Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Zilch Technology Limited is
Speaker 1: a buy now, pay later firm based in the UK.
Speaker 1: The fintech startup launched its platform in September twenty twenty.
Speaker 1: By November twenty twenty one, it was valued at over
Speaker 1: two billion dollars, setting a record as the fastest European
Speaker 1: company to reach double Unicorn status. Zilch Technology is expected
Speaker 1: to go public later this year and the London Stock
Speaker 1: Exchange should be the company's natural home, but there's a
Speaker 1: very real chance that Zilch might forsake its hometown and
Speaker 1: move to New York.
Speaker 2: We spoke with the chief executive officer, Philip Bellman. He said,
Speaker 2: as a CEO, what you're thinking about is two things.
Speaker 1: Sagarika Jason Connie covers stock markets and investment strategy for Bloomberg.
Speaker 2: One is, obviously, how do you create the revenue? How
Speaker 2: do you create the profit on the business side of things,
Speaker 2: And the other side is how do you get the
Speaker 2: best valuation for your firm possible?
Speaker 1: Yes, profitability is important. The companies looking to maximize their
Speaker 1: valuation have to think about location too, and for a
Speaker 1: long time, Europe hasn't had a great sales pitch.
Speaker 2: US TOCs on average trade at twenty two times earnings,
Speaker 2: which is a near sixty percent premium over what companies
Speaker 2: can currently command in Europe. In fact, another source that
Speaker 2: I was talking to they used a very interesting turn
Speaker 2: of phrase. They said, in Europe, a lot of the
Speaker 2: times companies trade at a lower valuation than is fair
Speaker 2: just because they have a European postcode.
Speaker 1: I'm Sarah Holder, and this is the big take from
Speaker 1: Bloomberg News today on the show, how Europe's broken financial
Speaker 1: markets are stifling innovation there and what the continent is
Speaker 1: trying to do to keep its homegrown company from skipping town.
Speaker 1: So you've described European markets right now as broken. What broke? Then?
Speaker 2: If we knew how to answer that question, we wouldn't
Speaker 2: have arrived at the deep dive of the story that
Speaker 2: we've just penned down. Look to give you a very
Speaker 2: high level sort of comparison with the the US market.
Speaker 2: By definition, it is one market, despite the fact that
Speaker 2: it's much bigger as an area than Europe. Europe doesn't
Speaker 2: have one financial market. It has twenty seven financial markets.
Speaker 2: And that is the very crux of the issue. When
Speaker 2: you have a fragmented system like that, you have different
Speaker 2: listing regulations for each country, you have different capital requirements,
Speaker 2: the way that you approach investors is different. In a
Speaker 2: market like that, when companies plan for their future, it
Speaker 2: becomes difficult for them to say, this is a seamless
Speaker 2: experience that I'm going to have, which the US offers them,
Speaker 2: not just for companies who want to list in the
Speaker 2: public markets, but also on the other side, for people
Speaker 2: who want to buy into public markets. You know, I
Speaker 2: was talking to one of my sources for the story
Speaker 2: and they said, in the US, you could be a
Speaker 2: taxi driver in Manhattan and you would still have an
Speaker 2: opinion on Nvidia, you would still have an opinion on Apple.
Speaker 2: In Europe, that culture doesn't exist, and that's the result
Speaker 2: of several factors, cultural, geographical, but also the fact that
Speaker 2: there is no one single platform that people can go
Speaker 2: to and say, this is what I define as a
Speaker 2: European market.
Speaker 1: What does that mean for European companies.
Speaker 2: It means smaller pools of capital that they can potentially access.
Speaker 2: It means having to go through various different listing regulations,
Speaker 2: the kind of political and regulators read challenges that they
Speaker 2: navigate to get to the market, they have to jump
Speaker 2: through bigger hoops, or a lot more hoops than they
Speaker 2: would in the US. It also means reaching that investor.
Speaker 2: We have statistics that show that in the US, right
Speaker 2: from the venture capital level all the way through to
Speaker 2: public markets, there's a lot more engagement. So that means
Speaker 2: there's more interest from potential investors, whether that be your
Speaker 2: institutional investors, whether that be your venture capitals or the
Speaker 2: common man. In Europe, there's a lot more impediments to
Speaker 2: reach the audience in the investing community. That often means
Speaker 2: that you end up having to settle for lower valuations.
Speaker 2: It means you are dealing with a market that is
Speaker 2: not very liquid.
Speaker 1: After all. Higher valuations mean more money raised if and
Speaker 1: when the company goes public, which means more money for
Speaker 1: its founders, early investors, and more investment to help it
Speaker 1: continue to grow.
Speaker 2: You want to get the biggest bang for your buck.
Speaker 2: It just comes down to that, right It makes you
Speaker 2: more established. Having a bigger valuation means that your brand
Speaker 2: is better respected in the market. It means more publicity.
Speaker 2: It just you compete with the global biggest behemoths. You're
Speaker 2: taken seriously. The bigger you are, and by bigger, the
Speaker 2: more valuable you are.
Speaker 1: Give us a sense of the scale of these challenges
Speaker 1: for European markets. How far behind are European markets lagging
Speaker 1: compared to other markets like the US stock exchanges.
Speaker 2: In the past three decades, not a single European company
Speaker 2: that is currently worth over one hundred billion euros has
Speaker 2: been set up from scratch in this region. In the US,
Speaker 2: you've got the biggest companies that you talk about that
Speaker 2: have a price tag of one trillion dollars and higher.
Speaker 2: In Europe, the biggest company is not even valued at
Speaker 2: five hundred billion dollars, let alone a trillion. So trillion
Speaker 2: dollar club is well beyond any ambitions at the moment.
Speaker 2: In the US, not only do you have a handful
Speaker 2: of them, but all but one is tech. The only
Speaker 2: one that is valued over to trillion dollars that is
Speaker 2: not tech is Berkshire, Hathaway, It's Apple, Microsoft, Nvidia, you
Speaker 2: name it. It's all tech. Right, So that is the challenge
Speaker 2: also for Europe where you end up competing in this
Speaker 2: old world versus New world. Pop new world is innovation,
Speaker 2: it's tech, it's AI. What's coming next, right, Europe's makeup
Speaker 2: of stocks, if you look at it is very old economy.
Speaker 2: It's your drug makers, it's your industrials, it's luxury goods makers,
Speaker 2: it's food and beverage. They tend to be companies that
Speaker 2: are a bit more what we are in the geeky
Speaker 2: equity world. We talk of them as defensives, right. These
Speaker 2: are stocks that you tend to want to pick up
Speaker 2: at a time when you don't want to take a
Speaker 2: lot of risk, when you're not willing to put in
Speaker 2: a lot of your money. So at a time when
Speaker 2: there's good global growth, there's no overarching phase of a recession,
Speaker 2: you go to the risky stocks which will give you
Speaker 2: again higher returns for the money you put into them,
Speaker 2: which is tech, which is in the US.
Speaker 1: Sagarika says, these dynamics are prompting many tech companies to
Speaker 1: leave Europe altogether and move their headquarters to the US,
Speaker 1: and that's created even more problems for local European economies.
Speaker 2: It has a trickle down effect into various strata of society, right,
Speaker 2: because when you list somewhere, it is natural that your
Speaker 2: head office tends to be in the country that you are.
Speaker 2: Then domicilent that you are listed in. Rather, when your
Speaker 2: head office is there, you create jobs there, the wealth
Speaker 2: creation is there. You are adding to the productivity of
Speaker 2: that country. Not just that when you're adding, you tend
Speaker 2: to add there, but also when you are trimming. When
Speaker 2: this talks about layoffs, you tend to protect the headquarters.
Speaker 2: It is the peripheral offices that are trimmed down first. Again,
Speaker 2: it could be a concept that was inspired in Europe.
Speaker 2: The company started off in Europe, but now just the
Speaker 2: fact that it's listed in the US means that not
Speaker 2: only will they grow there, but they'd also protect those
Speaker 2: businesses or those interests more in a downturn than they
Speaker 2: would they're now peripheral offices in Europe.
Speaker 1: Well, Sagariga, you mentioned the fact that Europe's stock markets
Speaker 1: are fractured. Obviously there's many, there's not just one. Brexit
Speaker 1: was another factor that majorly fractured the EU's economic power.
Speaker 1: Has Brexit had an impact on the challenges we're talking
Speaker 1: about for European.
Speaker 2: Markets, Absolutely without a doubt, because when you're talking about
Speaker 2: the capital pools that you can access now you have
Speaker 2: one more right, But it's not just from the point
Speaker 2: of view of Okay, there's another market. It's also psychological.
Speaker 2: Europe's benchmark index, the stock six hundred, still has UK
Speaker 2: companies that are a part of it. So you think
Speaker 2: of it psychologically as being part of Europe, but it's
Speaker 2: not really. It's got its own rules, it's got its
Speaker 2: own challenges, its own gaps, its own political and fiscal drama.
Speaker 2: In the last two three years, France, Germany, the UK,
Speaker 2: they've all had political crises in just the last twelve months.
Speaker 2: Right as an investor, when you think about it, not
Speaker 2: only are you then having to grapple with different rules,
Speaker 2: different listing rules, different regulations, but then there's also political
Speaker 2: crisis fiscal crises going on in the major economies in Europe.
Speaker 2: That's not really a point of attraction, and it is
Speaker 2: a visual circle because it feeds one into the other.
Speaker 2: Broken markets means lower productivity means a weaker economy, and
Speaker 2: a weaker economy means lower appetite to invest, lower incentive
Speaker 2: for companies. It's not a high growth economy for companies
Speaker 2: to access the public markets in so it's sort of
Speaker 2: a feedback loop which is hard to get out of.
Speaker 1: As Europe tries to break out of this vicious cycle
Speaker 1: and keep its homegrown firms at home. It faces competition
Speaker 1: not just from the US, but from Asia as well.
Speaker 1: What's next for European markets after the break? European companies
Speaker 1: and startups have been defecting to more lucrative financial markets
Speaker 1: in the US for a while, and now that President
Speaker 1: Trump has promised to slap tariffs on EU exports, Europe's
Speaker 1: markets have been under even more pressure. But Bloomberg Sagarika
Speaker 1: jason Khani says it's not just the US that Europe
Speaker 1: has to look out for.
Speaker 2: It also faces a massive competition from Asia. Based on
Speaker 2: data from a think tank called New Financial this report
Speaker 2: was released last year and the data is through twenty
Speaker 2: twenty three, that showed that Europe's total share of the
Speaker 2: global capital markets stood at eleven percent, where it had
Speaker 2: started at sixteen percent in two thousand and six. The
Speaker 2: strange bit, or the unexpected bit, I should say, is
Speaker 2: that the US has also conceded a small share from
Speaker 2: fifty six to forty eight. That the exponential growth that
Speaker 2: we saw was in Asia, where Asia's share went from
Speaker 2: thirteen percent in two thousand and six to a whopping
Speaker 2: twenty nine percent. So almost a third by twenty twenty three.
Speaker 2: So that speaks for itself in terms of what Europe
Speaker 2: is up against when it has to claw back share.
Speaker 2: Look at the makeup of it right when you talk
Speaker 2: about China, when you talk about Korea, the companies that
Speaker 2: are coming out of their very tech focused they have
Speaker 2: become integral parts of the tech supply chain, which, as
Speaker 2: we've discussed, is the high growth new World economy space
Speaker 2: of the market. So Europe is certainly facing a tough
Speaker 2: battle against the US, but also Asia, which has proven
Speaker 2: to be more relevant in the tech space than Europe
Speaker 2: has managed so far.
Speaker 1: But Sagarika says that European governments are trying to come
Speaker 1: up with a way to fight back and give its
Speaker 1: markets more of a competitive edge.
Speaker 2: They've been very vocal. There is a lot of not
Speaker 2: just awareness, but their policymakers are actively addressing the issue.
Speaker 2: Right There was the much awaited report by Mario Draghi
Speaker 2: that came out last year. It called for more synergies
Speaker 2: that would spark innovation because he said that one of
Speaker 2: the biggest challenges for Europe was that a lack of
Speaker 2: an integrated capital market, which was, as he said, stopping
Speaker 2: the cycle of innovation in its tracks. The EU Listing
Speaker 2: Act was enacted in December, is being phased in slowly,
Speaker 2: but one of its key aims. One of the agendas
Speaker 2: is simplify the requirements to list and raise capital on
Speaker 2: European exchanges, so make it easier for companies, give them
Speaker 2: those incentives to stay in Europe, to bring more capital
Speaker 2: into Europe, to bring more business into Europe. The UK
Speaker 2: has also undertaken the biggest reforms in its own words
Speaker 2: in three decades. These are again very geeky terms, basically
Speaker 2: to relax voting rules and share structures, the way that
Speaker 2: companies are made up, how much they can sell, et cetera.
Speaker 2: We spoke to the London Stock Exchange and one of
Speaker 2: the things they said was that the focus is not
Speaker 2: just on the supply side, which is to incentivize companies
Speaker 2: still list here, but also on the demand side to
Speaker 2: create that wealth for people to want to buy those shifts,
Speaker 2: to want to invest their capital here as well.
Speaker 1: We talked about the differences in investing culture between the
Speaker 1: US and Europe. Do you expect to see pension reform
Speaker 1: or other government intervention to amp up that demand side
Speaker 1: and get people excited about investing in European markets.
Speaker 2: Absolutely. The involvement of pension funds in the equity market
Speaker 2: is something that has been a key focus. When we
Speaker 2: hear from policymakers the local pension funds in the UK,
Speaker 2: their exposure to UK equities has fallen to just four
Speaker 2: point four percent of their total portfolio, so they tend
Speaker 2: to be still more heavily weighted toward real estate. You know,
Speaker 2: it's a very savings driven mindset in Europe rather than
Speaker 2: an investment driven mindset. And for there to be bigger
Speaker 2: participation in capital markets from the commonman, from households, from
Speaker 2: pension funds, that needs to change and that has emerged
Speaker 2: as well. If the area is a focus.
Speaker 1: It's not just the short term economic consequences that Europe
Speaker 1: has to worry about. There's also that vicious cycle to disrupt.
Speaker 1: If Europe doesn't adapt, innovate and regain its footing in
Speaker 1: the global market, the next generation of startups and talent
Speaker 1: could be lost to the US or to Asia. So
Speaker 1: I asked Sagarika, when will we know if any of
Speaker 1: these interventions are working.
Speaker 2: I think that you listing act itself is a good
Speaker 2: starting point in terms of a yardstick. The agenda is
Speaker 2: for them to be phased in through the rest of
Speaker 2: this year. What will tell us if the tide is
Speaker 2: studying Very honestly, the proof is in the pudding. The
Speaker 2: moment startups in Europe start to consider and put their
Speaker 2: money where their mouth is, when they start listing here,
Speaker 2: when they start getting serious about you know, this is
Speaker 2: our home. We're not considering the US at this point.
Speaker 2: We think that there is enough value that is being
Speaker 2: generated here. We're going to stay here. The moment we
Speaker 2: see that sort of a trend start to accelerate, that
Speaker 2: means it's working, and we hope it does. We live
Speaker 2: here after all.
Speaker 1: Well, we'll be watching alongside you. Thank you so much, Sagerka,
Speaker 1: Thank you, Sarah, Thank you for having me. This is
Speaker 1: the Big take from Bloomberg News. I'm Sarah Holder. This
Speaker 1: episode was produced by Jessica Beck. It was edited by
Speaker 1: Tracy Samuelson and Farah elba Rau. It was fact checked
Speaker 1: by Adrianna Tapia and mixed and sound designed by Alex Uguiera.
Speaker 1: Our senior producer is Naomi Shadin. Our senior editor is
Speaker 1: Elizabeth Conso. Our executive producer is Nicole beemster Boord. Sage
Speaker 1: Bauman is Bloomberg's head of podcasts. If you liked this episode,
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Speaker 1: Thanks for listening, we'll be back tomorrow