Capital Markets Union: The perspective of European growth companies

TheCityUK has launched its new report in conjunction with EY, titled ‘Capital Markets Union: The perspective of European growth companies’. The report finds that future European financial stability could be at risk over the long-term because of a lack of sufficient knowledge and awareness about complementary and alternative forms of finance among EU growth companies.

The report argues that not only could this hinder their future growth potential, but that sole reliance on bank funding could leave businesses exposed in the event of future economic downturns if credit supplies are constrained, or when quantitative easing stops.

Overall, much greater awareness is needed of the alternative options available and why they should be considered, as well as better information and advice from financial providers and advisers.

Most of the 37 mid-sized EU companies surveyed expressed reluctance to ‘step into the unknown’ of alternative financing.  

  1. Just over half had little or no knowledge of complementary or alternative financing sources
  2. Two-thirds stated their intention to remain loyal to bank funding as their sole source of finance – despite many admitting to applying for less funding than needed for fear of being turned down.
  3. More than half also cited perceived costs and administrative burdens associated with different sources of finance as critical issues, particularly in relation to credit information and requirements around producing a prospectus for an initial public offering.

TheCityUK has long been championing the important role alternative finance can play in complementing bank lending. The European Commission’s Action Plan on CMU makes clear its intention to promote information and support for companies seeking market-based funding, but what this report underlines is the urgency that should be attached to this if Europe’s growth companies are to have the confidence to move away from sole reliance on bank financing and a CMU is to be fully realised. Both the public and private sectors have an important role to play in supporting this.

The work the Commission is already undertaking on modernising and simplifying the Prospectus Directive as part of its CMU Action Plan will help to address the barriers for growth companies seeking to list and TheCityUK will continue to engage closely on this project.

About the report:

EY carried out in-depth qualitative interviews with 37 medium-sized companies across a range of sectors (pharmaceuticals, biotechnology, advanced engineering and information technology) and six EU Member States (France, Germany, Latvia, Poland, Italy and Portugal).

Between March and May 2015, in-depth, structured qualitative interviews with the CFOs and other executive team members of the selected c companies.  These were supplemented by interviews with a selection of 16 financial market participants – banks, private equity houses, investment funds, peer-to-peer lenders, stock exchanges and an international development bank. In addition, EY evaluated the findings from these qualitative interviews against two detailed quantitative studies:

  • The 2015 EY Mid-Market Barometer, which included 6,000 corporates, including 2,030 in the member states included in this research
  • The 2015 EY European Banking Barometer Survey of 226 senior bankers
  • EY also compared the outputs against those of an alternative financing benchmark report by the University of Cambridge and EY.