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Scale: a comprehensive ecosystem for growth

05 May 2017

Scale: a comprehensive ecosystem for growthInterview with Renata Bandov on Deutsche Börse’s new SME segment

Renata Bandov, Head of Section, Pre-IPO & Capital Markets

Small and medium-sized companies (SMEs) in Germany face a variety of challenges. Among other reasons, this is due to the fact that until recently they were primarily financed through banks, but must now increasingly rely on a functioning capital market. Scale, our new exchange segment for growth capital, has been designed to help SMEs gain access to the capital they need, in turn enabling them to react to future challenges. We talked about the new segment with Renata Bandov, Head of Section, Pre-IPO & Capital Markets.

Ms Bandov, the new exchange segment Scale was introduced eight weeks ago. Can you give us a first assessment?
Thus far, we have seen extremely positive feedback, across the market as well as from customers and the federal government. 42 shares and 12 corporate bonds are currently listed in Scale. IBU-tec advanced materials AG was the first IPO and the recently launched Scale All Share Index tracks the performance of all companies listed in the segment. 

Can you tell us why and how Scale was developed?
In 2015, the German government asked us to create a new exchange segment for start-ups. This prompted us to launch Deutsche Börse Venture Network, a pre-IPO platform on which we successfully connect start-ups with investors from around the world. Late-stage companies within Venture Network were increasingly focusing on finding the right segment for their IPO. However, the Entry Standard, our former  segment in the regulated unofficial market, was no longer attractive, neither to companies nor to investors. We extensively talked to market participants – resulting in more than 200 interviews with companies, investors and banks, as well as with law firms and agencies. The results were unanimous: what we needed was not a segment exclusively for start-ups, but rather a segment for SMEs. In this context, it is crucial to have listing prerequisites which fit the individual target groups. Factors such as visibility, transparency, comparability, liquidity, and investor diversification play an important role. Scale reflects that. 

For which kinds of companies is the new segment especially suitable?
To answer your question it is worth taking a good look at the pan-European perspective: an important objective of the Capital Markets Union is to open up new financing options for businesses. Scale creates an attractive offering, expressly targeting SMEs across all sectors. The new segment’s diversity is reflected in the industries it covers, ranging from software, automobile, bio and medical technology to financial services. The companies are required to have a well-established position in their respective markets and to have already gathered experience with investors.

What distinguishes Scale?
In contrast to the Entry Standard, Scale has higher standards regarding both inclusion and follow-up requirements, and it provides additional new services for issuers. The independent research reports are, on the one hand, especially beneficial to smaller companies, and on the other hand provide investors with more information on the companies, thereby increasing comparability. The subscription functionality DirectPlace expands the investor base and increases placement reach. Deutsche Börse Capital Market Partners, i.e. capital markets experts, support companies prior to, during and after an IPO or bond issue. All of these measures contribute to raising the profile of companies, which in turn facilitates the targeting of investors as well as a company’s effective positioning on the international capital market.

What are the requirements for companies to be included in Scale, and what happens to companies that do not fulfil these prerequisites?
Scale only includes companies that are willing to accept the rules. This means that they must dispose of a market capitalisation of a minimum of €30 million and fulfil certain key figures, such as turnover, equity capital, annual profit or number of employees. In addition, the Capital Market Partner is obligated to conduct a financial and legal due diligence of the issuer to confirm its suitability for Scale. As an exchange operator, we bear responsibility not only towards the companies but also towards investors. 

You just mentioned Deutsche Börse Capital Market Partners. What are their obligations, and what advantages do they provide to the respective company?
An IPO is extremely complex and thus requires optimal preparation. Companies rely on the support of competent and well-informed experts prior to and after an IPO, which is exactly the task performed by Deutsche Börse Capital Market Partners. Before they are admitted, they must provide sufficient credentials and proof of relevant experience in the primary and secondary market. We thereby ensure that they are familiar with the necessary procedures and the rigorous regulatory and listing requirements. Among this group of experts are banks, financial service providers, auditing firms, tax advisors, law firms, investor relations and public relations companies, research providers, IPO advisors and Designated Sponsors. 

Thank you, Ms Bandov!

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