French private equity back from the brink

Greg Gille
22 March 2013

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French private equity practitioners could be forgiven for thinking that the odds are desperately stacked against them. After a gruelling 2012, which saw dealflow and fundraises take several steps back as well as a nail-biting fiscal uncertainty, the local industry now has to deal with the fallout from a year best left forgotten.

A panel discussion held at the SuperReturn conference at the end of February exemplified the current image of France as a private equity investment destination. The panellists, which included representatives from Anglo-Saxon heavyweights such as Blackstone, Carlyle, Clayton Dubillier & Rice and Coller Capital, were unanimous: avoid France at all costs. Part of their arguments were based on the country's macroeconomic and structural situation, while the speakers also predicted that the ongoing tax reforms would ultimately take a heavy toll on the local private equity industry.

But recent news could give France reason to hold its head high. Take Equistone Partners, which invests across Europe and could therefore focus its efforts elsewhere if necessary: the first deal announced by the firm shortly after closing its latest fund on €1.5bn was the acquisition of French food machinery business Groupe Brétèche, and the GP is understood to have two further French deals in the pipeline nearing completion. Hardly a vote of no confidence in the country.

The recent Alven Capital fundraise is another positive sign: the VC closed its latest vehicle on its €120m hard-cap at the beginning of March, after only nine months on the road. The "French venture" label should by all accounts have made convincing international investors a daunting task – yet non-French LPs are believed to account for nearly half of the fund's LP base as opposed to a quarter for the previous vehicle.

Valuable skills
Finally, a recently released EVCA report on the European mid-market yields interesting findings regarding the ability of French deal-doers. For one, the median IRR for French mid-cap buyouts completed in the 1990-2011 period stands at 32%, less than for similar deals in the Nordic region (36%) but slightly more than for UK transactions (30%). French mid-cap GPs also appear rather skilled at building stronger businesses: the productivity and employment CAGR figures measured in portfolio companies between 2005 and 2011, at 10.5% and 5.8% respectively, put France ahead of its European neighbours. At a time when investors are increasingly looking for hands-on value creation ability, French GPs may well have a card to play here.

Although the local private equity industry should stand up for its achievements and potential, it cannot ignore France's image issue and the effect it has already had in the past year: according to statistics released by trade body Afic, international investors contributed 27% of the capital raised by French GPs in the first half of 2012, against 52% in 2011. Sadly, it seems that most of the factors driving international LPs away have little to do with the French private equity ecosystem itself – and they will probably take more than renewed communication efforts to fix.