SMURFIT KAPPA HAS been one of corporate Ireland’s biggest success stories. Starting as a small box-maker in Rathmines in the 1930s, it has grown to become one of the biggest packaging companies in the world.
Earlier this week, it announced a mega-merger with WestRock, one of its US rivals. It means the label of ‘one of the biggest’ packaging companies in the world will no longer apply. It will become *the* biggest company in the world in its field. No qualifiers.
While there are some concerns from investors that it’s overpaying, when you take a step back, the company’s growth has been nothing short of extraordinary.
One might think its ascension to the very top of its field would be met with cheers in the world of corporate Ireland.
Instead, the deal is likely to result in plenty of soul searching – particularly among those in charge of the Irish stock exchange.
While its headquarters will stay in Dublin, the newly merged entity, Smurfit WestRock, will shift its primary listing to New York.
It means Smurfit will end its association with the Irish exchange, which had stretched back to 1964.
It marks the latest body blow in what has been a harrowing year for the exchange, renamed Euronext Dublin after being acquired in 2018.
CRH and Flutter
In April building materials giant CRH announced it would quit the Dublin market, also moving its primary listing to New York. The measure is set to complete later this month and will mark the exit of the exchange’s single largest company.
Widely tipped to follow it out the door is Flutter, the gambling giant behind Paddy Power. The firm got investor backing in April to seek a listing in the US, with executives giving no guarantees of maintaining even a secondary listing in Dublin.
Between them, these three firms account for about half the trading on the Irish exchange.
The main reason for the departures of each is scale. By listing in the US, they hope to expose themselves to a much bigger pool of investors, boosting interest in the business and giving themselves more opportunities to grow.
Losing all three in short order was always going to be a bitter pill for Euronext Dublin to swallow. But it would be mitigated if there was a steady pipeline of new companies coming through.
Unfortunately, that’s not the case. In the last four years, just three companies have pursued a new listing in Dublin.
Just one, Unipar, had an initial public offering (IPO) worth more than €100 million, and that was more than four years ago.
This matters for a few reasons. There’s a clear direct cost for the state. Stamp duty is paid when people buy and sell shares. Less trading means this income stream drops – the numbers vary, but some estimates have foregone tax revenue from lower trading potentially reaching €300 million.
But the bigger problem is an existential one. Think of all the employment which a company like Smurfit Kappa has created. It’s important for indigenous companies to have a way to grow and scale – the exchange has provided that.
It can also give Irish investors a greater stake in the domestic economy, whether that’s in hotels with Dalata, house building with Glenveagh or Cairn, and so on.
It hardly needs repeating, but Ireland is still hugely reliant on multinationals. While some may be happy enough with that while the corporate taxes continue to roll in, building up home-grown businesses should still be a priority.
If one day, for whatever reason, some of the multinationals did leave, Ireland would be exposed, with a hole blown in the state’s tax take.
In terms of what can be done to address this, Euronext Dublin has made some suggestions. These include tax incentives for entrepreneurs who sell their own shares in companies as part of an IPO, or a tax credit scheme to make the IPO process cheaper for new businesses.
The focus is at least where it should be. For the likes of CRH or Smurfit, the promise of major increases in valuations and investor pools is not one which can be easily matched here.
Euronext Dublin’s niche could be building a home for up and coming businesses looking to scale quickly and which want a jumping off point into the wider European market.
This appears to be what Euronext had in mind when it first acquired the exchange, referencing how it could take advantage of Ireland’s EU location post-Brexit.
Euronext itself should also look again at its own approach to encouraging listings. Its ‘IPO Ready’ scheme, a six-month programme detailing the listing process for businesses, has run since 2015.
In that time, over 40 companies have completed it. However, just one – HealthBeacon – has since progressed to an actual IPO. A review looking into the poor conversion rate would do no harm.
While the government has been slow to act in any significant aid or reform to the exchange, it should take the latest string of departures seriously.
Smurfit Kappa, nor any other company, has an obligation to hang around to keep the Irish exchange healthy for up and comers.
But other Irish startups should be able to aspire to go on a similar journey to the one which brought Smurfit from a humble box-maker in Rathmines to a multi-billion euro business which will soon have 100,000 employees
It’s crucial the government and Euronext figure out a way to ensure that path stays open.
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