Prospects
SMEs - Enterprises at the Heart of the Economy
Small and medium-sized enterprises (SMEs) are the backbone, or perhaps the beating heart, of many economies. The vast majority of companies within the European Union are SMEs and most would actually be classified as micro enterprises, as they generally employ fewer than ten persons, and have a turnover or balance sheet value which is lower than €2,000,000.
Typically, such businesses are family-run operations. Like any other enterprise, they need access to finance to sustain and grow their operations, and continue to generate employment and value for all stakeholders. In reality, however, small businesses find it difficult to access alternative sources of finance and tend to rely primarily on bank finance, family funds, and their own retained earnings. Such constraints severely limit their potential and the greater role they could play in growing the economy.
The 'risk capital' which fuels the growth and expansion of larger businesses is simply not available to SMEs, which thus face a ‘financing gap’. While entrepreneurial owners are the dynamos that keep SMEs going, such people have little time for financial planning and moreover, their ability to provide collateral to support bank finance may also be restricted.
Succession statistics are stark. Though estimates vary, in many countries, a third of businesses do not successfully make the transition from the third generation to the next. Given the high incidence of family-run businesses, this reality raises a number of concerns about why businesses do, or do not, survive, and the owners' attitude to proper succession planning.
Access to Capital Markets
Larger SMEs already have access to capital markets; for example, almost half of the organisations listed on the Malta Stock Exchange (MSE) are entities of this size. The benefits of listing are evident – in fact, listed organisations out-perform their unlisted counterparts in terms of turnover, employment and profitability as a result of better corporate governance, efficiency and brand value.
Listing has to be granted by the relevant Listing Authority |
Instruments are passportable within the EU if admitted in compliance with the Prospectus Directive |
The listing process requires a prospectus |
There are minimum share capital requirements |
There are minimum market value requirements |
A minimum of 25% of the issued shares must be offered to the public in the case of an equity |
The listed company must have a compliance officer who ensures on-going adherence to listing obligations |
Prospects - A New Tool to Access Capital Markets
The development of Prospects is in line with the MSE’s commitment to open up new capital market opportunities, create economies of scale, and to afford businesses more competitiveness and sustainability.
Compliant with Markets in Financial Instruments Directive (MiFID) which harmonises the regulation of investment services and Multilateral Trading Facilities (MTFs) | There is no minimum value for the IPO, though the MSE envisages IPOs of between €1 million and €5 million |
Admission granted by the MSE | Any number of shares may be floated - there is no requirement for a minimum percentage of shares to be held by the public |
A corporate advisor is required | This product is not passportable within the EU* |
A business plan is required | Securities admitted on Prospects will benefit from the MSE brand and reputation |
*When approved by the MSE
Prospects provides cost-effective access to capital – there is no need for security or collateral, though investor and market confidence are required for success.
Benefits of Prospects for Investors
The market will:
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While SMEs generally enjoy very strong growth potential, and levels of profitability, the risks of investing in the SME market should not be ignored. As SMEs are, by their very nature, more susceptible to adverse market conditions, this particular market involves a different level of risk to the potentially better capitalised, larger organisations listed under the Prospectus Directive.