French mid-cap dealflow stages comeback

Greg Gille
26 November 2013

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After a lacklustre third quarter, can dealflow in the French mid-market pick up sufficiently to end 2013 on a high note? Greg Gille reports

Although the summer months are never conducive to hectic dealflow in France, this year's third quarter was a painful reminder that the mid-market in particular is still far from a full recovery after the 2012 drought.

The latest quarterly figures from unquote" data reveal that activity in the French mid-market continued its slow erosion: eight deals valued in the €50-500m range were recorded in Q3, against nine in Q2 and 11 in the first three months of the year. Value-wise, this segment of the buyout space took a tumble as well, with just €611m-worth of deals recorded in Q3, versus €1.4bn in the previous quarter.

But, halfway through the fourth quarter, a handful of transactions could point towards a brighter end to a decidedly hot and cold 2013. One of these had been on the cards for quite some time, although the process wasn't without a few coups de théâtre: Advent International and the Kreke family, which together own German retail group Douglas Holding, finally entered exclusive talks to buy perfume chain Nocibé from Charterhouse at the end of October. The sale process was believed to have stalled at the beginning of September, before rumours of a final push by Advent and fellow suitor LBO France emerged.

By comparison, Apax's surprise move on higher education business Inseec at the end of October flew below the radar – as well as a couple of notches down on the value scale, with a €200m price tag. The GP remained busy and just last week announced the acquisition of savoury snacks maker Europe Snacks from IK Investment Partners for a reported €100-200m.

Equistone also further cemented its status as a force to be reckoned with in the French lower mid-cap space: the GP bought desserts maker Européenne des Desserts from Azulis Capital and Céréa Partenaire in a deal valued at more than €100m.

Meanwhile, Ardian followed up on its spinout from Axa with the purchase of disinfection solutions provider Laboratoires Anios for a reported €350m. And finally, Eurazeo entered exclusive talks to acquire French party games publisher and distributor Asmodée from Montefiore Investment for an enterprise value of €143m in mid-November.

"We started seeing the first signs of movement in the market in mid-June," Fabrice Scheer, head of the corporate advisory group at UBS France, told unquote" as part of a longer Q&A session last month. "The downturn is still being felt, but the consensus is that things are moving in the right direction. This might be wishful thinking, but the effect is undeniable: buyers are more eager to deploy capital and shareholders looking for liquidity have the sentiment that the window of opportunity is opening again."

Alternative power

Whether or not GPs can make the most of that window, financing issues shouldn't stand in the way. "It is tough to argue that financing is an obstacle to deal-making. As seen elsewhere in Europe, banks are there for the right deals and alternative lenders are making a strong push – with unitranche, in particular, becoming increasingly prominent in the French mid-market," said Scheer.

Interestingly, at least two of the four deals mentioned above were financed with that very instrument. Ardian provided yet another unitranche facility for the Européenne des Desserts buyout, while Apax also went down that route for the Inseec deal – the GP has so far declined to disclose the providers, although the names of European Capital and Tikehau have been linked to the deal. And just last week, Astorg Partners turned to unitranche for the refinancing of its portfolio company Ethypharm, with GE Capital and Ares Management providing a €170m facility.

The sale of Onduline, put in motion by Astorg and Abenex with the aim of reaping up to €450m, may soon add to France's mid-cap tally. In the meantime, this market segment should not be faced with a shortage of dry powder anytime soon, as a further two GPs closed mid-cap vehicles comfortably above their initial targets in October: Ardian raised €2.41bn for its LBO Fund V, while Montefiore Investment closed its third fund on its €240m hard-cap.