Flutter’s recent decision to move its primary listing to the United States, with the possible spectre of Smurfit Kappa following shortly, brings the future of the Irish equity market back into sharp focus.
There are currently just 31 listed companies on Euronext Dublin, a sharp decline relative to 100 back in 1999. While market departures are part of equity markets, the paucity of new listings is an ominous sign for the Irish market and a real cause for concern.
Over the last decade, many high-potential Irish companies have bypassed public equity funding in favour of trade sales to international investors, which often can be a missed opportunity for Ireland Inc.
A stock-market listing is often the final step on the funding escalator for a high-potential company. It can act as a critical conduit for domestic entrepreneurs to scale their business while also retaining strategic and operational control.
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It can also ensure a greater proportion of the intellectual property and wealth created by Irish entrepreneurs stays in the domestic economy. The benefits that accrue to the State from supporting such companies stretch well beyond higher taxation receipts and increased employment.
Supporting the growth of scaling Irish companies can bring greater balance to domestic industrial policy. An overreliance on foreign multinationals, which contribute an estimated 80 per cent of corporation tax receipts and in the region of 40 per cent of all income tax, has long been cited as a key risk to the domestic economy. The best counterbalance to boost economic resilience and broaden the tax base comes through creating an environment for an innovative and competitive indigenous industry to thrive.
More particularly, it nurtures businesses that have an ability to scale and become global leaders in their respective industries as the likes of Kerry Group, CRH and Kingspan have done before them.
Irish companies that have scaled through the public equity markets can and do play a crucial role in addressing the State’s infrastructure deficits. Cairn Homes and Glenveagh will have a central role to play if the State is to get to its 50,000-unit run rate of new homes annually, which in turn will be important in ensuring the State can continue to attract inflows of foreign direct investment.
Clearly, the travails of our domestic equity market aren’t a uniquely Irish phenomenon but a microcosm of a wider European issue. The EU 27′s stock-market capitalisation today is roughly equivalent to the US’s ‘Magnificent Seven’ technology companies
Furthermore, Ireland’s 2030 renewable energy targets are unlikely to achieved without a sizeable contribution from Greencoat Renewables, the largest operator of wind assets in Ireland. These names represent just a sample of the companies that provide critical services for Ireland Inc and for whom public equity market funding has been central to their success.
Clearly, the travails of our domestic equity market aren’t a uniquely Irish phenomenon but a microcosm of a wider European issue. The EU 27′s stock-market capitalisation today is roughly equivalent to the US’s “Magnificent Seven″ technology companies. In fact, the European Investment Bank has noted that a lack of financing for equity growth is among the biggest reasons for the scarcity of big new innovators in the EU, especially in the digital and technological sectors.
Paradoxically, despite a clear requirement for equity financing, a recent study by the Association of Financial Markets for Europe noted that, over the past three years, the region’s corporates accounted for just 7 per cent of new stock-market listings globally, a paltry percentage given the region’s scale in the global economy.
Among the central aims of the EU capital markets union (CMU) is to entice more people to invest in companies within the euro zone which, in turn, should benefit from lower and more diversified funding streams. This could assist in the creation and scaling of high-potential companies vital for increasing the competitiveness of the Irish and broader European economy.
Unfortunately, it has been almost a decade since CMU was first mooted and several hurdles remain to be overcome if it is to fully come to fruition. Some useful initiatives have been adopted at a supernational level, including the European Listing Act, which will make public capital markets more attractive particularly for small and medium-sized companies. However, it will certainly need to be supplemented by policy actions at national level.
Many of our European brethren have taken proactive steps to help high-potential companies thrive on the equity capital markets. The French Tibi initiative, launched in 2019, has been successful in mobilising the savings of institutional investors to help it become the leading ecosystem for financing of new technologies in the EU. It has also supported the establishment of crossover funds that can fill a funding gap pre-IPO and supports companies at the early stages of their listing journey.
This in time could help France emulate the success of Sweden, whose IPO count in the last decade not only far exceeded that of Ireland but also France, Germany, Spain and the Netherlands combined thanks to its deep pools of institutional and retail capital.
Nurturing a strong retail investment culture has been central to Sweden’s success. This has been achieved not just by providing targeted education to boost financial literacy but also through the establishment of tax-advantaged investment-savings-accounts products as far back as 1984, versions of which have now been adopted in the likes of Italy, Britain and France. These schemes not only serve to boost investment and liquidity in the shares of high-potential scaling companies but can also generate attractive returns for investors.
There is just over €136 billion sitting on deposit in Ireland, most of it earning a negligible return, some of which could clearly be put to more productive use for the benefit of both domestic companies and savers alike. A bold and creative initiative that would put excess savings to work in support of the next cadre of domestic champions could well pay dividends for Ireland Inc in the decades to come.
John Mullane is chief investment officer of Cantor Fitzgerald Ireland
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