Paris financial centre rolls out red carpet for French tech
The Paris financial area is already seeing a revival in initial public offerings (IPOs) so far this year (with Believe, Aramis, Spartoo, HDF and others) and has many others announced or expected (OVHcloud, Colis Privé, GreenYellow, etc.). But it still thinks it can do better, especially at a time when about 20 French tech start-ups may go public in the coming months to fund their growth.
“It is important for the Paris market that these 20 or 30 unicorns [i.e., start-ups valued at more than €1bn] list in Paris,” explained Philippe Henry, a former HSBC banker and a member of Europlace, an association that promotes the Paris market, at a presentation Tuesday of Paris’s IPO attractiveness.
The first place for improvement is with investors, who are at times insufficiently involved in this type of deals, particularly when they involve tech companies, whose business models and valuations are not as well understood. The rough start for Believe, the first French tech company to list in Paris, is due in part to a lack of support from investors, despite the commitment by the Fonds stratégique de participations (FSP) a consortium of insurance companies, to take part in the IPO.
Europlace proposes to “proactively develop a domestic base of investors able to act as a cornerstone [i.e., an investor who pledges in advance to buy a portion of the shares that the company put up for sale], as well as crossover funds [able to invest in both listed and non-listed companies], including TIBI-labelled funds.” This label is awarded to funds that, on the initiative of the French Ministry of the Economy, have pledged to raise €6bn for tech companies by the end of 2022. Europlace proposes “to encourage the inclusion in TIBI specifications of more precise commitments regarding preliminary analysis of growth companies, prior to their Paris IPO preparations.”
Other proposals for investors include “encouraging the development of IPO funds by French asset management firms and the creation of screening processes for primary deals [equity issuance], so French asset managers can take more active part” and “steering accounting unit investments into equity funds via life insurance and employee savings by developing funds dedicated to tech and to European green companies.”
Making unicorns want it
But the pace of IPOs is not just a demand-side matter. Companies have to want to go public, Europlace acknowledges, and, hence, make this more attractive. The association thus proposes to “study the implementation of a new market segment encompassing growth companies, particularly in new technologies and the energy transition, that are able to introduce the best standards in liquidity, transparency and governance, on the model of the Segment Star at the Borsa Italiana,” which has just been acquired by Euronext. The Paris Stock Exchange has a segment reserved for growth companies, Euronext Growth, but unlike the Star, it is not regulated, which could some investors off.
Europlace also acknowledges that it is necessary “to boost equity research on listed companies of all sizes, which is key to long-term liquidity, while aligning with the research financing practices on other European markets.” The current revision of MiFID 2, which has upended equity research by uncoupling it from trading activities, is an opportunity to grab, Europlace believes. To “enhance liquidity on in small and midcap growth stocks”, the lobby recommends promoting “the role of market-making contracts” while taking into account the AMF’s reiterated stance on this imminently useful mechanism”, despite the reluctance of the European Securities and Markets Authority (ESMA).
Two other paths being explored by Europlace will probably raise the level of debate. One of these is an “European initiative like the Small Business Act in order to lighten the obligations incumbent on small companies, listed or not, particularly in terms of board membership and disclosures of compensation”. The latter could be tantamount to undermining current say-on-pay rules, which allows shareholders to vote on manager remuneration.