Buyouts in Europe slumped to a four-year low across the first nine months of 2016 as ongoing market volatility and uncertainty over the UK’s EU referendum meant investors shied away from deploying capital in the UK, which has historically been Europe’s biggest private equity market.
Alhough investment across the continent fell as a whole, more than a fifth of all capital invested by private equity firms across Europe so far this year has been in France. By comparison, the French market accounted for just 6.9% of buyout investments in the same period of 2015.
Some $ 13.37 billion was invested in France across the first three quarters of the year, which was more than double the $ 6 billion put to work in the UK and an 87% increase on the $ 7.14 billion that was invested in France over the same period in 2015.
The resurgence follows a slow few years for the French buyout market. Aggregate private equity-backed deal value fell 45% in 2015, year-on-year, while the number of deals completed in France in 2015 fell below 200 for the first time since 2004, Dealogic said.
Charles Diehl, a partner at French private equity firm Activa Capital, said the uptick in private equity activity in France was down to two interlinked factors. The first was that French economic growth has been slow, resulting in a lack of organic growth for businesses.
Diehl said this has put “private equity in a very good situation” as companies are increasingly turning to private equity investors to help drive growth through “international expansion and build-ups”.
He continued: “There is a sentiment that the French economy is going to recover after years of stagnant growth. This is something we hear from a lot of our international clients. They say now is the right time to invest in an economy which has not performed well, which is bound to do better in the future because it’s turned a corner.”
Despite flat growth in recent years, there is an increasing mood of optimism around the future of the French economy due to the likelihood of a change in political regime, with the possibility that François Hollande’s leftist government will be replaced by a more pro-business administration in May 2017.
Diehl said: “If the polls are anything to go by, we’re likely to have a new government of a different colour by May 2017. There is real momentum for reform in the country and in the upcoming primaries all the candidates on the right and the serious candidates on the left are standing on [very similar economic] reform platforms all of which will help boost the economy.”
Important reforms that candidates on the right have already committed to include “significant” tax reductions and more flexible labour laws, Diehl added. The current French government started to reform labour laws this summer.
It’s clear that foreign investors from across the globe are becoming increasingly comfortable deploying large amounts of capital in the country – with the three largest sponsor-backed deals all involving firms from outside Europe.
US firm Cerberus Capital Management acquired French consumer finance business, GE Money Bank, for $ 4.6 billion in June 2016, while a consortium of Swiss investor Partners Group, Canadian pension fund Caisse de Depot et Placement du Quebec and China Investment Corporation paid $ 2 billion for real estate company Foncia Group in the same month. Earlier in the year Chinese investor Shandong Ruyi acquired luxury fashion retailer SMCP from KKR in a $ 1.45 billion deal.
Diehl remained optimistic that the deal climate in France would only improve as well.
He said: “I’m as optimistic now as I have been for many years that true change is at last coming. This will provide some great opportunities for French private equity which has demonstrated its importance to the economy over these past difficult years.”