About the report
Xavier Rolet KBE, CEO, London Stock Exchange Group
“These companies are the engine – and the future – of the European economy”
Welcome to the first edition of London Stock Exchange Group’s 1000 Companies to Inspire Europe: a unique report identifying, for the first time, Europe’s most exciting and dynamic small and medium-sized businesses.
This project has been our ambition since we launched the first edition of the British version of the report in 2013. Its development and publication is born of our desire to shine a light on what we know to be true: these companies are the engine – and the future – of the European economy. Only they can tackle the chronic economic problems affecting Europe. Only they can drive high-quality job creation and economic growth. As Nassim Taleb said in “The Black Swan”, an SME economy is an “anti-fragile” economy.
Across the Euro area, SMEs are responsible for two-thirds of jobs and 60% of value added to the business economy. And many SMEs, if properly supported, can grow both employment and revenue at exceptional rates.
For example, the 1000 companies highlighted in our report have a compound annual growth rate of 71%, with the top 100 growing at more than 400% over the three-year period.
66% – growth in job creation over the last two years
The companies listed in this report boast an impressive 66% job growth over the past two years. Even in countries tackling mass unemployment, these companies are delivering with 63% annual job growth in France, 47% in Greece and 41% and 77% in Italy and Spain respectively.
By their very nature, SMEs that have succeeded have done so through their significant ability to innovate and grow, either offering new services or reimagining the provision of existing business models.
And because their success tends to be based on innovation – our 1000 companies count over 4,000 patents and trademarks between them – rather than the strict cost control typical of large cap businesses, the jobs they create are usually higher skilled and higher paid. A small number of these types of companies, variously identified as ‘gazelles’ or ‘scale-ups’, can have a remarkably disproportionate impact on European economic output. Independent research has shown that just a 1% increase in the number of high-growth businesses would add 2% to GDP. It’s a huge multiplier.
By contrast, the traditional sources of job creation in Europe are in decline. Blue chip firms have created zero net new jobs since before the financial crisis, focusing on cost-cutting and emerging markets, rather than European expansion. Since 2009, the public sector too has dramatically cut its own workforce.
So the question is how do we give dynamic, innovative companies like the ones illustrated in this report the tools they need to grow and become the major European job providers of tomorrow? How do we equip them to go from Start-up to Stardom?
The right finance for growth
The answer lies in giving them access to the right form of growth finance. Europe has a mixed track record, however, at developing small and medium-sized innovative companies into the big job providers of tomorrow.
Over the past 40 years, just one of the most successful global start ups has come from Europe – while over 25% came from California alone.
One of the main reasons is Europe’s reliance on debt to try and finance growth. In Europe, 80% of financing for SMEs still comes from banks, with only 20% coming from equity. In the US, the opposite is true. No wonder their economy has recovered so much faster, with so many more new companies becoming big job providers.
Debt is a short-term fix that does not encourage long-term growth. It may be a suitable funding tool for established blue chip multinationals, but is not designed to help innovative companies who need capital to grow and invest.
Any small company in receipt of a bank loan must prioritise managing that debt or risk default, instead of using all its financial and human capital to invest, innovate and grow.
“The economic potential of equity finance is clear”
And, as has been made painfully clear all too often, too much debt always ultimately leads to disastrous consequences for the wider economy, with people subsequently suffering from fewer jobs and lower wages.
Now, post-crisis, we have an opportunity to fix this.
We must unleash the power of equity finance where people seek investment to grow their business, in return for a stake in that business.
This type of long-term finance allows companies the time and space to innovate, invest, grow and create jobs. There is a vast amount of equity finance potentially available throughout Europe, but for growing companies, there are too many barriers to accessing it.
This is why Commissioner Hill’s plan for a Capital Markets Union (CMU) throughout Europe is so important. This will break down barriers and simplify access to multiple sources of finance throughout the EU, including making it easier to access finance from countries both within and outside the EU, as well as making it less expensive and less burdensome for SMEs to raise capital.
I am delighted Lord Hill has endorsed this publication. The economic potential of equity finance is clear. Figures for the latest year available show companies who raised capital on the London Stock Exchange’s growth stock market, AIM, instead of borrowing from the banks, created 731,000 jobs, paid £2.3bn in tax and contributed £25bn alone to UK GDP.
4,000 – the number of patents and trademarks held by the 1000 companies in this book
And in continental Europe, one should look at the role of equity finance following the financial crisis. In the first six months of 2014 – when banks were struggling to lend and governments were undertaking massive cuts in public spending – 67 companies from Portugal, Ireland, Greece and Spain, countries that were hardest hit by the crisis, raised over €30bn in equity finance to help invest, grow, and create jobs.
So equity finance can work in Europe. And if Europe is to have a sustainable economic future – it has to support new companies, new ideas, new jobs and a new funding model. Only innovative companies can create the high quality, well paid jobs of tomorrow – but they need access to deep pools of finance to do it. And, of course, an economy less reliant on debt-financing is a much more resilient one.
Inside the report
In this new report, we highlight 1000 of the fastest growing SMEs across the 28 countries of the European Union. Our selection criteria (see page 115 for details) require companies to have shown not just growing revenue over the past three years, but also to have outperformed their sector peers. Our unique methodology, devised by Bureau van Dijk, reveals a community of European businesses richer and more varied than we believe ever identified in any other exercise of this type.
The consequence of their growth is apparent Europe-wide. Not just from more, higher-quality jobs but in higher tax receipts, helping to fund public services and infrastructure spending. The success of our high-growth businesses is tangibly and inextricably tied to the success of Europe.
“To have a sustainable economic future, Europe has to support new companies, new jobs and a new funding model”
In this, our first European report, we see some interesting trends emerging. For example, Europe remains a continent with a proud and successful manufacturing and engineering sector: with a quarter of the companies we identified coming from this one area.
Standout sectors for growth include construction with 138% annual revenue growth, IT & telecommunications with 89%, Retail with 78% and Pharma/Science with 68%. As already noted, job creation too is astounding.
Naturally, the constraints of time and space have meant we have not been able to tell 1000 stories. However, the full index is at the back of this book and a searchable database can be found online at www.1000companies.com.
I want to thank our sponsor AFME, whose support has made this publication possible. Their tireless and effective work with SMEs at key stages of funding and development, and promotion of stable, competitive, and sustainable European financial markets has done so much to drive economic growth, jobs and investment.
Our thanks also goes to the who’s who of expert contributors including Business Europe, EuropeanIssuers, EUROCHAMBRES, EUAPME and CEPS/ECMI for their insights and ongoing support of the SME community.
I would like to extend my personal gratitude to the Commissioners and senior policymakers who have given this report their support: European Commissioner Lord Hill, Markus Ferber MEP, Cora van Nieuwenhuizen MEP, Othmar Karas MEP, Alain Lamassoure MEP, Paul Tang MEP and Kay Swinburne MEP. Their tireless and important work is helping to build the foundations of a truly pan-European effort to support and champion the work of Europe’s SMEs. Their contribution to this publication is testament to their deep understanding of the need to support, encourage and fight for the future of ambitious growth businesses.
I hope you enjoy the report and I encourage you to explore the database of inspiring companies we have identified. Europe is at its best when ambitious entrepreneurs and companies are given the space and support to thrive. These 1000 companies are the vanguard of a new European economy. We hope you are inspired.
Xavier Rolet KBE, CEO, London Stock Exchange Group