Expert commentary by Tim Ward, CEO, Quoted Companies Alliance
The nature of the UK’s public equity markets is undoubtedly changing, but their importance and the economic purpose they serve remains. This is especially the case for smaller, growing companies like those included in the 1000 Companies to Inspire Britain report.
The UK is recognised throughout Europe and beyond as having unique and vibrant markets for smaller companies. This is attributed to the exceptional interplay between companies, different types of investors, advisers and liquidity providers. This infrastructure has enabled a large number of small companies to access capital, allowing them to scaleup and grow. This has helped to build wealth for investors, employees and wider UK society.
Currently, there are many challenges facing the UK. Undoubtedly, the most significant challenge is in relation to the COVID-19 pandemic and the health of the nation. Equally important is the resulting economic impact that the pandemic has had as a result of lockdown in an attempt to limit the spread of the virus. The crisis has presented significant challenges to companies from all different sectors and of varying sizes.
However, the crisis has shown (yet again) that equity markets are a lifeline for companies as they are able to tap the market for funds at a time when access to other forms of finance is either unwise or unavailable. Short-term survival has been assured for many companies, while the additional finance others have been able to obtain will enable them to take advantage of acquisition opportunities. This is evidence that equity markets work.
As attention switches to recovery and avoiding the potential economic crisis that could ensue, we must be mindful that public equity markets, and the small and mid-size quoted companies that operate on them, can also play a key part in a medium-term solution for the economy.
Public companies can exhibit resilience and adaptability due to the advantages permanent equity has over temporary bank debt. This is a way for a growing company to create a stable capital base upon which to build a developing business model.
While the current crisis has undoubtedly necessitated an appreciable increase in corporate debt issuance through the various government schemes, there will be a shift towards stimulating demand and building further resilience to future economic shocks. High levels of debt correspond to higher levels of economic volatility, unstable financial systems and slower growth.
Growth companies are key to the future health of the UK economy. With the right platform they are able to scaleup and grow, to create the jobs and the wealth that Britain needs in periods of volatility and uncertainty. It is the collective responsibility of the equity market players to ensure that the best possible conditions for growth are maintained and expanded. Careful choice of the type of capital required could accelerate and potentially re-risk the growth of many companies.
In short, we have seen, and will continue to see, that equity markets work for entrepreneurs, investors and the wider economy.