Europe’s entrepreneurial baby boomers are setting their sights on some ‘quality time’.
There are approximately 23 million SMEs in Europe, and many of these are owned by baby boomers who want to sell up and enjoy their retirement. But rather than pursuing trade sales, an increasing number of SME owners want a more inclusive future built around employee co-ownership.
The scale of the challenge
From 2004, European authorities began to release a series of increasingly urgent reports highlighting the scale of the impending change. Back then, few recognised the opportunity and the risk this ‘Silver Tsunami’ would pose.
As healthy as the economy was, capacity was lacking and there was an urgent demand for innovation in the financial sector. Then the credit crunch hit. This left SME owners with few options if they wanted to sell their businesses.
They could go to market with a broker and pursue a trade sale – an often-bruising experience, especially when negotiating with a competitor. Alternatively, they could borrow money from a bank to support a management buy-out or try to raise growth capital. Either way, opportunities were few and far between.
With neither option appearing very attractive, an increasing number of SMEs are now turning to employee co-ownership. For investors, this opens the door to an exciting and previously untapped asset class – if you can get out of your own way.
SMEs as assets
Investors have traditionally had a very narrow view of the SME asset class. They see it as difficult to access, people-focused, hard to model, poorly audited, inefficiently regulated, and lacking in liquidity. Next to the companies on the S&P 500, investing in SMEs can feel like a bit of a free-for-all.
This presented an insurmountable barrier to entry, channelling demand towards the private equities market – PLCs operating at 20-25x value multiples. As much as SMEs are a powerhouse of value creation in European economies, illiquidity, risk profile, and other barriers to ownership have always set them apart.
But what’s to prevent a sustainable value revolution here, if we could bring these two worlds together? The opportunity’s there, it’s just that innovation and disruption have been focused on what are perceived to be more profitable asset classes. Until now.
What’s in it for the investor?
The co-ownership model offers many benefits. The owner gets a fair deal and peace of mind. They know that they’re leaving their business in the hands of people who care about its success. At the same time, employees gain a financial stake in its future. And this unlocks prosperity for them and their families.
Crucially, co-ownership presents a golden opportunity to investors. You gain access to a profitable asset class that offers a far more enticing price-to-earnings multiple than traditional private equity. At the same time, it allows you to do good with your capital by supporting local businesses and their communities.
All you need is the right process, and the right financial tools, to make the most of it.
A unique opportunity
Our tried and tested process helps you align your interests with the SME’s. This reduces friction between you and the owners, managers, and employees who have a vested interest in the business. When you work with Valloop, the social benefits of a more inclusive ownership model form the basis of your financial strategy, delivering sustainable and scalable SME performance.
A healthier flow of SME funding is the key to unlocking economic and social prosperity for everyone. Democratising investor access to Europe’s strongest value-creators will have a transformative impact on savers, pensioners, and families alike.