Growth

Updated 01/03/2023

Growth prospects remain intact for European SMEs

Image
Eurazeo views tribune SMES
26/01/2023 - 4 mins

Europe’s small and medium-sized companies have been hard hit by the multi-faceted crisis of the last two years, but Erwann Le Ligné and Florian Zimmermann argue that many of them will emerge strengthened by recent ordeals, well positioned to pursue their ambitions of developing into pan-European and even global champions.

 

SMEs that have prepared well can weather this storm

The successive shocks of the last three years have severely shaken the entire economy. But even as we brace for a likely recession, there is at least some heartening news out there: many of Europe’s small & medium enterprises have taken advantage of the recent spate of disruptions to raise their game. As a result, those SMEs that successfully tightened up their governance, diversified their geographic exposure in sourcing, production and sales, and successfully pursued the digitalisation of their operations, are today relatively well positioned to absorb future shocks.

This is not the first time European SMEs have faced such an existential threat. The financial crisis of 2008 slammed on the brakes for companies across the spectrum. However, the difference between then and now lies in the nature of the threat. The major challenge facing entrepreneurs after the great financial crisis 14 years ago was one of liquidity. Without access to funding, everyone was put on hold, but once the spigots reopened, a lot of companies were able to rebound quite quickly. The Covid shock was different because government moves to lock down the economy revealed new challenges that no one had faced before, notably a global supply chain disruption.

 

Governance, management and finance will be key

Today, for anyone surveying the SME landscape in a bid to identify likely winners, or even just survivors, the key lies in governance, management and access to capital.

It can be lonely as an entrepreneur in tough times. So managers who have garnered the support of a sound Supervisory Board - including, for example, private equity professionals or others with experience from other markets or companies - will find themselves with a head start. Another clear indicator of future resilience will lie in senior management. The companies that will best weather the coming storms have already set in place a diverse and complementary top team, each with an entrepreneurial mindset, adhering to clear decision processes while also displaying an autonomous sense of initiative.

A third green light will be in the quality of an SME’s financial backing. The support of a solid shareholder, such as a private equity sponsor, is demonstrably essential to getting through a macro-economic crisis, not simply because of the all-important immediate access to money, but also because it ensures a certain stability, and can open the doors to new financing solutions.

These include direct lending vehicles, such as unitranche debt, which provide companies with a flexible solution and financing partners. The attractiveness of unitranche debt in particular can be seen by its growing market share: last year about 60% of the SME transactions supported by private equity were financed via unitranche or similar products.

 

A wave of market consolidation in view?

Looking ahead, there is understandably some expectation that the impact of today’s tough times will precipitate a wave of consolidation among SMEs across Europe.

Certainly, many entrepreneurs have understood that being too small in the face of such headwinds is a challenge, and even a liability. This isn’t necessarily new. Many reached the same conclusion after the financial crisis of 2008 and haven’t forgotten that lesson. As a result, partnering with peers is high on the agenda of most ambitious SMEs.

For some it’s a question of forging partnerships, but there is also a real impetus for business leaders to think more proactively about mergers & acquisitions. The clear goal for any SME looking to join forces with a similarly sized competitor, is that their newly-merged company should retain the agility and entrepreneurial mindset that each partner previously enjoyed on its own.

A bigger footprint allows entrepreneurs to reach beyond their home market, tackling new territories, winning new clients, and present new business opportunities. Therefore, the combination of two like-minded players can boost resilience and open the path to additional growth through new products and services, including upselling and cross-selling opportunities. The big ambition that should be driving any SME today is the dream of emerging from the current turmoil as a European champion, providing a springboard for the next phase of development in international markets from Asia to America, offering real opportunities to expand.

While no entrepreneur should willingly surrender that long-term goal, the immediate task to hand for businesses and their backers will be to navigate the next year. For that, nothing can replace sound governance, disciplined management, and professional shareholders able to bring their experience, their knowledge, their networks and their resources to the table to ensure long-term success.

Latest news

Vignette
Eurazeoviews2-Flak-Teisseire

19/09/2023 - TRIBUNE

The era of the adaptation economy, and the need for a common ESG benchmark

4 min

Vignette
Eurazeoviews2-Girard-morin

19/09/2023 - TRIBUNE

Making the most of ESG reporting

4 min

Vignette
Eurazeoviews-lambry-makaya

19/09/2023 - TRIBUNE

Towards a cleaner, more sustainable shipping industry

3 min

Vignette
Eurazeoviews2-Mombert-Sesboue-Meignen

19/09/2023 - TRIBUNE

A promising future for Tech M&A

5 min

Vignette
Eurazeoviews2-Cohen Devillard

19/09/2023 - TRIBUNE

Decarbonising cities: the New Electricity Era

6 min

Vignette
Eurazeoviews2-Ordi-Cassam-Lariviere-Zins

19/09/2023 - TRIBUNE

The revolution in the healthcare sector

5 min

Vignette
Eurazeoviews Doat Bertay Debock

19/09/2023 - TRIBUNE

Responsibly addressing the opportunities of Gen AI

5 min

Vignette
Eurazeoviews-agathe-bubbe

19/09/2023 - TRIBUNE

Democratization of private equity: the way forward

4 min

Vignette
visuel Virginie Morgon

25/01/2023 - TRIBUNE

Responsible investing – a powerful tool for better growth

6 min

Vignette
visuel Eurazeoviews

26/01/2023 - TRIBUNE

Europe’s sustainable tech sector draws intense investor interest

3 min

Image
Christophe Bavière Tribune

26/01/2023 - TRIBUNE

After the euphoria: Eurazeo's strengths in a challenging market

5 min

Vignette
Eurazeo views tribune décarbonisation

26/01/2023 - TRIBUNE

Why is Europe ahead in decarbonizing the economy?

5 min

Vignette
Eurazeo views brands

26/01/2023 - TRIBUNE

Brands’ social and environmental responsibility: illusion or reality?

5 min

Vignette
Eurazeo views Christophe Simon

26/01/2023 - TRIBUNE

The rise of GP-led transactions

4 min

Vignette
Eurazeo views tribune 4

26/01/2023 - TRIBUNE

Private debt: an investment partner even in challenging economic times

4 min

Vignette
Eurazeo views vignette 3

26/01/2023 - TRIBUNE

Biotechs, the ultimate post-pandemic winners?

5 min

Vignette
visuel tribune eurazeo views 1

26/01/2023 - TRIBUNE

European sovereignty: myth or reality?

4 min

Vignette
Tribune Caroline Hadrbolec

16/11/2022 - TRIBUNE

Having a gender-diverse workforce drives business performance

4 min

Image
Image - tribune on democratizing private equity by Virginie Morgon

08/11/2022 - TRIBUNE

The challenge of democratizing private equity

5 min

Vignette
visuel Virginie Morgon

30/09/2022 - TRIBUNE

Financial Markets? The era of private markets platforms

4 min

Image
Tribune Laurent chatelin

22/09/2022 - TRIBUNE

The key role of infrastructure in the environmental transition

4 min

Vignette
Visuel Sophie Flak

16/06/2021 - TRIBUNE

NFRD, SFDR, Taxonomy... Are There Too Many ESG Regulations?

5 min

Vignette
identite_VM_vignette

02/06/2021 - TRIBUNE

A new brand for a new ambition

4 min

Vignette
Acting For Climate: What Investors Can Do by Matthieu Baret

24/12/2020 - TRIBUNE

Acting for climate: what investors can do

4 min

Vignette
Tribune Caroline Hadrbolec

08/03/2021 - TRIBUNE

Ensuring a truly inclusive work environment is key to developing and retaining women on their way to the top

2 min

Image
Tribune Sophie Flak

28/04/2021 - TRIBUNE

The Reason Why

2 min

Image
visuel Virginie Morgon tribune

07/04/2021 - TRIBUNE

Digital health: accelerating innovation and investment

5 min

Vignette
The moment for private equity is now_2

23/03/2021 - TRIBUNE

The moment for private equity is now

4 min

Vignette
A Global View on the Challenges & Opportunities in Private Markets_2

10/11/2020 - TRIBUNE

A Global View on the Challenges & Opportunities in Private Markets

3 min

Vignette
visuel Virginie Morgon

30/09/2020 - TRIBUNE

Introducing Eurazeo’s new CSR program for the next 20 years, O+

3 min

Vignette
Tribune VM

02/09/2020 - TRIBUNE

Stability and Responsiveness in Times of Crisis & Where We Go Next

5 min

Vignette
China

04/06/2020 - TRIBUNE

An Update on China

4 min

Vignette
Tribune_6_solidarity

03/04/2020 - TRIBUNE

Solidarity gives us hope in the face of the COVID-19 pandemic

2 min

Vignette
Tribune Benoist Grossmann

16/12/2019 - TRIBUNE

Encouraging diversity among entrepreneurs: 5 tips for your first fundraising

5 min

Vignette
private capital

15/08/2019 - TRIBUNE

The evolution of a global diversified private capital investment firm

4 min

Vignette
Diversification

23/04/2019 - TRIBUNE

Bold Diversification: A New Standard to Promote Longevity and Prosperity

3 min

Vignette
Private equity

04/03/2019 - TRIBUNE

A Bold Challenge for Private Equity

3 min

Vignette
Retail

30/01/2019 - TRIBUNE

How Private Equity Is Driving Change in Retail

3 min

Information - Individual investors

Eurazeo Investment Manager (EIM) and Eurazeo Mid Cap (EMC) are merging to form Eurazeo Global Investor (EGI)