Sweden’s prime minister, Ulf Kristersson, has warned that Europe needs to focus more on its capital markets in order to retain tech companies leaving to list on US stock exchanges, according to the Financial Times.
Sweden recently missed out on initial public offerings (IPOs) launched by a number of domestic tech companies such as fintech giant Klarna and music streaming company Spotify. While Spotify listed on the New York Stock Exchange back in 2018, Klarna has also shared plans to do the same, having already filed to go public.
Another Swedish start-up, a driverless truck company called Einride, is reportedly considering going public in the US, rather than in Sweden or Europe as well.
Although Sweden still attracts more IPOs than other European countries such as France and Spain, this trend of domestic companies choosing to list in the US could impact its capital market in the long run.
Flutter Entertainment, Smurfit Kappa and CRH are other major European companies who have left the continent to list in the US in the last few years, with eToro, EG Group and Nouryon also reportedly considering following suit.
Why are European companies opting for the US?
One of the main reasons for this trend, especially when it comes to tech companies, is the vast range of investors available in the US, as well as a deeper capital pool. Potentially higher valuations and more welcoming regulations have also led to this move, along with the US market’s strong support for tech innovation. Wider access to better talent in the US, compared to Europe, is another factor too.
On the other hand, tech companies in Europe face an abundance of red tape, especially when it comes to restructuring, as well as high severance costs and long delays. Strict rules on data governance, competition, cyber resilience and artificial intelligence, as well as overlapping regulations further complicate the European tech landscape.
This has led to European tech companies generally being less competitive than large US tech companies like the Magnificent Seven, although the EU has improved its early stage financing for tech start-ups recently.
Kristersson added that the EU needed to focus more on its capital markets union plan, which aims to create a single market for funding across the bloc.
Will an escalating trade war with the US cool this trend?
US president Donald Trump’s increasing tariff threats against the EU could potentially deter some European companies from listing or expanding in the US in the coming months. Companies already hit by US tariffs on car imports, aluminium and steel, could be forced to delay IPOs or reconsider their current strategies as well, in order to deal with increased costs.
Earlier this month, a coalition of tech companies called for the EU to take decisive action to decrease its dependence on foreign tech infrastructure and services, according to TechCrunch.
This was communicated in an open letter to the EU’s digital chief, Henna Virkkunen, as well as the European Commission President Ursula von der Leyen. A number of start-up and regional business associations were also part of the 80+ signatories.
The EU should be focusing more on boosting domestic products with the most profit potential, from platforms, apps, AI models, chips, connectivity solutions and more, according to the coalition. They said this would go a long way in helping enhance the EU’s resilience and economic outlook.
