The spark behind Sparks, SIX’s new segment for SMEs
The Swiss Exchange recently launched Sparks, a new segment dedicated to small and medium enterprises. This means that SMEs now have the necessary tools to put their IPO projects in motion. Listed enterprises will benefit from having greater flexibility in optimizing their ownership structure, broadening their financing options and gaining access to a broader investor base.
Christian Reuss, head of SIX Swiss Exchange, tells Tanya König what the spark behind Sparks was.
What’s the purpose of Sparks, the new segment on the Swiss Stock
Well, when you take a step back, SMEs tend to be the backbone of many economies
with regard to job creation and retention, innovation, the build-up of know-how, etc.
And that also holds true for Switzerland. So doing something good for the segment
obviously makes sense, but it also has to be meaningful. What does it mean for such
a new segment? It means that we have enough companies to populate such a
segment and give it a positive dynamic to the benefit of the companies becoming
part of the segment.
And do you have enough companies?
Well, we looked at the venture capital market of the past five to 10 years, and here
we’ve seen that investments increased by a factor of five. In addition, everyone has
seen the private equity market booming. So adding all that together, we assume that
a bit more than 200 companies either may require funding or may become available
for sale in the next decade. And that can be either privately or publicly via Sparks.
What are the advantages for SMEs if they list on the SIX Swiss Exchange?
There are several advantages. First and foremost, they can raise capital, and they
can do so in a fast and efficient way. Usually everyone looks at the IPO and the initial
funding for growth, but there are also follow-on offerings and this can also be used
for growth or also to increase resilience. And 2020 has been an extremely good
example, when we saw a lot of companies that were under stress and required
capital, and at SIX Swiss Exchange about 5.7 billion Swiss francs in capital was
raised in 2020. That’s about 30 percent more than the average of the prior three
years. So you can see that even in difficult times, the Swiss capital market is very
robust and helps companies to find financing.
So that was one advantage. Are there any others?
Yes, there are several, let me point out two more. One certainly wants to become
listed as a company, which usually increases the brand awareness and also the
visibility that a company has. Not just around the time of the IPO but also down the
road when it keeps growing so it gets media attention and at some stage even
research coverage. Another factor is that companies that are listed on the exchange
actually adhere to high standards and transparency and regulation, and as such you
may say they get a “quality stamp” from the exchange that they can use toward their
stakeholders, whether it be their clients, investors, or even suppliers.
So these are the advantages for the companies. What makes the Sparks equity
segment attractive for investors?
First, it provides the opportunity to invest in fast-growing SMEs, which in itself can be
quite attractive. Second of all, the companies are listed on the exchange, so they
adhere to higher transparency and to regulatory standards. And that is just the flip
side of investor protection. So not only can you invest in growth companies, you can
also do that with relatively more investor protection.
Any additional benefits for investors?
Yes, there are more. The Sparks segment is actually a fully-regulated exchange
segment compared to other growth markets and other jurisdictions in Europe, which
are MTFs and are one notch below the regulatory standard of an exchange. Now,
what’s the benefit of that? The benefit is, for example, that pension funds can invest
relatively more into SMEs listed on the exchange rather than in MTFs, so maybe
that’s an interesting opportunity for pension funds and other institutional investors.
Anything about trading?
Trading is a challenge. SMEs are less liquid than a Roche, Novartis, or a Nestlé
share. So to cater to that, we actually shortened trading hours. We have a trading
window lasting from 3 p.m. to the close, and here investors can come together in this
condensed time frame and hopefully have the best possible price formation for these
Looking ahead, what's your general outlook for IPOs in 2022?
For the perfect IPO environment you need high valuations, low volatility, and
generally good economic conditions, like a stable interest rate environment or low
geopolitical risks. So in other words, everything we did not have in January.
However, looking down the road we think that the environment will become better,
and of course we also have a promising pipeline of IPO candidates, both for the
main market and Sparks. So hopefully it will be promising, and hopefully it may
become a good-to-a-strong year with regards to IPOs on the SIX Swiss Exchange.
So you have a few IPOs in the pipeline. Can you be a bit more specific?
Of course I can only say what has already been publicly stated, but with Xlife
Sciences we already have the first listing on our new segment, which is a great
kickoff into the year.
Why is Switzerland a good place to invest in SMEs?
Well, Switzerland actually provides a combination of interesting factors. First, it’s a
stable economic environment, it has a very strong currency, there is a dedication to
quality, and of course a proven track record in innovation. And all that is coupled with
deep pockets of investing. We have about USD 7 trillion in assets under
management, providing excellent opportunities to fund growth.