French market springs back to life, but for how long?

Consistently robust dealflow, a thriving exit landscape, record-smashing buyouts that top Europe-wide valuation charts, swelling optimism among GPs, a renewed VC scene... All the recent signs point to French private equity making a long-awaited comeback after the post-crisis debacle. But is the revival truly here to stay?

In late June, unquote" looked back at deaflow levels within European private equity in the run-up to the holiday recess and discovered France at the top of the roster. With 45 recorded transactions from 20 May to 30 June, the country raced ahead of traditional industry powerhouses including the UK, where 38 deals were reported in the same period.

The activity boom might well be the natural prelude to France's traditional summer hiatus, but it also closely mirrors an overarching theme of recovery witnessed recently in the country. The signs are innumerable: there is a healthy exit landscape, the only in Europe where the number of divestments has climbed up quarter-on-quarter in the past year; sound performance distribution-wise, with net IRR found by Afic research to rise from 9.5% in 2013 to 10.1% in 2014; and there has been a reappearance of €1bn+ mega-deals as Apollo's €2.9bn takeover of Alsace-headquartered Verallia topped unquote" buyout rankings for Q2 2015.

Guarded optimism still the norm
French private equity may be ticking all the boxes a healthy industry requires but the country's enduring structural ordeals beg the question: is the surge in the market a hint that the debacle-years are a thing of the past, or will future uncertainties nip growth in the bud? Speaking to unquote", local practitioners display a guarded optimism that echoes recent Afic polls, which found confidence was on the rise.

"It's clear that activity in France is high and increasing," says Apax France partner Bertrand Pivin. Asked about the factors behind the uptick, he opts for the usual suspects: extremely inexpensive debt financing, an outpouring of activity on the exit front and the abundance of cash piling up in corporate pockets, with an estimated $200bn of dry powder held by French strategic buyers in Q1 2015.

"After cutting their spending in the crisis years, corporates find themselves in a macro environment where growth is relatively limited so they seek it elsewhere, they turn to buying assets. This creates competition for private equity funds," says Pivin.

That divestments are a key driver of the French revival should come as no surprise; in this, the country is merely mirroring the strong exit market observed elsewhere in Europe as asset prices continue their steady climb.

What is striking, according to LBO France's Vincent Briançon, are the new faces appearing on the sell side, especially on the stock exchange: "Compared to the UK, for instance, French private equity doesn't have such a tradition for flotations. It used to be an exit route mostly reserved for large-cap players, yet we find lately listings by mid-sized funds such as Apax France and its portfolio company Amplitude Surgical."

A partner within LBO France's mid-market team, Briançon reveals the firm has recorded 19 buyouts within its €100m+ preferred bracket in France in H1 2015, representing an aggregate €9.5bn in enterprise value. "The deal count is quite comparable to that of 2014, when we found 18 transactions," says Briançon. "The difference is, activity slowed down in the second semester last year. This market, however, looks set to remain just as strong in the second half of 2015, with a number of deals to be announced after the summer."

The second instalment of this feature will be published tomorrow (07/08/2015)

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