Analysis of market conditions and competiveness in the Danish market for micro IPOs

Over the last ten years, the Danish micro IPO market has been very inactive. Since 2014, there has only been three Danish micro IPOs on First North Copenhagen, while at the same time there has been more than 300 micro IPOs in Sweden. In fact, out of the many IPOs in Sweden, almost 20 are originally Danish companies now listed in Sweden.

In this study, we analyse the underlying drivers of the weak Danish micro IPO market. This indicates number of weak market conditions, especially related to four overall factors:

• Investors’ lack of trust in the micro-cap market
  In the years following the financial crisis, the Danish micro stock market has performed very purely – many small companies were delisted and investors suffered great losses. This has decreased investors’ and other stakeholders’ trust and belief in the Danish micro-cap market. Once lost, this is very hard to regain.
• A lack of competent, credible and effective advisors in the IPO process
  Partly because of the long period with no market activity, almost all financial advisors, lawyers, auditors etc. specialised in micro-cap IPOs has gone out of the market. This has left the current market with little historical knowledge, competences and efficiency. Also therefore, the micro-IPOs are significantly more expensive in Denmark as compared to, e.g., Sweden.
• A weak investor landscape and liquidity in the market
  Retail investors and small family offices make up the bulk of the potential investor landscape in a micro-cap market. However, this investor landscape is very thin in Denmark, partly because most Danish household savings are invested through large institutional investment funds and partly because the channels for information about potential micro-cap investments are undeveloped. As a result, the liquidity and investor interest in the Danish micro market is very weak, which has a negative self-reinforcing effect.
• Structural factors including the Danish tax system
  In earlier studies, we have highlighted that these weakness are linked underlying structural factors including the Danish tax system.

The study is commissioned by the Danish Ministry of Industry, Business and Financial Affairs