Matters of public interest

The dearth of large buyouts in France this year, combined with complications in the credit market, has left GPs exploring a wealth of options with regards to investments. Looking at the largest buyouts in Europe thus far for 2008, France currently only has three noteworthy representatives. The largest deal was the EUR1.1bn secondary buyout of cable businesses Numericable and Completel, financing for which took several months. The second notable buyout was the EUR550m acquisition of furniture chain BUT by a consortium consisting of Merchant Equity Partners, Colony Capital and Goldman Sachs operating under the Decomeubles Partners banner. The last deal to appear on the large buyout radar for France this year was Hellman & Friedman's EUR310m buyout of Gaztransport & Technigaz (GTT). Of the three large buyouts France has witnessed so far, what is ironic is that none of them involve French private equity houses.

With credit drying up private equity has turned to one of its strengths; its adaptability. Indeed, investments in publicly listed companies have attracted the interest of some of the largest French private equity houses as more opportunities have arisen in the pre-credit squeeze market. Dominique Megret, chairman and CEO of PAI partners which recently closed its fifth buyout fund on EUR5.4bn, stated that PAI would happily consider investments in publicly listed companies since "listed mid-cap companies currently have comparatively low valuations although large-cap company prices are still at relatively high levels." Olivier Moatti of Abenex Capital is in agreement "while private companies' prices are still relatively high the lower valuation market prices of listed companies provided very interesting public opportunities to which we can add private equity models."

Abenex Capital, formerly ABN AMRO Capital France, recently took a majority stake in Groupe Reponse. Having been the first in France to stage a Public to Private deal in 1998, the private equity house has a history of acquiring listed companies. Traditionally private equity investors such as Abenex Capital have sought to take companies private. However, recently there has been a greater emphasis on the purchase of smaller stakes in PIPE (private investment in public equity) deals.

The current European trend shows that there is an interest in companies that have an equity shortage and that are "under the radar". Targets are chosen where a significant amount of influence on the operational side can be exerted in accordance with the management team. There seems to be a preference in stakes of between 20-30%, which will usually result in gaining a board seat. The majority of investors in European publicly listed companies take a stake that is just under the mandatory takeover limit. Apax Partners, for example, took just a 10.1% stake in Altran while Lion Capital went to the limit and took a 32% shareholding in Swiss company Hiestand Holding.

Although regulations vary across Europe, in France a shareholding of over 33% such as OFI Private Equity's 39.71% stake in Leon de Bruxelles and Abenex's 56.5% stake in Reponse Group, results in a mandatory offer being made on the remaining shares at the same price. This however does not mean a take private transaction will be completed. Take privates can be easily hindered since French regulation states that 95% of shares/shareholders must agree on the move. As a result full take privates can be easily blocked by the likes of hedge funds which, for example, can purchase important stakes in target companies potentially blocking a desired acquisition as well as raising the share value. "As an area which is attracting interest one could expect more buyout houses considering moving that way, providing they have a good know-how," says Megret.

As with all investments, GPs will have to exercise great caution when entering this domaine, especially if they are unfamiliar with investments in publicly listed companies. There is currently relatively little competition between GPs when investing publicly since it is a relatively quiet segment of the market. Moatti states that investment in publicly listed companies "is a far more difficult process than investments in private companies due to a lot of legal red tape and regulations especially in France. Also, the debt market for public shares in France is far more complicated than for private deals." It is important that GPs demonstrate a strong knowledge for fear of spreading unease among their LPs.

Although there has been a recent increase in investments in public companies throughout Europe, there is unlikely to be a major shift since the concept is still in its relative infancy. We can, however, expect a gradual increase in investments in listed companies especially if market prices remain interesting.

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