France Invest seeks to capitalise on Macron's reforms

French private equity trade body France Invest this month elected Dominique Gaillard, chair of the executive board at Ardian, as its new chair for a two-year term. Gaillard is no stranger to France Invest duties, having been a board member from 2011-2015, as well as vice-chair and member of the association's executive committee from 2013-2015.

Gaillard explains that many of the initiatives the French private equity industry has been looking into for several years might make a start under Macron's administration. "The current political environment gives me hope that the next two years will be eventful in terms of reforms supporting the French PE industry," he says. "We look forward to improving the perception of PE among the political class and take forward reforms that will help in this direction."

France Invest's programme under Gaillard is based on 18 initiatives, which are designed firstly to further convince leaders of family-owned companies of the benefits of private equity. Says Gaillard: "Secondary buyouts represented a vast majority of PE deals in France in the past decade, and we would like to see an increase in primary transactions."

No matter how well developed the PE market is in France, from France Invest's perspective, many more family-owned assets would strongly profit from having a PE fund shareholder on their side" – Dominique Gaillard, France Invest

Secondary buyouts in France totalled €16.9bn and €23.7bn in 2016 and 2017 respectively, amounting to 68% and 83% of deal value in the region. In contrast, primary buyouts amounted to €3bn in 2016 and €3.3bn in 2017, equating to 13% and 12% of investments. Q1 2018 has seen a similar trend to the previous year, with 81% of deal value coming from SBOs and 16% from primary transactions. "No matter how well developed the PE market is in France, from France Invest's perspective, many more family-owned assets would strongly profit from having a PE fund shareholder on their side," says Gaillard.

Another priority in Gaillard's mandate is to remove the obstacles that hold back institutional investors in their asset allocation to unlisted companies. Asked by Unquote which institutional investors should start significantly committing to private equity, he cites retirement savings, which in France are traditionally housed in mutual pension systems, unlike typical pension systems found elsewhere in Europe. France Invest wishes to reduce constraining laws and regulations on French mid-sized pension funds and mutual pension systems, which limit their investments in PE.

The French Government is currently taking steps to reform what is currently a complex pension system and a draft reform proposal is due by the end of 2018. Meanwhile, the French association of institutional investors (Af2i) is keen to become increasingly involved in financing the wider economy and has set up a committee to advise the government on these reforms.

Share of the spoils
France Invest will equally seek to simplify current value-sharing procedures from shareholders to employees in order to ensure they are used far more extensively. Gaillard explains that among Ardian's ESG practises is the sharing of profits from portfolio companies among employees. Having been tested over the course of the past decade, the practice promotes effective value sharing and increases the reputation of private equity backing as a value creation process.

However, profit sharing can only take place via bonuses, usually in the form of an extra salary given at the end of the year. Gaillard argues that this could become more commonly used if fiscal accommodation was put in place, allowing employees to become virtual shareholders from the start of the PE investment. In order to do this, it is argued that a tax advantage should be employed to make the practice viable. Gaillard intends to push this new fiscal scheme alongside the currently debated PACTE law.

The trade body has also set its sights on venture. France Invest endeavours to encourage and support its members in embracing the digitalisation of their portfolio companies. In addition to supporting tech-enabled and digital transformation remits it will also aim to strengthen relations with French Tech and French Fab. The platforms, which were launched by the French government and are supported by BPI France, are dedicated to supporting startups and promoting the development of an "industry of the future", according to a statement from France Invest.

The entrepreneurial ecosystem in the region continues to develop significantly: aggregate value for French early-stage investments rose from €313m in the 12 months from June 2016 to May 2017 to €420m in the following 12 months, according to Unquote Data.

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