What is a SME Growth market ?

02 March 2020 - 22:00

5 Min read

What is a SME Growth market ?

Growth markets are designed for growing companies of small to medium size. Through use of a less broad rulebook than the main market, growth markets provide companies with more room to focus on business and development, while still being able to receive the positive aspects of a listed company. This affords investors with an opportunity for investment into that are at an attractive stage of their growth.

What is the difference between a ‘SME Growth Market’ and a ‘Main Market’?

Growth markets are meant for small to medium sized companies that follow a less broad rulebook, while Main markets are for larger, and more established companies that follow a more intricate rulebook.

Growth stocks are shares in a company that have an expectation to grow at a significantly quicker rate than average for the market. These types of stocks usually don’t pay out dividends because companies will often use funds and reinvest their earnings to build an accelerated growth within the immediate future. There is a high risk in investing in growth stocks, but this also comes with a higher earning potential.

On many of the exchanges you can find both types of markets. For instance, the London Stock Exchange the MTF market ‘AIM’ for growth companies and then a main market which is more regulated for more mature companies, much like the Nasdaq Nordic as the First North and main markets.

What inspires a company to list on SME Growth Markets?

A major milestone for privately owned companies is the process of going public and/or offering stock within an initial public offering.

While this milestone is important, the primary purpose for companies to go public is to raise money and spread out ownership risk among a larger pool of shareholders. Spreading out the ownership risk becomes more and more important as a company grows - the original shareholders can cash in on some of their profits, but still retain a percentage of the company.

The raised status of a company is only 1 of the advantages of being listed on a stock exchange, other bonuses include:

  • Option to raise more funds by issuing more stock.
  • Ability to make a company more lucrative and attract the best talent by offering stock and stock option programs to prospective employees.
  • A company will have more leverage if attempting to gain loans from financial institutions.
  • With stock listed on an exchange, it gives a company more exposure and could attract market maker makers, institutional traders, and mutual and hedge funds.
  • Indirect advertising - when the filing and registration fees for most major exchanges occur, it also includes a type of courtesy advertising. A company’s stock is associated with the exchange that the stock is traded on.
  • Brand equity - when a company has a listing on a stock exchange it increases their credibility in the eyes of the public by unofficially being endorsed through the stock traded on the exchange.

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How large is the SME Growth Market?

There are approximately 2800 companies in total listed on around 21 growth markets within Europe. Companies listed on a growth market can have a greatly varying market cap - anything from a 1 million to several hundred million euros, although the majority of companies tend to be on the lower, rather than higher end of the scale.

Activity on growth markets can vary greatly with activity creating activity in a loop, markets and countries that have developed an ecosystem are able to manage a lot of trading, funding, and new listings.

Sweden is a great example of an active market for private investors that has been going for decades. This market laid the foundation for several growth markets such as Nasdaq First North, NGM, and Spotlight, which then helped raise an ecosystem for analysts, corporate finance firms, and other providers. You can find a similar type of ecosystem around London AIM.

Where are the SME Growth Markets located in Europe?

Most, but not all, countries in Europe have growth markets. Despite most European countries having growth markets, the activity among them can significantly vary.

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What are the Growth Markets in Europe?

The following growth markets can be found in Europe:

  • Sweden: Nasdaq First North, NGM and Spotlight
  • Finland: Nasdaq First North
  • Denmark: Nasdaq First North, Spotlight
  • Baltics: Nasdaq First North
  • Norway: Oslo Axess, Merkur Market
  • Poland: New Connect
  • Romania: Aero
  • UK: London AIM, Nex Exchange
  • Ireland: Euronext Dublin
  • France: Euronext Growth Paris, Euronext Access Paris
  • Belgium: Euronext Growth Brussels, Euronext Access Brussels
  • Portugal: Euronext Growth Lisbon
  • Poland: New Connect
  • Spain: MAB
  • Bulgaria: BEAM

What is the history of Growth Markets and where did it originate?

Growth Markets originated from the need to assist smaller to medium companies gain access to capital and to fulfil development needs through the advantages of being a listed company.

How does one begin investing into a Growth Market?

Investments on Growth Markets happen the same way as that of Main markets since there is no difference between buying stock on a Main vs Growth market. Before beginning to buy shares, you should make sure you have an investment account with your bank or broker (depending on the country), and that it is connected to your funds/cash account. After this, start by finding out which markets your bank and/or broker cover and have access to.

How is the Growth Market regulated?

Most of the growth markets in the EU contain a MTF (multilateral trading facility) status. An MTF status does not contain the same legal status as a regulated market. Companies on a growth market are controlled by their own rules and not by the legal requirements within a regulated market.

Several MTF markets require a sponsor for the company that can keep a close watch on the company and ensure that it follows the rules. Examples of such a sponsor would be Certified Advisor for Nasdaq First North and NOMAD with London AIM.

Many exchanges will offer both kinds of markets, for example the London Stock Exchange includes the MTF market AIM for its growth companies and then a regulated main market for its more mature companies. Nasdaq Nordic as well has First North and also main markets.

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