French buyout fundraising soars in 2019

With €9.74bn collected across 10 buyout funds' final closes at the time of going to press, this year's aggregate value has just surpassed 2016's record-breaking €9.67bn, raised across 13 vehicles. Ardian and PAI, two French players that to date have closed some of the largest buyout funds in the market, have not held final closes this year. However, other GPs completed significant fundraises: Astorg VII (€4bn), Eurazeo Capital IV (€2.5bn), Five Arrows Principal Investments III (€1.25bn) and Keensight V (€1bn) contributed significantly to the overall aggregate value.

Despite LPs worrying over deployment issues given the high valuations seen in the crowded French market, the mid-market and large-cap fundraising pipeline for 2020 looks promising. Several placement agents and GPs have confirmed to Unquote that a group of mid-market buyout funds are being marketed. Ardian LBO Fund VII is notably on the fundraising trail and was deployed for Ardian's acquisition of France-based Staci in July, Unquote understands. If the fund's target of €6bn is reached, it will be the largest buyout vehicle ever raised by a French GP to date.

Jasmin Capital head of secondaries Ludovic Douge says that more international investors are allocating to France: "The ongoing uncertainty of Brexit in the UK, relative political stability in France and the pro-business message brought by president Emmanuel Macron make the region more attractive than a few years back."

However, besides the aforementioned four final closes of more than €1bn that have taken place this year, the remaining six were in the €65-217m range. The absence of closes in the €250m-1bn size range hints to the fact that not all GPs are experiencing a fundraising bonanza.

Sources agree that institutional LPs are experiencing a greater regulatory burden and need to conduct stricter due diligence, although the size of their teams has not increased. As a result, they are likely to prefer providing larger tickets to fewer well-established GPs, comparing to a few years ago. Douge says: "Small-cap and lower-mid-market fund managers are not having such an easy time fundraising, especially if they don't have a sector-specific or thematic strategy."

Entrepreneurs eye buyout funds
Although five final closes of first-time-funds were recorded by Unquote Data in 2018, only two took place in 2019 – B & Capital closed on €217m in November and FrenchFood Capital on €132m in April. Raising a maiden fund is always a daunting task but the fact that some LPs are currently shying away from small tickets is discouraging them from backing smaller and new funds.

First-time funds do remain an attractive option for some LPs, as they often promise greater returns on capital invested compared with their well-established peers. Axonia Partners founding partner Alexandre Alfonsi says that whether or not the fund is managed by investors who have spun out from a well-known firm is often a clincher for LPs: "The real struggle is for first-time teams managing a maiden fund, which may require for them to start investing on a deal-by-deal basis."

If institutional LPs are redirecting their capital to more established players, the newer and smaller funds can, however, count on high-net-worth individuals. A new group of entrepreneurs in their 30s and 40s, who have sold their businesses and have capital to reinvest, is interested in backing buyout funds, Alfonsi explains: "In some cases, these entrepreneurs were at the head of PE-backed companies and are familiar with the mechanisms of the asset class and the returns it offers." For example, Capital Croissance's Cairn Capital II, which closed on €140m in May, received commitments from seven management team members of portfolio businesses backed by Cairn Capital I.

Entrepreneurs happily back sector-focused funds operating in the markets they know well: FrenchFood Capital's maiden fund, for instance, received commitments from food and retail specialists. With individuals also making commitments to UI Gestion's Cap 6 for the first time, it seems that they are willing to back both first-time funds and well-established GPs.

With the fundraising tailwinds currently favouring larger efforts for name-brand GPs, first-time funds and small-cap players can clearly remain successful by thinking outside the box and banking on a fresh, differentiated offering. The coming months could offer clues as to whether or not those GPs caught in the middle of that divide can also carve out a niche for themselves.

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• France