Hill in new London Stock Exchange report 1,000 Companies to Inspire Europe 2016.

Focusing on the SME landscape, the report examines firms that, on average, have achieved an annual compound growth rate (CAGR) of 71%, while increasing their staff numbers over the past two years by 66%.

Over the past three years, it notes, the top 100 companies on its list have grown by more than 400%. Yet in four decades, just one of the world’s most successful start-ups has come from Europe – while 25% have emerged from California alone.

One of the report’s most remarkable aspects is how so many of the firms it focuses on have stemmed from innovative business models, such as:

  • Holaluz Spain’s first electricity supplier to conduct all of its business online;
  • Onepoint A French digital consultancy that works with companies to optimise their electronic and online infrastructures;
  • Vatservices Spanish fintech firm that specialises in the transport sector, funding freight companies’ tollbooth payments;
  • Desmi Danish manufacturer of specialist, high-tech pumps and other equipment for use in oil-spill responses; and
  • Accedo A Swedish user-experience and optimisation consultancy for video-based digital content.

The report also reveals some extraordinary figures – such as the 158% average, annual job growth achieved by the five, listed Bulgarian companies, and the 30-strong Polish segment’s CAGR of 155%.

In its analysis, though, European start-ups are too often required to seek out the ‘short-term fix’ of banking debt when they need funding for new initiatives. Equity, it argues, provides far greater space for development and innovation.

Lord Hill, who resigned as financial services commissioner in the wake of the UK vote to leave the EU, warns in the report’s foreword that “if promising companies can’t get financing in Europe, they will vote with their feet and look for it elsewhere”, benefiting other regions with their growth potential.

“To help tackle this problem,” he explains, “we have come forward with a range of measures as part of Capital Markets Union (CMU). To help companies in their start-up phase, we are making a push to strengthen the European venture-capital markets to build up scale, diversity and choice.

“To free up bank lending for smaller companies, we have made a proposal to restart Europe’s securitisation markets. For companies that are growing, we’re overhauling the Prospectus Directive to create a simpler, faster and cheaper prospectus regime.”

In the report, Hill argues in favour of removing longstanding barriers to cross-border investment and bringing forward proposals to try to reduce differences between national insolvency regimes.

In a separate statement, Xavier Rolet – chief executive of the London Stock Exchange Group – said: “This research shows high-growth SMEs are the driving force behind the European economy.

“While public-sector and big, blue-chip companies have not been creating jobs for many years now, these companies are growing and employing at an incredible rate.”

He added: “Because by definition these companies are innovators, these jobs tend to be higher skilled and higher paid, helping to give young Europeans the brighter economic future they deserve.”

Download the full report from the London Stock Exchange website.

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