Initiative Europe and Royal Bank Private Equity launch France Watch

01 October 2001

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Initiative Europe and Royal Bank Private Equity have jointly launched a new analytical tool which will take monthly measurements of conditions in the French private equity market. The France Watch looks at Euro 10m+ French buyouts, tracked by Initiative Europe since 1996, monitoring both their value and number on a 12-month rolling basis. A second chart illustrates the number and total value of Euro 10m+ buyouts by vendor in the year to October 2001. The France Watch has its origins in an index first published in the UK and Ireland edition of Â…unquoteÂ” in 1997. As information flows steadily improve, the France Watch may also be able to add other key measures, such as gearing ratios.

France has traditionally been Continental EuropeÂ’s volume market, with many deals completed in the mid-market. However, volumes have constantly fallen in recent years, with the current chart showing a sharp drop, of around 25%, in the volume of deals completed in France over the past year, in contrast to record numbers of buyouts in the second half of 1999 and the first half of 2000. This supports the suggestion that players which previously concentrated on the French mid-market are moving up the value chain to complete fewer, though larger deals. According to Jean-Marc Barrabes of Royal Bank Private Equity, high prices, competition and poorer-quality dealflow have also contributed to the fall in deal volumes.

He also points out that the disproportionately high value of the market in comparison with the number of deals completed is most likely due to a handful of very large buyouts that were completed in the past year, including the Euro 920m buyout of Picard SurgÃ©lÃ©s, the Euro 890m Lafarge deal and the Euro 770m Cegelec deal this May.

The same deals have had an impact on the second chart also, slightly distorting the value of deals completed where the vendor was a local parent. Picard, Lafarge and Cegelec are all included in this Euro 4.2bn total, making local parent not only the most common vendor type, but also the source yielding by far the largest value. The Vendor chart also illustrates the continuing importance of secondary buyouts, which represented Euro 528m of the total value of the French buyout market in the past year. France has historically accounted for a large proportion of the secondary buyout activity in Europe, with the greatest dealflow coming from the mid-market. When stock markets have underperformed, secondary buyouts have been seen to be a good means of exit with minimal risk and use of time and resources. The fact that an institutional investor is the second most common type of vendor also suggests that corporate players are still reluctant to sell to a financial buyer, despite a shake-out in 2000 when the likes of Lafarge and Vivendi sold subsidiaries to private equity houses. Secondary buyouts represented in the chart include 5 Ã Sec, Eurodatacar and the first transaction to have been completed by Royal Bank Private Equity after setting up its Paris office, MÃ©taux SpÃ©ciaux.