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Enhancing Equity Availability for Growth: Estonian Market Study

Explore the dynamics of equity availability in Estonia, identify market gaps, and offer policy insights to boost growth financing for established companies. Results highlight opportunities and challenges, urging for educational initiatives, supply enhancement, and policy improvements.

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Enhancing Equity Availability for Growth: Estonian Market 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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