Governmental pressure and an improving macroeconomic outlook could see French buyout activity gaining on the UK
French private equity activity posted an impressive deal value in the first half of 2024 despite political and economic headwinds. A total of US$24.1 billion changed hands—a 25 percent annual increase and the fourth-highest half-year total since 2020.
Private equity activity by value Q1 2020 – Q2 2024
Target location: France Bidder location: Global Sectors: All Sectors
Private equity deal type(s): Exit, Buyout and Secondary Buyout
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Effective July 1, 2023, the underlying Mergermarket data supporting the M&A Explorer was consolidated with Dealogic data to produce an even more complete picture of the M&A marketplace. M&A Explorer commentary published before July 1, 2023 may reference data that does not reflect this consolidation.
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A total of 291 announced deals, including buyouts, exits and secondary buyouts, stayed mostly level with H2 2023, which registered 294. This consistency is notable given the overall European trend of volume decreasing, but H1 2024’s volume still marked the lowest total since 2020.
However, France posted more deals than any other continental European country in the first six months of the year, and with a higher total value. This positive activity reflects an ongoing governmental drive to boost France’s status as a financial center within Europe. Various incentives appear to be paying off, with the gap between France and the UK—the traditional front-runner for European PE activity—narrowing year on year.
TMT fuels deal activity
France’s thriving technology, media and telecommunications (TMT) sector is creating a hotbed for PE deal opportunities, with seven of the top 20 deals of the year being TMT related. The largest buyout of H1 saw a consortium take a majority stake in Paris-based digital music company Believe, in a US$1.4 billion deal. The consortium consisted of Believe CEO Denis Ladegaillerie, Swedish PE firm EQT and US investment firm TCV.
Founded in 2005, Believe delivers services to around 1.3 million independent artists across more than 150 digital streaming providers. Believe has posted impressive growth over recent years, delivering its IPO plan two years ahead of schedule. This investment puts it in a strong position to profit from the digitization of the music market.
In July, another high-value buyout hit the TMT sector as cybersecurity firm Exclusive Networks confirmed it was in talks on a deal with Permira and CD&R. The consortium aims to invest in Exclusive Network’s digital capabilities to better serve its growing client base. If the deal completes, it will be the largest buyout of the year so far, with an estimated price tag of €2.2 billion (US$2.4 billion).
Olympic-level opportunities
France’s investment houses are some of the most active in Europe. State-backed investment fund Bpifrance, for example, was Europe’s busiest PE investor in 2023, conducting a grand total of 153 deals over the course of the year. Ardian, meanwhile, came in third, with 74 investments under its belt.
The French government is working hard to promote PE activity within France, as it looks to take advantage of Brexit and usurp the UK as the leader of Europe’s financial sponsor scene. In March, the government published a new bill allowing PE firms to invest in French companies with a market cap of €500 million (US$542 million), raising the limit from the current €150 million (US$163 million). This adds around 88 more French companies PE firms can invest in.
Another target area is France’s employment laws, which have been deemed too relaxed in relation to European peers, and therefore a deterrent to investment. In an attempt to lure more financial services and PE players across the channel, the French government has proposed amending employment legislation to make it easier to terminate contracts of high-paid staff in the finance sector, while reducing severance packages.
Another trend set to drive PE activity across the continent, as well as in France, is the increase in family succession cases. An ageing population is increasing opportunities for PE sponsors to facilitate entrepreneurial succession through buyout activity.
Roadblocks ahead
Despite the clear growth potential of the industry, challenges remain. France is in recovery mode following a narrow snap election this summer, which saw both the far-right and far-left gain considerable influence. The nature and makeup of the new government are still uncertain, but the fact remains that President Macron’s government has lost significant political power pushing through new economic policies. This uncertainty may hinder investment as PE dealmakers wait for a more stable political backdrop for deals.
While the European Central Bank’s (ECB) cut to its headline interest rate in June is a step in the right direction, PE dealmakers are still operating in a high interest rate environment. Despite a wealth of dry powder at their disposal, securing necessary financing can still be a challenge. A reduction in interest rates will eventually lower the cost of acquisition financing and loosen the more restrictive bank lending practices, but this trend will likely play out over the longer term.
Finally, 2024’s deal activity has centered around specific growth sectors, namely TMT, industrials and consumer, with investment largely concentrated in Paris. While perhaps inevitable, this points to a trend of uneven investment, whereas a more equal distribution is preferable for long-term sustainable growth.
A bright outlook
These challenges are generally universal issues facing the PE industry. The French PE deal figures speak for themselves and signal an underlying confidence in the market. Government policies are clearly pushing for France to take advantage of Brexit to attract more PE players to its shores, and this supportive climate will continue to generate deal activity moving forward.
The French economy has posted favorable growth in comparison to its European neighbors, avoiding recession in 2023 to post 0.9 percent growth for the year. This pace is expected to continue into 2024, with inflation predicted to maintain its downward trajectory.
The financing climate is also showing signs of improvement, with the ECB’s summertime interest rate cut signaling a clear direction of travel. The political backdrop should also become more stable following the recent appointment of a new prime minister, which should help the post-election dust to settle.
These positive economic indicators, combined with the success of the Olympic and Paralympic Games, contribute to a buoyant outlook and signal a bright, competitive future for private equity activity in France.
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