Stéphane Boujnah is the CEO of Euronext, the largest European stock exchange, managing the bourses of Amsterdam, Brussels, Dublin, Lisbon, Oslo, Paris and Milan.  Stephane has been the CEO for the last 8 years, leading an M&A drive that saw the company acquiring and integrating the Irish stock exchange in 2018, Oslo stock exchange in 2019 and Borsa Italiana in 2021.

With Stéphane, we go back to the origins of stock markets to discuss why they are the natural home for ambitious growth companies, the reforms needed to spur more equity investment in Europe, and the importance of trust when you are building a track record as a listed company CEO.

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Disclaimer: this discussion is not financial advice, nor an investment recommendation, nor a solicitation to buy or sell any financial instruments, or an offer for financial services or any other transaction. The information contained in the recording have no contractual value and are destined for an informational purpose only. Amundsen Investment Management and the participants on this podcast may have holdings in the companies being discussed. 

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Per: Today, we’ll discuss European capital markets with Stephane Boujnah, the CEO of Euronext, the largest European stock exchange, managing the bourses of Amsterdam, Brussels, Dublin, Lisbon, Oslo, Paris, and Milan. Stephane has been the CEO for the last eight years leading in M&A drive that saw the company acquiring and integrating the Irish Stock Exchange in 2018, Oslo Stock Exchange in 2019, and Borsa Italiana in 2021, as well as other related businesses.

When I recently met Stephane at a Euronext dinner in Oslo, I was particularly happy as he handed out the biography of Roald Amundsen, The Last Viking, to attendees, highlighting that exploration was a true spirit of Norwegians. In my discussion with Stephane, we go back to the origins of stock markets, to discuss why they are the natural home for ambitious growth companies. The reforms needed to spur more equity investment in Europe, and the importance of trust when you’re building a track record as a listed company’s CEO.

Per: Before we start, we would like to remind our listeners that our discussion is not financial advice, nor an investment recommendation, nor solicitation to buy or sell any financial instruments, or an offer for financial services or any order of transaction. The information contained in the recording has no contractual value and are destined for an informational purpose only. Amundsen Investment Management and the participants in this podcast may have holdings in the companies being discussed.

Per: Stephane, thank you much for joining us here in your office in Paris. Today, I want to talk a bit about Euronext, but especially the role of stock exchanges. What the stock exchange actually brings to the market. One of the things since you joined Euronext, markets have actually evolved quite a bit, right? Passive investing has become more important. ESG investing has become a more important trend. You’ve had MiFID II in Europe. I’m just wondering how have you actually adapted the strategy of Euronext since you took over?

Stephane: The first thing we’ve done was to secure the performance of the company to make sure that the group of assets that were carved out by us, that both NYSE Euronext, and decided to keep NYSE and to keep the LIFFE derivative market in London that was part historically of Euronext. To make sure that those European cash equity trading and listing assets that formed the Euronext of 2014 could be resilient, sustainable, performing well. To become relevant for future growth and to become the home sweet home for European consolidation. That was the first step. Performance is a condition of independence, and that’s what we have done to make the company relevant.

Today, following the acquisition of the Irish Stock Exchange in ’18, the acquisition of Oslo Børs in ’19, of the CSD of Copenhagen in VP securities in ’20 and the acquisition of Borsa Italiana in 21. Euronext is now a company which is the home for companies with an aggregate market capitalizations of approximately 6.5 trillion Euro. This is approximately twice the size of the aggregate market capitalizations of companies listed on the London Stock Exchange. Average delivery volumes today are approximately, for equity trading, anything between 10 and 11 billion, sometimes 12. It’s again, a bit more than twice the size of the volumes traded on the equity market at the London Stock Exchange.

Today we trade on Euronext markets, approximately 25% of the equity trading in Europe. Hence because it has become so relevant over the past six years, it’s the natural listing venue for European markets and to a large extent also for international listing. Today, and ’23 was not a great IPO year. We had 55 listings on Euronext markets against probably 20 on the LSE and just three on Deutche Borse. Definitely in terms of international listing, i.e. listings of companies not incorporated in Euronext countries, we have something like 12 international listings. Including material companies like Ferrovial, the Spanish infrastructure company deciding to list in Amsterdam.

What we have done was just for the listing business and the trading business, to make the company relevant by creating a stronger, a deeper liquidity pool, order book, and the technology platform, because liquidity goes to liquidity. The reason why we are more relevant in equity trading and in equity listing than anybody else in Europe is a combination of Brexit with London not being anymore the largest financial center of the European Union, it’s just the largest financial center of the United Kingdom now, with a global ambition in some asset classes where they are relevant.

Brexit has created a change of perception in terms of, when you want to list in Europe, where do I list? We are more relevant. In parallel to Brexit, we have built a company with a deep liquidity pool, a deep order book. That’s what we have done since I joined in 2015. Basically reactivating the project of the founding fathers in 2000, but making it scalable to welcome the Irish Exchange, Olso Bors, and the ones who joined as well like Borsa Italina.

Per: Europe has always had a low share of its economy being listed than the US partly due to family ownership, reliance on bank funding from the companies as well, compared to equity funding that’s more common in the US, right? I’m just wondering, what do you see as the benefit for Europe of actually having more companies becoming listed?

Stephane: You’re absolutely right. Most of the growth of the European economy, since the second World War was done through either state money investment, or sovereign funds investments, or family investment, or self financing. It has not always been the case. The reasons why we have such a gap is also related to the fact that if you want to be paid a pension in Europe, and for most Europeans, you just have to pay taxes and you get paid something, and your personal investment are a compliment to your state pension.

In the US if you don’t invest in equity directly or indirectly, you don’t get paid any pension. It’s a bit exaggerated, but one of the fundamental driver of the equitization of the economies is related to the welfare state. To the extent that one of the main purpose of long-term investment, which is enabled by equity investment, which is pension planning, is addressed through other tools and other allocation of resources.

Now, why is it so relevant? Without boring you with historical perspectives, before the invention of the welfare states at the end of the 19th century, beginning of the 20th century, the amount of wealth allocated to equity markets in percentage was stronger. Because the only way to get return was to invest in equities and to capture the value created by the industrial revolution.

Now today, why is it so important? The number of companies in Europe that have amazing growth and expansion plans is large. Today, 22 million companies are incorporated on the continent, most of them small SMEs. The entrepreneurial spirit all over Europe, in the Scandinavian regions, in the South of Europe, in Germany, everywhere is very dynamic. Governments, the local governments, central governments, have spent a lot of money in particular to promote the tech sectors.

The number of companies that have been able to transform science developed in large educational institutions or high education institutions, universities. To transform science into technology, and then transform technology into a product, and then transform the product into a business, and then transform the business into a company is really impressive. Now, those companies after 10 or 12 years of growth, they need to achieve two objectives. One is to raise more money to change scale and to fund risky projects where cash flows are more remote, and to offer liquidity to the initial investors who have been patients but need to reallocate the proceeds of their initial investments into new projects. The natural way of getting liquidity for initial investors and fresh money for the company is to do a secondary offering and a primary offering. That’s the purpose of an IPO.

Now, it’s true that over the past 10 years, the development of private equity has created a different perception. In the old good days, there was no stops between, I need liquidity for my shareholders, my initial investors, and I need cash for the company to fund risky projects with no visibility on cash flows. Therefore, that cannot be funded by debt. Therefore, IPO is the only way, especially as for a long period of time, making the managers involved or aligned with the success of the company was achieved through stock options.

Now today, you have with the private equity money available through larger and larger private equity funds. The possibility to get liquidity for your initial shareholders, because those private equity funds do buy your shares. You can have primary injection of cash in the company and you can have key man or management package type of private equity management packages that are as competitive as listed stock options package. We are in a situation where these private equity guys have created I would say interim bus stops between the developmental phase of the company that was making the company eligible for IPO in the old good days and today.

Ultimately, and that’s the short answer to your question. Ultimately, private equity guys are in the business of reselling companies. That’s the fundamental model. The big difference between going to a private equity ownership and an IPO, is that in one case you do know that there will be an end and that you will be sold. In the other case, you position yourself as a consolidator. It doesn’t mean that when you are listed and you become a consolidator by definition, you are not going to be bought out by somebody who will pay a premium to make a public take-over and that you will end up being a consolidatee.

It doesn’t mean that when you are under private equity ownership where you are tagged consolidatee, you are not doing some build-up where you buy smaller assets to grow the size of the company and create synergies. It just mean that by default, when you are IPOd, you are tagged, identified as a consolidator. When you sell to private equity, you are tagged as a consolidatee. Also, when you are sold to private equity, you sell the company with a M&A strategic premium. When you sell the company to an IPO, you sell the company with an IPO discount.

Why do you sell with a discount versus selling with a premium? Because in one case, when you sell with a premium, you believe that the worst is ahead and the best is behind. You have done the best, the worst is coming. Let’s find a strategic premium to take the money and run and do something else with the money, because what is coming is difficult and you take a premium. When you believe that the worst is behind and that the best is coming ahead. You want to keep some exposure to the success to come and therefore you accept an IPO discount to involve new fresh money, but to retain an exposure to the future successes.

I think the IPO markets eventually are the natural outcome for growth companies, either because they are the ultimate default liquidity solution for private equity guys, or for anyone who wants ultimately. More fundamentally beyond the technicality of exit, more fundamentally beyond the exit, the public markets are the purpose of a company. Because the amount of IPO and public markets are really one size fits all type of environment for growth, because the accelerators that bring the accountability vis-a-vis public markets is amazing. It’s a facilitator to streamline the strategy.

When you are a private company, you can tolerate somehow opportunistic diversified allocation of capital. When you become public, investors tell you, “Hey, I want you to be focused because I have plenty of opportunities to invest in other diversified streams through other public vehicles,” so you do what you are best at. The discipline for streamlining strategy is something that can exist in the private equity ownership, but exists for sure under public markets ownership.

It’s an opportunity to upgrade, or let’s say change or transform your management teams. When you are founders that have been very successful 3, 4, 5, 10 years down the road, sometimes you are still surrounded by people who have been great during the initial years. Who have been absolutely instrumental, but for whatever reasons do not have exactly the profile and the skills that are needed for moving to a different scale and to a more structured company. The IPO is an opportunity to say, “You know what? Let’s make everyone either rich, or slightly rich, but for sure make different personal choices because we have a catalyst to move on and nothing is personal.”

This is an opportunity to structure things that in the absence of an IPO framework would be perceived as bureaucratic or formal. I mean, who falls in love for risk compliance, accounting, reporting, standards? You don’t do that by desire or somehow design, you do that by obligation, because this is the type of grammar of syntax that is expected by the investors. I think the benefits are huge either to address the fundamental needs of the initial investors, to address the basic needs for funding growth and risk of the company and to accelerate the transformation of a company. No doubt.

Per: If I can just take an example of a sector that we think is going to be one of the main sectors actually of companies listing over the next 10 years, the energy transition sector. There’s enormous amounts of capital that needs to be raised to fund the energy transition. Part of it is going to be through infrastructure projects, infrastructure funds and private. Actually we see a lot of those companies coming to the market because they need to fund their CapEx to build a plant, to make batteries or to make components for electric vehicles, chargers, you name it. How do you think that will work with listed markets?

Stephane: Listed markets are the natural home for risk and large ambitions. Never forget the historical background of listed markets. Companies by shares were invented in the 17th century to fund colonial ventures. There was a time where kings could not fund the boats anymore for exploration purpose and merchants decided to share the risk. Clearly there was no visibility as to the boat was going to sink on one way or on the other way, and that’s why companies by shares were invented. The value of the paper was increasing when information was received that the boat had reached the other side of the water without sinking, and the value was great immense when the boat was back. The value of the paper was also driven by how many times the captain of the boat had crossed the Atlantic and how experienced was the crew and how recent was the ship et cetera.

Per: The management was important there?

Stephane: Management, fixed asset, everything. We are in the same way. Technology is a natural home for public markets, just because you can lose everything and you can make a lot. The green transition is exactly the same. It’s very CapEx-intensive and it’s very risky. There will be like in any other technological revolution, a form of winner takes all, but no one is in a position to decide or to assign who will be the winner. Because whoever is in a position to be absolutely certain as who will be a winner is probably investing now is not listening to us and is probably richer if he or she knows who it will be.

There is an uncertainty on the winner. There is a certainty on the fact that the winners will take either all or the largest part of the pie. There is a certainty that anything for the winners, for the followers, for the losers, will be expensive in terms of CapEx, and there is a certainty that the risk level will be high. Now, who takes risk? Equity investors in public markets. That’s the natural home for those projects. Also, the fact that probably the communication between the company and the investors is the most transparent because it is regulated are the public markets.

If you want to assess what is your risk, if you want to assess what is exactly your project, if you want to make sure that you are talking about a real, tangible, concrete projects and compare projects in a standardized manner, in a measured manner. The public markets communication discipline makes a big difference. Benchmarking public companies is much easier than benchmarking private equity projects. Because as an investor in the private equity funds, the only thing you know is that the same team in a certain fund is very highly capable of benchmarking few projects within that fund. You have no way to know what is the level of the scrutiny of in one fund versus the other fund, and no teams is in a position to know that.

Because public markets require the use of homogenous communication, syntax, grammar, which is super-regulated, because if you don’t do it, you get fined. You have a tool to foster the allocation of your capital in project A versus project B, which is clearly what we need for project the size of green transition.

Per: Now, if I talk a bit about competition between exchanges, you mentioned it a bit between yourselves and LSE, but also at the US. It seems like there’s quite an intense competition between exchanges to attract listings. For example, you’ve had quite a lot of success with Amsterdam attracting emerging markets listing, you just had Coty do a listing to France, which was a big success. I’m just wondering how important is it for countries or for regions like the European Union to ensure that their companies are listed locally?

Stephane: Location of listing entails consequences in terms of regulation of markets, and in terms of supervision of consolidation. When you are listed somewhere and there is a take-over, the local market supervisor decides on how the take-over should take place, so that matters. Now, I’m talking here about the transformational event of a listed company. Before you get to this bifurcation of your life as a listed company, it’s true that people in most cases decide to list next door because there is a sort of familiarity with the local ecosystems in terms of investors and research.

Also because in many cases people underestimate, sorry, I was a practicing lawyer for six years when I was young and slim– People underestimate the porosity between the local corporate law applying to a company and the local listing venue and the local stock exchange regulations. It makes a lot of sense, or it’s very convenient and simple when you are a local company to be listed in your local market.

Now, it’s possible or it makes sense only if you get enough liquidity and it enough enough depth in the order book. If you are a great company in a small village with a small market, then you have to move. If you can afford to be listed at home and to have access to a very deep market, then you stay. That’s exactly why we have so many companies being listed on Euronext markets. Why do we have so many IPOs in Oslo now compared to what we had in the past? It’s because there has been a boom in the SMEs development in the Nordic region, and particular in Norway. Whereas in the old good days, Stockholm was the natural place to list in the Scandinavian region.

Now that Oslo is just the gateway or the entry door to the single liquidity pool, the single order book, the single technology platform of Euronext, you can get the full Euronext liquidity while being listed in Oslo. Why people list in Amsterdam? Because they get access to the European markets of Euronext while benefiting from the flexibility of Dutch corporate law. Why do we have more IPOs now in Milan than we had in the past? Exactly for the same reason. Because when you list in Milan, you used to list on an equity market, which had a certain size, which was the equity market of the third largest economy of the European Union. Now you list in the largest market in Europe.

It matters as long as you can offer liquidity, and that’s why we have so few European companies not listed on Euronext and listing in the US. We have biotech companies that decide to do their primary listing in the US. Mainly because in the biotech world, the size of the initial investment of the capital expenditures are massive compared to the other tech companies. There is a concentration of large biotech funds around Boston in the US and on NASDAQ that does not exist in Europe for the moment. Also, the concentration of large pharma groups in the US, who are the natural consolidators of biopharma is more intense there than in Europe.

When you are a biotech company, very quickly you end up having in your board private equity guys specialized in biotech. You end up very quickly raising capital in the US with specialized biotech funds. You end up very quickly talking to NASDAQ-specialized investors, specialized in biotech companies. You end up talking, in case of dual track with US-based pharma groups. If you put aside this niche, this particular segment, what we observe is that most European companies, when they have access to Euronext market, prefer to list in Europe because of proximity in many respects.

Per: There’s often a question that comes up about liquidity. There’s a feeling that European liquidity is lower than US liquidity. I guess it’s multiple reasons. The US has more retail participation, maybe more fragmentation of venues actually than Europe does. Especially in European mid-caps, there’s been a lot of talk about the fact that MiFID II, for example, has dropped the level of research and also the level of liquidity in European small and mid-caps. In terms of regulation, what would you like to see basically coming out of the European Union to encourage more liquidity and more coverage of the European small mid-caps?

Stephane: I think this is an upstream problem. Let me go back to what I was saying a few minutes ago. Unless people and retail investors in particular incentivize to allocate a significant part of their savings into equity investment to prepare for their pensions, there is no reason why liquidity will fundamentally change. What makes US markets so liquid is again, because unless you invest in equity markets, you won’t get paid when you are too old. That makes a huge difference.

Countries that have a partial capitalized pension system, like the Netherlands, have huge pension funds that are making the liquidity of the local markets very different. In particular, in derivatives products, because of the tradition of local investment, including in the retail sector. I do believe that the fundamental issue is how do we create more incentives for people to equitize their own economy, to equitize their savings, and therefore to become more acute about the opportunity in the equity markets.

Unless changes are made to undo some tax incentives that create an incentive to invest in life insurance schemes that are totally invested in fixed income. That’s more of a problem now with govvies offering 3%, 4%, where without any material risk you can get 3%, 4%. Unless there is a form of incentive to connect these private savings to equity markets, I don’t think we’ll fix fundamentally the magnitude of the equity markets, hence the liquidity. I believe that it is something that is foreseeable, that is possible, because, in most European countries, the combination of demography and declining demography and low growth makes necessary a reform of the pension schemes. That you can’t fix the problem only by postponing the age of retirement, people realize that they need to take care of themselves.

I think it’s something to change, but this is much more important than downstream reforms like is research available and bundled with trading or not? Payment for the flow These sort of things that are important, but not of the magnitude of repositioning savings. Because Europeans have one of the highest saving rate in the planet, anything between, depending on countries, 12% and 19% of their income being saved. In that situation, that can have a huge impact if we are able to relocate 5% of the stock.

Per: Now I want to talk about Euronext as a list of company, because you’ve been the CEO now for almost eight years, and you’ve also in a way used the capital markets. You raised equity to fund the acquisition of Borsa Milano. I’m just wondering, what advice would you have to CEOs of future listed companies to ensure they get the continued support of capital markets once they’re listed?

Stephane: I can tell you what I strongly believe in. I’m observing around me that it’s not systematically shared by everyone, but I do believe that this is the only sustainable way to raise money. Accountability. When people trust what you tell them, when you under-promise and over-deliver in a consistent manner. When they trust what you tell, they give you money, and your words matter so much that you can transform the industry by communicating a conviction because you have delivered in the past. When people don’t trust anymore what you tell them, and that’s true by the way not only business, in every part of your life, including private life, personal life, et cetera, or politics. When people don’t trust what you tell, then when you speak, it becomes noise. Your word become noise.

I think my main advice is do mind protecting and gardening your credibility at the risk of being tagged boring. Because the pressure to be enthusiastic, and to convince people, to create expectations, to show up with the black t-shirt and the earphone, and put slideshow starting with chain of paradigm et cetera, is there. If you are really, really, really confident that you are the new prophet of your industry and that you are really going to change the world, then you are very lucky, and good for you, but then deliver. If you have the slightest doubt that you may not deliver, be cautious.

Because dreams for the sake of dreams can make you excited for a few weeks, or months, or quarters, but what makes people supportive is the fact that they had only good reasons of trusting you. I can give you a clear example. We bought Borsa Italiana in ’21 for a total consideration of 4.4 billion. We raised in five hours 1.8 billion of debt in bond markets and 1.8 billion of equity in five days in the equity markets.

Why did people buy shares and why did people give us money as a loan in a bond format? Because we told them, “We have done the acquisition of the Irish stock Exchange. We have done the acquisition of Oslo Bors. We have extracted more synergy and anticipated one year ahead of the plan. We have done significant synergies to ourselves between 2015 and 2017. We are going to do more of the same but bigger in Italy.” That was most of the story, “Give us money, and we know how to extract synergies because we have done it before.”

If we had not been in a position to do that, without that credibility, this deal would not have been possible. Because we had to raise 1.8 billion of equity. People gave us 1.8 billion because they trusted us. Guess what? They were right. We said at that time that we were going to generate 60 million of synergies in relation to the acquisition of Borsa Italiana, and that was in April ’21.

In November ’21, we told the market, “You know what, we are more confident and we believe we can do more in relation to this deal. It won’t be 60, it will be 100.” In February ’23, a few months ago, we said, “No, it won’t be 100, it will be 115 million.” We are confident that by the end of ’24, we could potentially do better. By the end of this very year, in eight weeks, at the end of December, we will have delivered already 70 million. I.e more one year in advance than what we had planned to deliver by the end of ’24, initially. 60 million by the end of ’24, we said initially, and that will be 70 by the end of ’23.

Now, when you show the people who trusted you that you return the money, irrespective of the stock markets because our stock price went up to €100 per shares when the interest rates were

low, when everyone was bullish about equity. Today, stock markets are in a different situation and there is a competition in the asset class with fixed income and therefore our stock price is at €65, despite the fact that the company is in a much stronger position than when the stock price was at €100. Despite all that, one thing is clear, people trust us. In order to behave that way, you need a lot of self-confidence, a lot of humility combined with a lot of assurance, which is different from arrogance. You need to be absolutely sure and self-confident about the fact that what you are doing and that you know the direction of travel. You need to be calm, not to accept that you are not here to be loved, or that the stock price is not an indication of success, it’s just the reflection of the current market environment. You need to be determined, you need to be respected by the market and trusted.

If you start entering into a world where the tail moves the dog because you try to please the market or to feed them with news flow and to do a PR thing. If you make a confusion between public equity markets and a reality show, then you will have the fate of a reality show character. That’s why I do believe that the fundamental advice is credibility. Not everyone is equipped to navigate into the highest oceans with the level of determination that is required by this shaky environment.

Per: I think what you’re saying is especially true for a company that’s newly listed, because investors don’t have the experience with the management. They’re looking very intensely at the first and second set of results to understand if the management was exaggerating, or if they were, as you’re saying, being over-delivering and under-promising.

Stephane: You can be visionary and that’s great to be visionary. You can tell the merchants in Antwerp and in Seville in the 17th century, I’m going to organize a boat to go to Quebec to bring back furs or to Brazil to bring back woods, et cetera. You can do it, but you can do it twice only if you are back with the money they have invested and if you can sell furs on the port. That’s the word credibility and track record issue.