The Attractiveness of a Danish IPO for Small and Medium-sized Enterprises

David la Cour Kjærum & Kasper Kaae Jacobsen

Student thesis: Master thesis


The Danish capital market has recently been subject to several examinations by market participants trying to explain the almost total absence of small and medium-sized enterprises (hereafter SMEs) choosing to go public in Denmark through IPOs. The absence of SME IPOs has been said to reduce national economic growth, which is why the issue has lead to numerous reactions from top politicians and the media. The goal of this paper has been to investigate why Danish SMEs have been reluctant towards completing IPOs on the Danish stock exchange and to examine whether and why other equity transactions have been preferred. Through completed interviews with owners of Danish SMEs, it has been found that the increasing presence of alternative equity investors is challenging the favourable characteristics of the Danish stock exchange’s value proposition. This has resulted in a decrease in the attractiveness of being a Danish listed SME. In line with international theories, it is found that Danish SMEs are aware of the advantages of selling to larger international organizations. Many of these organizations are currently on the prowl for innovative and scalable SMEs and having them invest could potentially increase company growth. In addition, it is found that the Danish capital market is extremely dominated by equity funds - especially private equity funds. This is illustrated by the fact that private equity funds have invested more in Danish companies relative to national GDP than compared to the rest of the EU, with the majority of these investments being in the SME segment. The preference of SMEs toward other sources of equity financing than the Danish stock exchange is partly due to attractive valuations when completing private transactions, comprehensive compliance costs related to being a publicly traded SME and that alternative sources of equity financing can contribute with lucrative knowledge and networks. In addition, various SMEs express concerns about potential legal consequences of being a public company. Although the stock exchange and an IPO can make up a quality stamp of the listed companies and enhance public awareness, these features have been found to be less attractive at the Danish stock exchange compared to other more internationally oriented stock exchanges. Although the stock exchange may be the only source of equity financing where the original owners can maintain complete control of the company, alternative sources of equity seems to be favoured among the Danish SMEs both when obtaining financing and completing divestments of equity interests through M&A transactions.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
Publication date2016
Number of pages174