Uncertain road ahead for French private equity

José Rojo
07 August 2015

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In this second part of our in-depth look at the French private equity market, Jose Rojo takes a look at the venture and growth spaces, as well as the impact of recent legal developments.

Click here to read the first instalment of this feature.

The boom in French private equity witnessed towards the end of Q2 – with 45 deals recorded between May-June, outpacing all other regions in Europe – has also been felt at the lower end of the market, confirms Sophie Pourquéry, a partner at Industries & Finances Partenaires (I&F).

More, however, does not necessarily correlate with better. "Nowadays, there is always work to do with one's assets, potential complications in aspects such as the management, succession, the company's market position or turnover stability that need to be dealt with. We have yet to see the quality we found in our portfolio before the crisis," says Pourquéry.

Venture capital, for some time the weak link in French private equity, now looks set to move forward with the rest of the pack. "Something interesting is happening in French venture capital," says Frédéric Court, founder and managing partner at London-headquartered Felix Capital. "It might not be so apparent in the numbers but there is a rise in the ambition and the quality."

His firm, he admits, has been surprised by the wealth of opportunities to be unearthed in the country. Neat examples include technology firm Mirakl, which secured Felix's largest deployment to date, and online marketplace La Ruche qui Dit Oui, the first French foray for co-investing New York-based Union Square Ventures, provide neat examples.

"Whereas in 2012 and 2013 French SMEs and startups were stuck in survival mode, today the mood is bolder in terms of growth and internationalisation," says Jean-David Chamboredon, chairperson and managing partner at VC firm Isai. Digital entrepreneurs in the country are increasingly well connected to other ecosystems worldwide, he points out, and foreign LPs appear to be catching on. Chamboredon's words come weeks after Isai announced the opening of a New York office to guide French SMEs in their expansion across the pond.

Insufficient legal changes
For years, France's macroeconomic woes have loomed over local asset managers, stifling hopes of a return to the pre-crisis heights. The tides are beginning to shift, with recent official figures reporting a 0.6% GDP boost in Q1 2015 and putting an end to years of stalled growth. Nevertheless, the fight to win over reluctant foreign LPs is far from over, according to Astorg chair Xavier Moreno: "There has been growth but the French economy remains weak, particularly in job creation. For foreign investors, it can still be a challenge to work with a French fund backing French companies that rely on the French economy. France is still not back."

As the long-shut door to stability creaks ajar for French private equity, policy changes could prove more of a help than a hindrance for once. Chief among them is the Macron Act, named after the current minister of economy Emmanuel Macron. The package, adopted by the National Assembly in early July, notably introduces the Société de Libre Partenariat (SLP), a new fund structure more akin to the Anglo-Saxon LP scheme and with which French regulators are hoping to entice more of the ever-elusive foreign capital.

When asked their preliminary impressions on the SLP, a consensus emerges among all interviewees: although a step in the right direction, neither the new fund structure nor the Macron Act will ultimately suffice to turn things around. "The new measures will undoubtedly give France some breathing room but a chance has been lost to address fiscal matters, still a major obstacle for confidence among economic leaders in this country. We still have a tax system rewarding investments in art over a startup or an SME, for instance," says Isai's Chamboredon.

Although she stresses that French private equity remains a far cry from its pre-crisis self, I&F's Pourquéry believes 2015 could be the year the industry finally turns the page, helped along by recovering business confidence and a welcome consumer boost thanks to the drop in oil prices. Apax France partner Bertrand Pivin echoes the optimism but remains cautious: "Private equity industry is cyclical by nature and this is a time to keep a cool head, to anticipate market movements and not merely emulate them as some did in 2007 and 2008. Being in the boom phase of the cycle does not guarantee success."