French public market off limits for mid-cap GPs despite uptick

While GPs have capitalised on investor appetite to successfully list portfolio companies across the value spectrum on the London Stock Exchange in recent weeks, the situation remains markedly different across the Channel.

That is not to say that the Paris bourse has failed to pick up in the past few months, though: the CAC 40 index has been on the rise since its latest dip in mid-2012, and reached a new 52-week high in mid-May.

The volume of private equity- and venture capital-backed businesses listing on the French stock exchange in the past six months also paints a promising picture. The number of such IPOs recorded by unquote" data shot up from one to six flotations between Q3 and Q4 last year. Although Q4's performance is yet to be matched this year, the momentum is still apparent: three IPOs took place in the usually quiet Q1, against none in the corresponding period last year. And barely halfway through the quarter, Q2 is already exceeding the Q1 figure with four listings.

French public market off limits for mid-cap GPs despite uptick

Investor appetite seems strong as well, with McPhy Energy, a hydrogen storage specialist backed by several venture capital firms, seeing demand exceed the offering by 8.6x in its €75m IPO in March. French industrial biotech Fermentalg also saw its offering oversubscribed by 4.5x when it raised €40.4m in its IPO in April.

But the profile of these successful IPO candidates – largely life sciences or technology businesses backed by venture players – highlights the main difference between the UK and French markets at the moment: the Paris stock exchange remains off-limits for most mid- and large-cap private equity-backed assets. In the meantime, London has seen a raft of buyout houses floating their portfolio companies on the stock exchange, from Risk Capital Partners-backed Patisserie Valerie (£183m market cap) to Charterhouse-backed retailer Card Factory (£766m market cap).

Path of least resistance
Such listings – especially in the lower mid-market – will remain a rarity in France regardless of how the Paris bourse performs, argues Fabrice Scheer, head of the corporate advisory group at UBS France: "This is a structural phenomenon specific to France. There was a favourable window of opportunity back in 2007, but this has been shut ever since. Sponsors on the lookout for liquidity are simply being pragmatic: they are looking for the best price possible and the least amount of complexity, and the public market has consistently proved unable to match the valuations offered by private equity houses and corporates in the mid-market. Given the constraints faced by a business once it goes public, mid-cap GPs do not even entertain the idea of listing their portfolio companies."

The Paris stock exchange remains mostly a way for companies and their financial sponsors to raise fresh funding, not necessarily to generate liquidity. This explains the strong pipeline of IPOs for VC-backed businesses, while mid-cap sponsors in exit mode are better off capitalising on the large amounts of dry powder ready to be deployed by trade players and fellow GPs chasing relatively few deals. The contrast with the current UK market is striking, with some London-based advisers warning of the IPO craze creating unrealistic pricing expectations that private equity houses are unable to match.

Exploring the possibility of an IPO could become increasingly commonplace at the top end of the French market though, says Scheer. "IPOs are starting to become more relevant again for the largest assets, although this has not materialised just yet. One of the drivers here is the reluctance of large, international funds to deploy capital in the country, which in turn means public markets are a viable option provided they can meet the sponsors' pricing expectations."

Spie could become a significant milestone in that regard. The French engineering firm, backed by Ardian and Clayton Dubilier & Rice, confirmed its plans to go public sometime this year. The potential listing could value the company in the region of €3-4bn. This, and the upcoming IPO of Charterhouse's Elior, could give an indication as to whether large-cap players can replicate the success they have had on the London Stock Exchange so far this year.

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• Topics
• Exits
• France
• France
• IPO