Frans Somers, owner of SBC International, talks about the advantages and disadvantages of the introduction of the euro. He raises the question whether the euro should have been introduced after all. In hindsight, according to many experts the euro should never have been introduced; at least not for countries such as Greece, Italy, Spain and Portugal. Additionally, before the common currency was introduced around the year 2000, quite a number of economists strongly doubted the advantages of the system. Even worse, monetary integration beyond the existing system of fixed but adjustable exchange rates (the European Monetary System – EMS) was assumed to be very risky. The main reasons for introducing the common currency from an economic point of view were the following: to further promote intra-European trade and competition and to strengthen the EU as a global powerhouse. Competition is the keyword in this context. European integration had the intention of removing all the barriers of internal trade: tariffs, border controls, different legal regulations and product requirements, etc. The abolition of national currencies was considered as the final step in this process, because a common currency would remove all transaction costs and currency risks associated and guarantee market transparency. Hence, promoting the mobility of goods, services and capital. A crucial point was also that by abolishing national currencies, there would no longer be the option to take an ‘emergency exit’ for individual countries to escape from international competition: competitive devaluations were essentially ruled out. Until then, countries with increasing costs and high inflation rates could restore their international competitiveness overnight by a simple devaluation. This was common practice in countries like Italy, Greece and Spain; reason why one could receive enormous amounts of liras, pesetas or drachmas for a guilder or mark in the end. Taking away this monetary instrument meant that these countries would become fully exposed to international competition and the discipline of the market. Weaker European countries would be forced to improve or they were driven out of the market: a matter of sink or swim. As a result, competitiveness would not only be reinforced in individual European countries, but also for the EU as a whole, strengthening its position on world markets and thus promoting overall European growth, employment and prosperity. A nice theoretical model, but would it also work in practice? In the early nineties of last century, the pros and cons of a common currency were fiercely debated. The case against the euro focused on two arguments: – The European Union definitely did not meet the criteria for an Optimal Currency Area (OCA). This theory was originally developed by Robert Mundell as early as 1961. In an OCA the benefits of a single currency are intended to be greater than the costs. An OCA presumes flexibility in either prices/wages costs and/or factor mobility. It means that, if a country has a relatively high inflation rate, it will loose market share, leading to shut down of firms and unemployment. Adjustment will take place either through lower wages and prices (price flexibility) or migration of workers to efficient countries (factor mobility). However, if wages and prices are rigid and workers stay in their own country, the only way out to restore competitiveness is a flexible exchange rate. Precisely as it used to be the case in the southern member states of Europe before the introduction of the euro. As a whole, the EU until today has been characterised by a high degree of rigidity of wages and prices, despite many efforts of structural reforms to address these problems. – The occurrence of asymmetric shocks in demand or supply. Normally, countries in a specific region are in the same stage of the business cycle. But in theory it may happen that some countries face strong growth, while others get stuck in a recession. With a single currency, there is no opportunity to differentiate monetary policy per country. An example of such an asymmetric shock is the exceptional boom in demand in Germany after the reunion in the early nineties of last century, whilst simultaneously other European countries were in an economic downturn. This aside, an economic and monetary union (EMU) presumes in principle that countries are in a similar stage of development. Therefore economic and social cohesion has been strongly emphasized in various EU treaties. Various convergence programmes have been set up in order to prepare member states for participation. Finally, member states could only join the Eurozone if they satisfied five convergence criteria: similar inflation and interest rates, a budget deficit of less than 3%, public debt less than 60% of GDP and a stable currency. Nonetheless, at the decisive moment in 1997, none of the candidate countries fulfilled all of these criteria – not even Germany, France, The Netherlands and Luxemburg. Countries like Italy, Spain, Portugal and Greece did not satisfy any condition at all, however were allowed to join the Eurozone nevertheless. Needless to say that this could be identified as a false start for the euro. Why was it decided to establish the EMU anyway, despite the theoretical objections and practical complications? Why were even weak member states so eager to join the Eurozone? By far the most important motive is political. Weak countries envisaged that by becoming a member, they would automatically forced to improve their economies, driven by intensified competition. Governments would come under supervision of European authorities, preventing in particular the unstable ones to overspend and make a mess of government finances. Further, we should not forget that the nineties in the last century were an era of high economic prosperity and progress, along with high growth rates. This created an optimistic view on future developments. The dramatic events of the early 21st century were not foreseen, however. The debt crisis of 2008, starting with the fall of Lehman Brothers bank, had a devastating effect on the world economy. But more importantly for the EU the crisis had a very different impact on individual European countries; this can be
Saving the university
In his column, David Hollanders elaborates on the future of the university. He states that a university that no longer reflects on its own aims does not deserve to be called a university On February 25th students occupied the Maagdenhuis, the seat of the board -aka College van Bestuur (CvB)- of the University of Amsterdam. Out of this occupation (or re-appropriation) has grown a movement that calls itself De Nieuwe Universiteit (DNU), which by now has co-movements in other university cities, including Tilburg. For an assessment of this movement, it is necessary to look beyond side-issues. One could disapprove of occupying, but at the same time endorse the goal it is meant to further (or vice versa). One could feel that the life-style of the occupiers –who could be described as engaged intellectuals or spoiled hippies, depending on your perspective- but nonetheless embrace the program (or vice versa). And one could object against the CvB letting loose the police against its own students, while rejecting the program all the same (or vice versa). These are all sideshows in the final analysis. The heart of the matter is the program, which I endorse in my role as lecturer and which is –I feel- worth considering by students –even if one rejects it, which one could. The last decades students have been hit hard on all fronts. Students do not receive much –if any- public financial support anymore, leading to a situation where one has to work (and de facto study part-time), load up with debt or be blessed with rich parents. Adding insult to injury, students are increasingly monitored on how fast they finish courses. This is justified on three grounds: First, taking on debt is framed as an investment in human capital, with a high return in working-life. This is problematic if not false. The job-market has been dire for years now and a master-degree is no longer a sufficient condition for a (well-paying) job. It is a necessary condition however, so one cannot refrain from it. Furthermore, education should –or so DNU argues- be more than trying to get in pole position for the labour market. It is also about Bildung, social cohesion and political participation. A second motivation for increasing the financial burden for students is that education has increased in quality –justifying higher prices. This is again problematic –if not false. The number of students per lecturer has increased dramatically. This has not only increased the work-load of staff –already pressured by job insecurity- but has inevitably taken its toll on quality: larger classes, standard multiple-choice exams, teacher-rotations and light-touch thesis supervision. A third motivation is that austerity is inevitable, and therefore students and universities cannot be spared. Even if one accepts the austerity argument –which many economists, including Krugman, Stiglitz, Jacobs and de Grauwe do not-, there is still the question whether one cannot do better with the money available. Do we want a government that spends scarce resources on research that caters to business interests? Do want universities to spend money on advertisement and public relations instead of research and education? Furthermore, do we want students that have learnt to conform as quickly as possible to whatever the educational system asks of them? Or do we want students who contemplate whether the expectations and demands of university and indeed of society more general make sense? If one feels these are important questions, one should embrace DNU, even if their answers are not always clear. For the DNU is pretty much the only movement that is at least asking the right questions. And a university that no longer reflects on its own aims does not deserve to be called a university.
The IPO story
The IPO story: it’s all about being prepared In the first quarter of 2015 €34.9bn capital was raised through IPOs (Initial Public Offerings) worldwide, of which €15.3bn was raised in the EMEIA region. Also Euronext Amsterdam stock exchange started strong in 2015 with the IPOs of GrandVision, Lucas Bols, and Refresco Gerber, after a number of years of limited activity. GrandVision raised €1.0bn in capital and ranked in the global top 10 of IPOs. The number of IPOs we see today is no coincidence as an IPO is not a spur of the moment decision. The recent IPO activity reflects the trust Dutch companies currently have in the economic climate but also proves that investors with available funds are looking for returns. Successful IPOs follow an extensive IPO readiness process that transforms privately held investments into listed and scrutinized investment opportunities for both institutional and private investors. Preparations are crucial to be ready when the IPO window opens. 1. Start early with an IPO readiness assessment and make an informed decision In order to be able to act and operate like a public company, companies should begin their IPO readiness process sufficiently early. They should be agile enough to respond to pressure to move swiftly into registration while the window of opportunity is available. As IPO readiness involves accepting and implementing change in every aspect of the business, executive management, organisation, and corporate culture – companies that start early are better prepared. Being IPO ready means among other things, to have your company ready to meet accounting (IFRS, US GAAP), tax (structuring) and legal and financial reporting requirements. Key systems that need to be in place in order to achieve this include internal controls, risk management, compliance, corporate governance and internal audit. 2. Commit substantial resources to building the right team Preparing for an IPO is an intense and demanding process and it is all too easy for management and employees to be distracted from other important issues by the sheer enormity of the task. The company must strike the right balance between managerial focus on the IPO transaction and the day-to-day operations of the company. It is necessary to prepare an experienced management team, robust financial and business infrastructure, and a corporate governance and investor relations strategy.IPO candidates often underestimate the time their IPO journey will take and the level of scrutiny and accountability faced by a public company. This is why successful companies approach their IPO as a transformational process, rather than a final destination or just a financing event. 3. Have a plan B alongside the IPO as part of a multitrack process Evaluate alternative exit strategies and keep the options open. Before opting for the IPO route to growth capital, most IPO candidates explore alternative strategies. Taking a multi-track approach increases a company’s strategic options, improves negotiating leverage and reduces execution risk. The mergers and acquisitions market, private equity-backed deals and dual-track approaches (such as a concurrent pursuit of both an IPO and an M&A transaction) are viable alternatives for raising capital and offer their own unique strategic advantages. 4. Be aware of investor requirements in a buyer’s market in all parts of the issue concept A recent survey of institutional investors conducted by EY shows that the combination of the right team, right story and right price is key to success. Being prepared – in other words, having achieved IPO-ready status – is a prerequisite for this. The infrastructure-building process should include development of a strategic investor relations program for marketing the company prior to the IPO. This ensures that key investor-relations professionals are on hand to guide the planning for and performance during the IPO road show. Investors are clear about what they look for in a successful IPO. Good quality companies priced right, run by the right team and with a good story to tell will command the attention of the market, even when market windows are opening and closing fast. Investors rank the top five success factors for IPOs as attractive pricing (the leader by a considerable margin) followed by a compelling equity story, confidence in management, the right timing and, last but not least, IPO readiness. 5. Pricing: Use multiple methods, gain knowledge of indicators and agree on threshold values Being able to articulate a compelling equity story backed up by a strong track record of growth sets the company apart from its peers while increasing value for owners. 60% of investors base their IPO investment decisions on financial performance measures – in particular, growth in EPS, EBITDA and profitability – and attribute an average of 40% of their IPO investment decisions to nonfinancial measures, giving most weight to management credibility, corporate strategy and brand strength. A compelling equity story covering all these aspects is therefore key to marketing an IPO. Moreover, size is a decisive factor when it comes to entering selection indices and gaining broader access to investors. A high free float will facilitate the necessary post-IPO liquidity. 6. Timing: Create flexibility and the ability to get off to a rapid start, especially when entering the hot phase before the IPO roadshow When the market timing is right, it’s the companies that are fully prepared which are best able to leverage windows of opportunity. Companies that are flexible when it comes to kick-starting their IPO execution phase will benefit from the visibility of the fastest and first company that present the IPO with high attention and market awareness when IPO windows are open. Companies around the world continue to ready themselves to go public. Whether a company is owned by its founders, a family business, conglomerates, government, private equity or venture capital, building confidence and trust among investors in the public spotlight of capital markets is vital. Being IPO ready in all areas is the ideal foundation for achieving this. 7. Living up to the expectations During the IPO process, in the prospectus, and during the roadshow, companies set expectations about their future performance. Immediately after the IPO
