French GPs optimistic over looming elections

France's private equity market has looked particularly healthy in recent months, despite the country's challenging economic conditions, continuing a theme familiar to local practitioners since the crisis.

Closing the recent unquote" French Private Equity Forum in Paris, Argos Soditic president Louis Godron presented several key statistics as a reminder of the harsh reality currently facing France. While the country's GDP is expected to rise by 1.4% this year, GDP per capita has been consistently decreasing over the last 10 years; additionally, the public debt level is now nearing 100%.

"These are challenges that the next government [to be elected in May 2017] will have to address," said Godron. A third challenge, emerging almost as a direct consequence of the first two, is the overall impact this has on France's attractiveness to foreign investors.

France has a deep and broad market, and in our experience foreign investors love it – more so than other EU countries" – Charles Diehl, Activa Capital

According to figures published by trade body Afic and EY, foreign direct investments in France underwent a steep drop between 2007-2010 (from more than €80bn to €20bn), and hit a record low in 2015 with €10bn, with a small peak at around €40bn in 2012. "Entrepreneurs live in a very unpredictable [economic] environment," Godron said, "and the ease for doing business has been consistently mediocre over the last few years."

Facing this reality, it is left to GPs' discretion to find the right tactics to keep attracting foreign LPs, delegates agreed.

"Over the last few years, it has been very hard to sell the French macroeconomic system abroad," said industry veteran Charles Diehl, a partner at Activa Capital Partners. "However, France has a deep and broad market, and in our experience foreign investors love it – more so than other EU countries."

That said, Diehl urged delegates to maintain discipline: "France is viewed as a market that isn't really flying on the same plane – there are irregularities between funds, with some of them being off the range in terms of pricing and returns. What it needs to do is align itself on certain constraints and standards."

Francois Jerphagnon, chief investment officer at Ardian, was also keen to underline the importance of managing funds that operate on a wide geographical scale and are present in varied markets. He argued this would allow investors to benefit from more diversified investment opportunities, leverage the differences in pricing between countries, and enjoy improved flexibility on the legal side.

Another key aspect, according to Idinvest Partners CEO Christophe Baviere, is the pressing need to appeal less and less to French investors: "No one invests in France-focused businesses anymore, hence the need to diversify as much as possible. There are plenty of good opportunities out there, but not necessarily with purely French business models."

A new hope
Regardless of these challenges, a shared feeling among GPs seems to be that the 2017 presidential elections could bring new tailwinds for French entrepreneurs and businesses, and mark a radical turn in French politics and economics.

Godron said the election would play out between a divided socialist party weakened by president Francois Hollande's extreme unpopularity, with an "archaic, old-fashioned socialist wing" on one side and a "business-friendly centre-left wing" led by Emmanuel Macron on the other; the Front National far-right party, "extremely unlikely to govern" in his opinion; and a centre-right group, with business-friendly programmes and measures. The latter, Godron seems to think, would be at once the most likely and most favourable option for France.

"For the last 30 or 40 years, the climate has been rather negative for entrepreneurs," he said. "If the centre right wins, it would be a historical change: for the very first time in decades, France would have a business-friendly government, with a stream of very favourable and radical reforms."

Among these would feature the introduction of more flexible labour laws; the end of the 35-hour week; corporate tax cuts; and the abolition of France's much-debated wealth tax, reinforced during Hollande's mandate.

"If that happens," Godron added, "it will be one of the best times for investors in France."

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