Is French private equity finally turning the corner?

From one of the powerhouses of European private equity to a market mired by fundraising difficulties and patchy dealflow - it is no exaggeration to say France has experienced tough times while some of its neighbours pushed ahead in the post-crisis era.

Last year was no exception, with macroeconomic uncertainty as well as an unstable political and fiscal framework conspiring to restrict dealflow. Overall, the local buyout market saw a drop of around 10% in volume terms compared with the previous year, according to preliminary figures from unquote" data, while venture and growth-stage deals also experienced a yearly decline.*

This is not to say that 2014 did not see any bright points, though. For a start, the overall value of investments went up by a healthy 12% year-on-year to settle at nearly €14bn – marking the third increase in overall capital deployed in as many years, if not matching the exceptionally busy 2011.

This was largely thanks to the return of mega-buyouts on French soil, following a total absence of deals valued at more than €1bn in 2013 – highlighting the amount of capital ready to be deployed in the country by pan-European players, as well as the return of more plentiful and attractive options to finance such deals.

Pragmatic business policies
But more than dealflow-related concerns, tales from the fundraising trail and critical LP panels at international conferences served to pinpoint the main source of anxiety for local players: the French government's inability to address the country's structural issues, as well as its insistence on pushing on with fiscal measures likely to further antagonise the business community.

"The past couple of years have been marked by a general sense of disappointment in not seeing the new government turning back quickly to pragmatism and a more business friendly message – even though some of this might have been more a matter of form and communication rather than actual substance," says Christophe Bavière, CEO of fund-of-funds and direct investor Idinvest Partners.

But France might have reached a turning point at last. A government reshuffle in mid-2014, which saw ex-Rothschild investment banker Emmanuel Macron appointed as economy minister, along with the introduction of more business-friendly measures, has so far been met with uncharacteristic approval by many local PE practitioners.

"The Macron Act has meant that a number of tangible initiatives to improve the business environment have been put in place," says Bavière. "France's lack of budget discipline is still disappointing, but the general feeling is that we are finally moving in the right direction – last year was pivotal in that regard."

Michael Diehl, a partner at mid-cap firm Activa Capital, also believes this new impetus is already bearing fruit. "This new social-democratic pact should allow taxes to fall, confidence to return and investment to pick-up – and we expect more reforms to be announced as the Macron Act is voted through with parliamentary backing. This has already fed through into large M&A deals such as Club Med, Alstom and Lafarge, but has yet to feed down into the mid-cap space."

Time will tell whether this more business friendly approach will indeed generate more confidence at the smaller end of the market  and, more importantly, encourage international investors to see the French market in a new light. In the meantime, the next one to two years should, on paper at least, see no shortage of available investment opportunities, as players progressively look to divest the raft of deals done around 2011; assets such as Ardian's Saverglass or LBO France's Averys are already in the pipeline, while Spie (whose IPO fell through last year) is also believed to be circled by large-cap GPs.

And despite local mid-market fundraising being relatively muted in the past couple of years, these opportunities should be met by the significant amounts of dry powder still held by heavy hitters such as Ardian (€2.4bn in 2013), Chequers and Astorg (€1.8bn combined in 2011), or, more recently, PAI Partners (€3bn this year). Whether or not these will face fierce competition from their international counterparts and overseas trade players will go some way towards confirming whether France has indeed turned a corner.

*For a complete statistical overview of the French private equity market in 2014, look out for the latest edition of the unquote" Annual Review, out soon.

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• Topics
• France
• Regulation
• Performance
• France
• Top story
• Ardian (formerly Axa PE)
• IDInvest Partners (AGF Private Equity)
• LBO France
• Unq2015Feb