2020 Outlook: Tech deals boom while fundraising flourishes in France

Francesca Veronesi
10 February 2020

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Following an impressive 2019 in terms of both deal activity and fundraising, private equity players are expecting another strong year for France despite heated competition, writes Francesca Veronesi

With €29.3bn invested across 234 buyouts in France, 2019 was a busy year, during which industry players adapted to macroeconomic ups and downs while still dealing with an abundance of dry powder. The total volume was the highest recorded by Unquote in the post-financial crisis years, just about surpassing 2018's 228 transactions, notably due to a surge of deals in the lower-mid-market. On the other hand, the aggregate value came short of 2018's record €33.1bn, due mostly to a decrease in the number of mega-deals valued over €1bn.

Eurazeo Capital managing partner Marc Frappier says competition remained at a very high level, but pre-emptive approaches and excessive valuations have not been as prominent as in 2018: "I would say there is an element of greater prudence and players are choosing their battles more than ever." GPs investing in both the mid-market and large-cap spaces believe that vendors' and buyers' expectations drifted even further apart in 2019. Some auctions had very high prices set out from the start, which sometimes deterred bidders to take an interest in the assets.

In such an environment, GPs are looking at sourcing more complex or unconventional deals. Reflecting a trend seen elsewhere in Europe, the popularity of carve-outs, first seen in 2018, continued into last year, with around 10% of all French buyouts being sourced from corporate vendors during the 2018-2019 period, against 6% in 2016-2017. More unconventional sourcing avenues that are expected to gain prominence include take-privates, traditionally less plentiful in France. Says Maxence Bloch, a partner at Goodwin: "Take-privates were possible only if minority shareholders owned less than 5%. However, this threshold was changed by the Loi Pacte bill to 10% this year, so the practice might become more popular in the future."

Turning to technology
A surge of technology buyouts was noticeable last year, with 39 deals collecting a value of €5.5bn, equating to 95% and 65% increases respectively on the previous year. Eurazeo's Frappier notes that five years ago these assets were not targeted by mid-market GPs, but are now sold at high multiples, given their growth expectations and resilient nature.

In that sense, GPs seem to be reaping the rewards of the strong VC activity in France in recent years. The value of technology early-stage deals has gradually risen in the 2015-2019 period, with the aggregate value of €180m in 2019 representing a 72% increase compared with 2014. These investments have laid the foundation for subsequent late venture rounds, which flourished in 2019: 13 expansion deals of more than €50m for technology businesses took place last year, up from three in 2018 and five the year before. Some of the largest rounds include Five Arrows Principal Investments' minority acquisition in Groupe Softway Medical, for around €240m. A consortium of backers led by Eurazeo, Prime Ventures and Avenir Growth invested $230m in France-based Meero. General Atlantic also invested €150m in France-based Doctolib.

A new fundraising record
While managing tough competition and handling the pressure to deploy, French GPs are making the most of a strong fundraising environment: with €10.7bn collected across 11 buyout funds' final closes, this year's aggregate value has surpassed 2016's record-breaking €9.67bn, raised across 13 vehicles.

Remarkably, the record value was achieved without the contribution of two of the most prominent French GPs, Ardian and PAI. They are, however, likely to hold interim or final closes this year: Ardian LBO Fund VII, with a €6bn target, is on the fundraising trail and was deployed for Ardian's acquisition of businesses Staci, Frulact and Sante Cie, Unquote reported. On the other hand, PAI Partners is launching a pan-European mid-market fund to complement its existing large-cap strategy, two sources told Unquote. The fund target has not been firmed up yet, but is expected to be around €600m, according to a source close to the situation.

Sources across the board agree that sourcing will remain the biggest challenge for 2020, but, for the time being, the French market remains more than appealing to both local and international LPs.