Canadian pension funds make inroads in France

Francesca Veronesi
26 January 2018

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In the wake of CDPQ and PSP's investment in Fives, Francesca Veronesi looks at Canadian institutional investors' renewed appetite for direct investments in large-cap French assets

In January 2018, Public Sector Pension Investment Board (PSP) and Caisse de Depot et Placement du Québec (CDPQ) acquired minority stakes in French industrial engineering firm Fives from Ardian, which remained a minority investor. The company's fifth LBO was expected to value the company at approximately €1.5bn, according to press reports.

The buyout is the fifth investment from Canadian institutional investors seen in France in the past 12 months. Back in January last year, PSP (a pensions giant with assets under management (AUM) of $139.2bn) invested €1.8-1.9bn in clinical pathology laboratories operator Cerba Healthcare, alongside Partners Group. CDPQ, which is the second largest Canadian pension fund with $286bn in net assets, invested in French medical diagnostics equipment business Sebia in August 2017 and aviation products specialist Alvest in September. Omers, a pension fund with AUM of $70bn as of 2016, announced last November its €670m majority acquisition of calibration services specialist Trescal – its first French deal.

This recent interest in French companies is a marked shift and a major boon for local businesses: the latest Canadian pension fund investment in France had been completed in 2015, when Ontario Teachers' Pension Plan acquired 30% of the French funeral services provider OGF. The pension fund then increased its stake to 74% in April 2017, with Pamplona Capital Management partially exiting the deal.

But what has led these LPs to find their place as direct investors in France's highly competitive market? In May 2017, PSP opened a London office to oversee its European investments. Simon Marc, the firm's managing director and head of private equity, states that "investment sentiment has turned back into France's favour", pointing to the country's political stability and tax reforms under Emmanuel Macron's first months of office. Aside from the recent "Macron effect", the EU's second largest private equity market is attractive for its large industrial businesses, many of which aspire to expand globally. Marc also underlines the quality of management teams in the country, with which PSP works very closely.

Common language
According to Marc, the cultural proximity factor is also at play. French used as the business language certainly encourages Québec-based investors, which "think of France almost as a domestic market", he says. As a result, and despite acknowledging the region's strong competition and high prices, he believes that Québécois pension funds have a definite role to play in France through direct investments, provided targets are picked carefully. This also ties into a more general uptick in direct investments from these institutions; for PSP, direct investments used to represent around 25% of the private equity capital deployed annually until 2015, while this increased to 50% in 2016 and 2017.

Promisingly for France, the local market has also proven attractive to investors outside of French-speaking Canada. The investment in Trescal represented a breakthrough for Omers, headquartered in Toronto. The firm's director Isabelle Pagnotta explains that despite not having offices in Québec, "Omers has had facilities in London since 2009 and for some years has been looking into opportunities in the French region". In fact Pagnotta, a French national herself, was hired in order to facilitate Omers' first investment in the French market. The Trescal deal, the result of a bilateral agreement, took two years to finalise. One of Pagnotta's tasks was to make the market aware of Omers' exclusive focus on direct investments, a strategy initiated in 2006.

While this could signal a further influx of competition at the top end of an already crowded market, Canadian investors have so far slotted nicely into the existing landscape of large-cap investors in France – while Omers went in alone for Trescal, the CDPQ and PSP deals have seen them invest alongside other private equity players.