Private placements: financing companies' growth over the long term
Following a conference held in Paris last week for around fifty of Societe Generale’s small, medium and intermediate sized business clients in France, Carol Agard, Laurence Mouratille-Levy and Guy Silvestre, respectively Director, Managing Director and Head of Societe Generale’s Global Capital Markets department, explained the role played by private placements in providing long-term financing for the economy.
Carol, how is the private placement market doing at the moment?
The three private placement markets have experienced strong growth in recent years. These markets are:
- The US private placement market (USPP), which is the oldest market and has average volumes of around $50bn per year;
- The Schuldschein market (SSD), which saw a big increase in volumes in 2015 and 2016 driven by attractive tariffs for issuers (€26bn in 2016, versus €8bn in 2013*);
- The euro private placement market (EuroPP), which was founded in 2012 and generates volumes of around €3-4bn per year in France. This market is becoming more widely known and now gives smaller businesses direct access to the capital markets.
The private placement market allows issuers to diversify their sources of financing beyond their pool of traditional banks (which is an advantage, in particular for acquisitions) by tapping longer-term resources to manage their requirements.
It provides a good opportunity for companies - especially for unlisted ones - to take a more professional approach to their financial and corporate communications both at the time of issue and throughout the deal’s entire lifetime.
Over time, the number of investors has grown and they have become more experienced in terms of organisation, selecting deals (financial analysis) and monitoring them over the long term.
Finally, arrangers make the market and set up the deals by structuring and placing them while striking a balance between issuers’ needs and investors’ requirements.
Laurence, what makes a company decide to use disintermediated financing solutions?
Private placements complement traditional bank placements while meeting different needs. At our conference, where we asked companies to share their experience of private placements, the main arguments put forward in favour of private placements were:
- Access to additional financial resources to complement existing ones;
- The more diverse and international investor base;
- The longer financing period and more attractive financial terms.
While here in Europe we haven’t yet reached the 80-20 ratio seen in the US market (80% disintermediated financing, 20% bank loans), private placements are becoming increasingly important for listed and unlisted SMEs in Europe. Some companies at our conference had already made EuroPP and SSD issues, while others had carried out a EuroPP backed by a syndicated loan. Others had completed a USPP. The combination of disintermediated and traditional financing allows companies to optimise the structure of their debt.
Guy, how do you see the future for private placements?
The authorities fully support disintermediation as a means of achieving a balance in terms of financing the economy. The French Treasury, the Banque de France, associations representing the financial industry in France (AMAFI, Paris Europlace, AFTE, CCIP, FFSA, FBF, AFG, etc.**) and in Europe via the ACMI, as well as banks all hope to see the private placement market grow further in service of small, medium and intermediate sized companies.
Following past and ongoing reforms, the private placement market has grown and become more professional, lowering the barriers between corporate and more leveraged or structured deals. This has given the market more depth and made it more attractive.
Societe Generale has supported the development of the private placement market*** for many years and is the leader on this market. It provides SMEs and intermediate-sized enterprises with a full range of services, including:
- Origination teams, who advise issuers on the best solution with no preference for any of the different private placement products (EuroPP, SSD, USPP);
- 3 syndication teams (in Paris for the EuroPP, in Frankfurt for the Schuldschein and in New York for the USPP);
- The entire sales team in contact with investors.
* Source: Societe Generale.
** AMAFI: French Financial Markets’ Association – AFTE: French Association Of Corporate Treasurers – CCIP: Paris Chamber of Commerce – FFSA: French Insurance Federation – FBF: French Banking Federation – AFG: French Asset Management Association – ACMI: Italian Association of Credit Managers.
*** Societe Generale is a leader in the EuroPP Charter working group, it initiated the first partnership with a leading insurer (Axa), it ranks as a top-tier arranger in the league tables, driven by a long-term vision of financing for the mid-market economy better shared between banks and investors. It contributed to the European Commission’s 2015 Green Paper (Capital Markets Union) and to its update in 2017 - private placements are one of the four main pillars of this initiative which seeks lasting financing solutions for the European mid-market economy.