From Bloomberg's Big Take, February 6/7:
A fractured system is frustrating businesses and hurting the economy.
The natural location for UK payments firm Zilch Technology Ltd.’s public listing should be its hometown of London. Instead, there’s a real chance the company, last valued at $2 billion, picks the US.
That would put it in the growing list of European companies chasing higher valuations in New York, attracted by its deep financial pools. With start-ups often struggling to access proper funding to grow, there’s widespread unhappiness with Europe’s markets, which have failed to keep up with the needs of businesses and help them go toe-to-toe with rivals.
“We have two challenges to solve: the first is build the business, how much revenue and profit can we create, and then there’s equity value,” said Zilch co-founder and Chief Executive Officer Philip Belamant. “And unfortunately the two things, bizarrely, aren’t always linked.”
US stocks on average trade at 22 times earnings, a near 60% premium over Europe. Firms like UK chip designer Arm Holdings Plc and Swedish fintech Klarna Group Plc have chosen the US for their primary listings, and New York has also caught the eye of France’s TotalEnergies SE and Britain’s WPP Plc.
But scare stories about capital markets aren’t just about share prices or investor returns. When companies are driven to follow the money, then headquarters, management and hiring can be pulled away too. If they don’t have enough incentive to stay, the continent loses out on the next generation of ideas and companies it needs to stay relevant.
There are also implications for investment, and the result is a sluggish economy caught between the superpowers of the US and China and unable to fully compete.
European manufacturing is already in a slump, and the German and French economies both shrank at the end of 2024. Weaker growth means tax revenues also suffer, the last thing fiscally strained countries in the region need.
The crisis is becoming more pressing as competition intensifies. Donald Trump’s return to the White House with an America-First policy — deregulation, tax cuts and tariffs — is upping the pressure, a view widely shared at the World Economic Forum in Davos last month. Just before those meetings, the IMF upgraded its economic forecasts for the US, which it sees outpacing Europe through the rest of the decade....
