Independent expert interview - Olivier Babeau's point of view,
Founding Chairman of the Sapiens Institute,
on bond financing for SMEs
How do you rate bonds private placement in the panel of SME financing solutions?
The financing of companies in France is a problem that has been identified for a very long time. The diagnostics has been made, analyses have been made on the issue of companies, especially small and medium-sized ones, to access financing. The two most well-known major forms of financing are obviously financing through the stock exchange, but with extremely strong regulatory and transparency constraints, which means that this type of financing is reserved for very large companies. There is also a significant risk of dilution because it is the equity you are going to give. The second form is obviously bank debt. Banks are working on amounts that are relatively small and terms and conditions that are a little less large than they may have been in the past. Or to put it another way, banks today have such strong regulatory constraints, such high security needs, that one may wonder if they still have the means to deepen their understanding of companies. They have difficulty financing all companies and are therefore in a situation of withdrawal. It is a political debate that this ability of banks to finance and today it seems very difficult. The third possibility is this private financing, which corresponds to a relatively innovative mode of financing that was very little known in France until then, which did not exist. It benefits from technological innovations, just as we have done in other sectors, which make it possible to bring demand and supply closer together through a platform to enable markets to be decompartmentalized, to bring players together, perhaps to create a relationship of trust that did not exist. In other words, SMEs, which may have innovative needs, will meet an investor who will finance them with a bond debt, repayable in fine (of which it will bear, before maturity, only the repayment of coupons), who will be able to understand the project and be a real supporter of the development project. This project may be the purchase of assets, an evolution of governance methods, an innovation, a launch into a new market... All these types of business development will be able to find a financing opportunity that previously, it must be said, was made very difficult by this kind of banking versus stock market dualism.
Who are the players in bond private placement financing?
Today you have three types of players, you have first of all private equity funds which, until then, were equity funds but increasingly, one could say, are hybridising by also making private debt. You also traditionally have family offices, and, finally, these private debt funds, which are able to develop specific support and to link this supply and demand for financing with support, which is perhaps its added value, with an understanding of the business and projects, which has been lacking until now.
How do you explain that this solution is not very well developed in France for SMEs, even though there are significant financing needs and we could even add that this method of financing is already very developed for large companies?
This ignorance may be linked to the unfortunate cultural ignorance of French people in economics, which was discussed at the Sapiens Institute, a fairly strong lack of knowledge, both of the basic economic mechanisms, and then, perhaps, among entrepreneurs, a lack of training and a lack of information. The lack of knowledge diffusion may explain why what is common in other countries, such as the United States, and has long been so, is not common in our country. We are now witnessing the transition to what is called digital capitalism or cognitive capitalism, i.e. based on the importance of information, an acceleration of changes that are increasingly abrupt, with strategies that must require more rapid developments. The rhythm is not the same, the temporality is not the same. And with a different time frame, there must be a different financing, i.e. faster, more agile financing, less cumbersome for companies, with fewer disadvantages such as dilution for example. These recent developments may explain why at one time these forms were less developed, because there was less knowledge of them, but also because the need was less significant. Today, in a society and economy that is moving very quickly, this need is felt, which explains the rapid development of these new mechanisms and in particular these private debt platforms.
How can digital private debt platforms help to revitalize French territories?
One of the major problems facing France today is territorial desertification, with, on the one hand, large and relatively prosperous national or regional metropolises and, on the other, this kind of desert that creates social movements as we have seen them, based on a form of economic despair, with the feeling that there is no longer a public service, no longer a health service... It should not be forgotten that this is the consequence of the disappearance of economic activities. How to revitalize these territories today? We are all aware that this requires first of all forms of reindustrialisation and, more generally, the relocation of companies and production sites. This is made possible today by the Internet, if you have good digital coverage of course. In fact, when you travel a little bit in these beautiful territories of France, you realize that there are extraordinary nuggets that exist, there are a lot of skills, know-how, with companies that have the ability to expand into foreign markets. The problem is often access to local expertise. If you can give these companies the financing they need for their development strategy, you can potentially have economic developments, particularly in the territories. This would solve an extremely important problem in France, which goes beyond the limited scope of the problem of local development of medium-sized companies. We are there beyond that, in a very important issue of national prosperity and, I would even say, national unity and social appeasement.