French dealflow holds steady in H1 despite domestic turmoil

When asking French private equity players whether the country's current unstable climate has affected their activity, two general impressions prevail: first, the impact is overall very slight; second, if there is actually one, it will be very limited in time, and will affect portfolio companies rather than actual fundraising for the most part.

“It is a security crisis, not a financial one like 2008-2009,” says Jean-Christel Trabarel, CEO at Jasmin Capital. “French private equity is essentially focused on B2B companies, which means the impact on portfolio companies is not substantial. Besides, there aren't any funds focused solely on tourism and hospitality in France. As opposed to this, activities that are tourism or leisure-related, especially with international customers, are hugely affected.”

Raising funds has become extremely easy, but the very positive state of the market comes hand in hand with booming competition and rocketing deal prices" – Benjamin Arm, Omnes Capital

According to data published by Parisian body Observatoire Economique du Tourisme Parisien, hotel occupancy in July dropped by 9.8 points to 78.1% from 87.9% in the same period last year. The most significant drop was among tourists from distant locations, such as the US. The number of nights spent by foreign tourists in the country has also gone down by 10% on average over the first half of the year, several French papers recently reported.

“As a result of this, some exits from portfolio companies within those sectors might potentially be delayed, by a year or so,” says Trabarel.

However, a quick look at unquote” data reveals that private equity investments in the consumer goods and services sector – buyout, early-stage and expansion deals included – have remained steady over H1 2016, reaching a peak of 10 deals in February and June and with seven deals announced in July.

Keep calm and carry on
Likewise, the consensus among French GPs regarding overall activity levels, both in terms of dealflow and fundraising, remains positive in H1 2016. Proprietary data from the unquote” database supports this mood to some extent, although it appears that deal volume in the venture and growth capital spaces has been off to a slow start this year.

While H2 2015 saw more deals overall than H1 2016 (189 compared to 135), and a higher total value of transactions returned (€14.1bn compared to €13.4bn), the average deal value recorded was higher in the first half of this year, with €99.3m as opposed to €74.8m in the second semester last year, pointing to increasingly pricey deals.

“Raising funds has become extremely easy,” says Omnes Capital managing director Benjamin Arm, “but the very positive state of the market comes hand in hand with booming competition and rocketing deal prices.”

Following a similar logic, although slightly fewer buyouts were registered overall for the first half of this year – a total of 68 compared to 72 in H2 2015 – valuations were also higher, with an aggregate value of €12.13bn compared to €11.98bn and an average value of €178.4m compared to €166.5m.

The French PE market has been very dynamic lately, which is in stark contrast with the prevailing economic slump in the country; so our sector is not reflective of the overall situation" – Bertrand Pivin, Apax France

Meanwhile, early-stage and expansion deals have been significantly scarcer this year compared with H2 2015, with 117 deals recorded on unquote data” between July and December 2015, and 67 between January and June 2016. Unsurprisingly, aggregate value also dipped sharply from €2.16bn to €1.27bn this year.

Certainly as far as buyout dealflow is concerned, it would seem French private equity players have remained on track, regardless of external troubles. “Our job is to choose and invest in companies delivering high performance within promising sectors, without necessarily following the country's usual economic indicators,” says Bertrand Pivin, partner at Apax France. Pivin says, on average, Apax-backed companies commonly register 13-15% EBITDA growth over a holding period.

He adds: “The French private equity market has been very dynamic lately, which is in stark contrast with the prevailing economic slump in the country; so our sector is not reflective of the overall situation.”

One risk he foresees, however, is a potential flight to quality in terms of fundraising by the end of the year: “We might witness a slowdown in amounts raised by French country funds as an unstable climate always creates a bit of uncertainty, and international investors might become more hesitant in supporting local funds unless they have a strong consistent track record and have been on the market for a long period of time.”

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