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Enterprise Estonia: Capital availability study

Enterprise Estonia: Capital availability study. Lili Kirikal , Senior Manager at Ernst & Young Tallinn Transaction Advisory Services 25 October 2013. Background. Purpose – map supply and demand of equity ( for growth ) , identify market failures, give policy recommendations

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Enterprise Estonia: Capital availability study

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  1. Enterprise Estonia:Capitalavailabilitystudy LiliKirikal, Senior Manager at Ernst& Young Tallinn TransactionAdvisoryServices 25 October 2013

  2. Background • Purpose – map supply and demand of equity (forgrowth), identify market failures, give policy recommendations • Target group – traditional growth companies and growth financing (i.e. not start-ups, not high-tech, not buyouts) • Interviews: • 20 – equity providers (BaltCap, BPM Capital, EBRD, LHV Capital, Swedbank investment funds, etc) • 28 – companies that had raised equity (Graanul, TREV-2, Nortal, Aeroc, etc) • 26 – companies that said they might raise equity • 5 – companies that said they would not raise equity • Questionnaire responses: • 58 – companies that said they might raise equity • 424 – companies that said they would not raise equity

  3. Results Positive: • Estonian companies have identified many growth opportunities • Additional equity (from the current owner) is needed asoneof the primary sources to finance the growth opportunities Negative: • Very low knowledge of equity raising topics (conditions, providers, etc), which results in: • Fear of losing control and low willingness to share control • Low willingness to raise equity from third parties • Insufficient competition between equity providers in Estonia

  4. Recommendations • Focus on educating the market: • Best solution – local fund managers who are backed by “BIF2” type government-supported funds • Governmental support to associations for market education purposes • Increase the supply of equity: • Long-term government-funded programmes for BIF2 type funds • Smaller size of investments (below 1-2 mEUR) • Return enhancement mechanisms • Down-side protection mechanisms • Remove unnecessary restrictions from pension funds • Improve economic policies: • Avoid sudden changes in tax policies • Stregthen investor protection mechanisms and court practices

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