Equity Finance 2024

Global Equity Finance Overview: Legal Frameworks, Market Trends and Innovative Financing Solutions

In today’s interconnected global economy, equity finance plays a crucial role in business growth, technological innovation and market expansion. This guide provides an in-depth exploration of the legal and regulatory framework for equity financing across various jurisdictions, including the USA, Japan, Germany, the UK, Brazil, Switzerland, Singapore, the Middle East, Hong Kong, Mexico and the UAE, as well as the key market trends and developments in those jurisdictions. By bringing together perspectives from leading legal experts, it aims to offer a comprehensive overview of equity finance, covering early-stage and growth investments, public markets and IPOs, regulatory and tax issues, and the impact of bankruptcy and insolvency on shareholders.

The diversity of equity finance techniques

The choice of equity financing, as opposed to debt financing, and the types of equity finance techniques and structures deployed will depend on a company’s stage of development and the specific needs of a given jurisdiction. Early-stage and venture capital financing provide essential support for young, innovative companies through common shares, convertible instruments, or hybrid options such as mezzanine financing. These structures cater to the high-risk, high-reward nature of venture investments, allowing investors to benefit from potential upside while managing risks.

Growth and private equity financing, on the other hand, introduce more sophisticated structures that reflect the changing risk profile and operational scale of maturing businesses. Private equity investors often use a mix of debt and equity, emphasising control mechanisms to protect their investments. This approach typically involves majority or significant minority stakes, balancing risk with the potential for substantial returns.

Public equity markets offer another important avenue for companies to raise capital. The decision to go public or stay private depends on factors such as access to broader capital, liquidity needs, and regulatory requirements. While some jurisdictions (eg, the USA) have highly active public equity markets, others ‒ particularly in emerging economies  ‒ are still developing.

Stringent and, some would argue, overly burdensome regulation also makes accessing public equity too challenging for many. An inability to meet the free float requirements to list on the Athens Stock Exchange, for example ‒ requirements that have recently been made more severe ‒ may lead to some companies delisting. Although equity restructurings such as debt-to-equity swaps, down rounds and dilutive capital increases help companies manage financial distress, they similarly come with challenges related to shareholder rights and creditor consent.

Corporate governance is a critical issue in this area, especially for companies with diverse equity holders. In Brazil, the concept of the “true corporation” ‒ ie, one that lacks a controlling shareholder ‒ has led to evolving governance practices. In these companies, the board of directors plays an increasingly significant role, and new regulations are being introduced to enhance governance and protect minority shareholders. Similarly, jurisdictions such as Italy, Mexico and the UAE are adapting their governance structures to align with the changing dynamics of equity finance.

Market dynamics, key players and structural reforms

The equity finance landscape is shaped by the types of financing available and by the key players involved, including venture capitalists, private equity funds, institutional investors, and government bodies. These stakeholders have different risk appetites, investment horizons, and levels of involvement. In recent years, there has been a growing focus on hybrid financing models that combine debt and equity, providing greater flexibility.

Regulatory reforms to improve market access have been a priority for many jurisdictions. By way of example, Hong Kong has positioned itself as a “global superconnector” between Mainland China and international markets through initiatives such as Stock Connect, Bond Connect, and Swap Connect. These programmes facilitate cross-border investments and strengthen Hong Kong’s role as a major capital market hub.

In Italy, the Euronext Growth Milan (EGM) platform has emerged as an alternative to the main regulated market, offering smaller companies a simpler pathway to equity financing. Similar efforts have been made in Hungary, where the Budapest Stock Exchange (BSE) has introduced its Xtend platform to lower barriers for SMEs. Mexico has also introduced reforms, such as dual-class shares and simplified IPO procedures, to revitalise its equity markets and attract a wider range of participants.

Structural reforms are also being implemented to attract technology and innovation-driven companies. In 2023, Hong Kong introduced Chapter 18C to its Main Board Listing Rules, which facilitates the listing of specialist technology firms that do not meet traditional financial requirements. Hungary has focused on green finance, including green bond issuances, in keeping with global trends towards sustainability-linked financing. These reforms reflect a broader trend across many of the jurisdictions featured in this guide towards creating an environment that supports innovation, diversity and resilience in equity finance.

Hybrid instruments, flexible financing and emerging trends

Hybrid instruments and flexible financing methods are becoming increasingly prominent. In the USA, the resurgence of private investment in public equity (PIPE) and of convertible bonds reflects a shift towards more adaptable capital-raising tools. These instruments provide companies with alternatives to traditional equity or debt, which is particularly useful in volatile market conditions. This trend is also evident in Hungary, where a growth bond programme has been used to diversify debt portfolios and support corporate growth.

ESG (with an emphasis on the E) considerations continue to play a significant role in equity financing. Some jurisdictions are integrating ESG principles into convertible bond issuances, offering new opportunities for investors focused on sustainability. The growing importance of ESG factors is reshaping equity finance, especially in public markets, where companies face both regulatory and investor pressure to demonstrate sustainable practices. The EU’s Gender Balance on Corporate Boards Directive, which will need to be implemented in member states by the end of 2024 and which applies to listed companies only, has already had a significant impact on public markets across the EU.

Public markets: IPO trends and follow-on offerings

IPO activity and follow-on offerings have varied significantly across jurisdictions, influenced by local economic conditions, regulatory environments and geopolitical factors. In the USA, IPO activity rebounded in 2024 after a decline in 2023, with sectors such as energy and real estate showing strong returns. Follow-on offerings also played a major role ‒ raising more than USD90 billion in the first three quarters of 2024, as companies sought to capitalise on favourable conditions to raise additional capital.

The UAE has become a leader in IPO markets within the Gulf Cooperation Council (GCC) region, with both state-backed and private companies actively participating. Regulatory reforms have enabled dual listings, such as Americana’s dual listing on the Abu Dhabi Securities Exchange (ADX) and the Saudi Tadawul, thereby enhancing visibility and liquidity. Hong Kong has introduced a treasury shares regime to give listed companies more flexibility in managing capital, helping them remain competitive in a changing financial landscape.

In Japan, hybrid structures are emerging through cross-border listings. Japanese companies listing common shares on foreign exchanges such as Nasdaq show an increasing interest in accessing broader capital pools and integrating into global markets. Despite legal and regulatory complexities around share certificates, tax considerations, and foreign direct investment rules, the number of Japanese firms pursuing international listings is growing ‒ indicating a desire for greater flexibility and global integration.

Italy has experienced contrasting trends, with declining IPO activity on Euronext Milan (EXM) but strong performance on EGM. Financial incentives, such as the IPO bonus for SMEs, have supported EGM’s growth ‒ demonstrating the effectiveness of targeted reforms in enhancing market participation for smaller, growth-focused companies.

Regulatory challenges and the outlook for equity finance

Equity capital markets face various challenges across jurisdictions, including regulatory hurdles, geopolitical uncertainty, and market volatility. In Mexico, political developments and currency depreciation have impacted investor confidence, leading to a decline in the number of listed companies. However, recent reforms and opportunities arising from global supply chain shifts and the rise of “nearshoring” offer a path forwards for revitalising the market. In Japan, cross-border listings present unique challenges related to share certificates, tax considerations and foreign direct investment regulations ‒ as previously mentioned ‒ but the regulatory framework will likely evolve to accommodate these changes.

Looking ahead, equity capital markets are expected to continue evolving, with a focus on regulatory reform, market access and innovative financing methods. The increasing prominence of ESG considerations, the use of hybrid financing instruments, and the development of platforms tailored to SMEs are likely to drive growth. Understanding these variations is essential for investors and companies looking to navigate the complexities of equity finance and achieve their financial goals.

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The global equity finance landscape is dynamic, shaped by evolving investor preferences, regulatory frameworks and economic conditions. While the core principles of equity finance remain consistent, local legal, regulatory and market nuances create a complex environment that requires careful navigation. This guide aims to equip investors, companies and advisers with the insights needed to make informed decisions, seize opportunities and navigate the challenges of equity financing in an increasingly globalised economy.