French deal volume at 14-year low

Looking across early-stage, expansion and buyout investment activity, there have been just 139 investments made in France so far in 2012. With little over a month to go until the end of the year, it is highly unlikely that market activity will recover to match the levels seen in any year since the financial crisis.

In fact, the situation is so dire that unquote" data needed to refer back as far as 1998, a time when French private equity was in its infancy, to see such low levels of investment activity.

Even considering the value of investments, the figures aren't much better. So far, private equity and venture capital funds have poured €6.58bn into France this year. This is sharply down on the €17.9bn seen in 2011, but still higher than in 2009, when just €3.79bn was invested.

However, excluding 2009, a year when the banking crisis reached its height, we must again go back over a decade to 1999 to see investment value in France sink so low at €6.57bn.

Confidence in France has evaporated over the past 12 months, and just yesterday Moody's downgraded the country's credit rating to AA1, with Fitch saying it would review its AAA rating on France in 2013. The country's banks are thought to be among the biggest creditors to beleaguered Greece, and while Germany's economy has remained strong through the crisis, France has struggled with rising unemployment and low growth.

Add to this the tumult of an election, with Nicolas Sarkozy ousted in favour of socialist Francois Hollande, which in turn led to taxation reforms that have not been favourable to investors, and it's easy to see why France has not been the most attractive destination for finance investors this year.

At present, it's difficult to see how things will get better in 2013. While the fundraising cycle may be over by then, leading to more GPs investing once more, the economic situation and the threat of further downgrades, coupled with the ongoing Greek liabilities facing French banks, means confidence is likely to remain low for some time.

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