France Watch illustrates decline in volume and value of French buyouts

01 June 2002

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The France Watch, produced by Royal Bank Private Equity and Initiative Europe, monitors the completion of EUR 10m+ French buyouts on a 12-month rolling basis. This month we summarise the changes that have been seen in the France Watch figures since our previous commentary on the updated figures for October 2001.

Looking at the first chart, it is clear is that both the volume and value of buyouts has declined overall over the last eight months: the number of deals has dropped from a 12-month rolling figure of 54 in October 2001 to 48 in June 2002, while the value of deals completed has declined by EUR 850m from EUR 6.16bn to EUR 5.31bn. This is perhaps unsurprising given the fall-out of SeptemberÂ’s attacks in New York at the end of 2001, which led investors to pull-back from seeking new targets until the effects of the attacks were clear, and led to delays and the abandonment of deal-negotiations as buyers and vendors readjusted their positions in response to events. This delay will also have spilled into 2002 to affect the figures for deal-completions in the first half of the year. One deal subject to a long negotiation process was the EUR 1.2bn buyout of Vivendi Universal Publishing (VUP) by Cinven, Apax Partners & Cie and the Carlyle Group, completed in April 2002. This was the largest deal completed over the period in question. Besides the VUP deal, the flow of mega-deals was limited: the next largest deals were the EUR 440m Actaris deal in November 2001 and the EUR 400m Moliflor Loisirs deal in March 2002. This contrasts with the previous six months, which saw a greater number of EUR 500m+ buyouts including the EUR 920m buyout of Picard SurgÃ©lÃ©s, the EUR 809m Lafarge deal and the EUR 770m buyout of Cegelec. France has long been remarkable for the relative prevalence of secondary buyouts, but it is striking looking at the second chart how, in the period since October 2001, such deals have overtaken buyouts from local parents as a source of deal volumes and at the same time they have increased in value from EUR 528m in October 2001 to EUR 1.6bn in June 2002. This would appear to be indicative both of difficulties in the exit markets, as potential trade buyers and public markets suffer from continued economic uncertainty, and of difficulties faced by financial buyers in locating attractive targets and willing non-financial sellers. Nevertheless, local parents have remained the largest source of deal value, at EUR 2.3bn, although this is down from the EUR 4.2bn 12-month rolling figure seen in October 2001, with deal volumes also down from 18 to 11 over the same period; furthermore, over half this value figure can be accounted for by the VUP deal. Perhaps surprisingly, buyouts from family/private owners have increased in number and in value from eight deals worth EUR 285m in October 2001 to 11 deals EUR 440m in June 2002, while divestments from non-European parent companies have also come to provide volume and value, producing EUR 736m and four deals in the figures for June 2002, after producing no deals in the year up to October 2001. Nevertheless, the story otherwise has been one of decline, with deals from non-French European vendors, public-to-privates and privatisation all dropping in both volume and value. It is clear that the French buyout market has faced some difficulties over recent months, but many investors maintain a cautious optimism regarding the market. However, it is unlikely that levels of deal-flow will rise significantly in the traditionally quiet summer period, and this is likely to be reflected in the figures when we return to comment on the France Watch results in October 2002. It may be the end of 2002 before the situation really improves in France.