The 9th European Financial Markets Convention “Towards true integration by 2009” Practitioners in an incomplete Internal Market Georges Noël Director of Research, Public Affairs and Development, EVCA 26 May, 2005

Incomplete Internal Market The Need for a High Growth Market

Policy Priorities: EVCA’s White Paper  Policy Meeting, February 1st, 2005  9 Recommendations  « Enhance finance through the emergence (preferably by mergers) of efficient integrated pan-European trading platform(s) and quoted market(s) for high- potential companies”  EVCA Public Affairs & High-Tech Committee Action Plans

Private Equity as an Asset Class repayments + capital gains commitments divestments pensions savings savings and pensions investments Private Equity Funds High-growth companies Institutional investors (Insurance companies, pension funds, banks…) Private Equity Funds Institutional investors (Insurance companies, pension funds, banks…) Saving accounts, Pension plans, Insurance contracts… Single Fund Structure Young innovative companies High Growth Markets Pension Fund Directive (Prudent Man Rule) Entrepreneurship The Virtuous Financing Cycle of Private Equity and Venture Capital Investment EVCA ACTION

Quick Market Update  Evolution of Divestments by Public Offerings  Analysis of Public Offerings  EVCA’s recent Barometer Survey on Exits (February 2005)

Evolution of Divestments by Public Offerings in Europe Source: Annual Survey of Pan-European Private Equity & Venture Capital Activity Conducted by EVCA, PricewaterhouseCoopers and Thomson Venture Economics (as of 2003)

Evolution of Divestments by Public Offerings in Europe Source: Annual Survey of Pan-European Private Equity & Venture Capital Activity Conducted by EVCA, PricewaterhouseCoopers and Thomson Venture Economics (as of 2003)

Analysis of Public Offerings Source: Annual Survey of Pan-European Private Equity & Venture Capital Activity Conducted by EVCA, PricewaterhouseCoopers and Thomson Venture Economics (as of 2003)

Analysis of Public Offerings Source: Annual Survey of Pan-European Private Equity & Venture Capital Activity Conducted by EVCA, PricewaterhouseCoopers and Thomson Venture Economics (as of 2003)

Exit potential survey February 2005 Source: EVCA What is your preferred exit route? Why? “clean and easy” Instant 100% liquidity Shorter cash back period with positive IRR effect Dependent on industry and company size, strategic and competitive situation

Exit potential survey February 2005 Source: EVCA How many of the companies you currently have in your portfolio are ready to be exited immediately and how many do you think can be exited within the next two years? 46 respondents hold 865 portfolio companies 198 companies are ready to be exited immediately of which 44 (5%) are ready for an IPO 287 additional companies are exitable over the coming two years of which 92 (11%) companies are earmarked for a stock market quotation

High Growth Market EVCA’s views  Incomplete Internal Market  The Case  Key Attributes of a HGM  Conclusion

Fragmentation In terms of:  Number of exchanges  Trading models  Business practices  Regulations  Tax & Legal Environment  Governance  Cultural aspects  Investor bases  Ecosystems (Investment Banking, Research, T&L, Accounting, Media) Fragmentation also leads to  Sub-optimal size (companies, investment levels, intermediaries and Ecosystem in general) and such to  Higher implicit costs and weakening competitivity compared to non or less fragmentated market we are competing with

The Case for a Dedicated Pan-European Growth Market A Pan-European market dedicated to high growth companies would:  Build-up sufficient critical mass and Ecosystem to attract companies, investors, brokers, analysts, investment bankers, auditors, lawyers, accountants, etc.  Re-build confidence and as such enable the re-emergence of a pan- European and local investor community for high growth companies  Improve access to capital and liquidity for Europe’s best growth companies (& avoiding such to move ultimately to the US)  Facilitate cross-border syndicates  Help to retain Europe’s brightest & smartest scientists, engineers and entrepreneurs  Improve M&A and intermediate valuations (IVG)  Improve overall performance of the VC sector  SOX = Opportunity for European SE’s to provide a solution for EU companies facing huge regulatory hurdles

Key Attributes of a Dedicated, Pan-European Growth Market  Truly Pan-European with local base  Preferably to be built on an existing Platform/Exchange by existing SE  Pan-European shareholdership (if single one)  Non centric to one single country/region  Price-Driven with cross border market making trading system v. hybrid system (improvement of the economics)  Investor focused around companies needs  Harmonized legal aspects (ex. share ownership issues)  Common market practices  Facilitating Industry sector research  Marketing & Sales Team  Strong new brand building capability  Clustering capability (key tech sectors))  Balanced & proportionate regulation, disclosure rules, listing criteria, & market practices (economics)

Conclusion  A well functioning HGM is of utmost importance for the PE-VC Industry because Europe needs a huge number of high growth performing and well funded companies  An efficient HGM will stimulate the European PE-VC Industry and such contribute to Europe's global competitiveness  There seems to be a consensus on the key issues and reasons for a missing HGM but execution is the challenge  EVCA will actively support all stakeholders in executing all steps leading to a HGM  EVCAs Set of Professional Standards constitute an unique and key contribution to overcome fragmentation in the European PE-VC markets (Transparency + Governance)  Timing is good as markets are gaining momentum