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.

In most countries, the traditional route taken by companies to access the capital markets has been through the regulated market, which entails compliance with a number of criteria:

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.

There is another, equally important, benefit: greater investor access to the capital market leads to more efficient utilization of capital resources. Experience clearly shows that there is significant demand for IPOs, and there is, therefore, space for additional investment opportunities throughout Europe.
 
Prospects creates an opportunity for SMEs to access capital markets relatively easily and efficiently, and to benefit from the advantages which, so far, have only been available to much larger entities.
 
Small and medium-sized businesses will now be able to raise capital by issuing bonds, issuing new shares, or selling existing shares to a pool of investors far greater than their own family or business partners.
 
In a tangible and practical way, Prospects therefore offers many businesses growth opportunities which have hitherto been simply out of reach. This new market has been designed specifically for SMEs and, therefore, reflects their particular needs and circumstances.
 
Prospects' Key features:
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.

Companies considering admission to Prospects require the services of a corporate advisor, both before and following an admission process. The involvement of a corporate advisor by the SME ensures that transparency and corporate governance efficiencies are achieved and retained, thus instilling greater investor confidence.
 
Prospects will also help in succession planning - admitted equities may be traded on the secondary market, thereby un-locking value for existing shareholders.

Benefits of Prospects for Investors

The market will:

have access to all relevant issue information available through the Prospects website – both before and after the issue of the equity and bond to the public
enjoy the benefits of participating in small business growth
be the venue where the SME shares and/or bonds may be traded, creating an exit route for investors
ensure transparency and continued good corporate governance through the role of the corporate advisor who will continue to play a fundamental role while the instruments remain admitted to Prospects

 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.

Investors are, therefore, encouraged to take the necessary advice in order to build a well-balanced and appropriate investment portfolio, reflecting their own personal circumstances and investment objectives.
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The information below that is available free of charge is delayed by at least 15 minutes. Also the said information is only valid during market hours.

L-informazzjoni hawn taħt li hija disponibbli mingħajr ħlas hija ttardjata b'mill-inqas 15-il minuta. Ukoll l-imsemmija informazzjoni hija valida biss matul il-ħinijiet tas-suq.

Securities admitted to the Prospects MTF are issued by small and medium sized enterprises (SMEs). Investment in smaller companies can involve greater risk than is generally associated with investment in larger more established companies and can result in significant capital losses. Securities issued by SMEs tend to be illiquid and investors should therefore seek appropriate advice before making any investment.

Titoli ammessi fuq Prospects MTF jinħarġu minn intrapriżi żgħar u ta’ daqs medju (SMEs). L-investiment f'kumpaniji żgħar jista’ jinvolvi riskju akbar milli huwa ġeneralment assoċjat ma' investiment f'kumpaniji akbar u aktar stabbiliti u jista’ jirriżulta f'telf sinifikanti ta' kapital. It-titoli maħruġa mill-SMEs għandhom it-tendenza li mhumiex likwidi u l-investituri għandhom għalhekk ifittxu parir xieraq qabel ma jagħmlu xi investiment.

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