France faces asset price hike

An overhang of capital leading to greater competition among equity sponsors active in the French buyout market is expected to drive up asset prices.

The growing number of financial buyers operating in the increasingly crowded private equity market in France is to boost asset prices, predicted Dominique Peninon of Paris-based fund of funds manager Access Capital Partners at an industry gathering in London today.


Speaking at a seminar hosted by SJ Berwin, the European law firm, Peninon expressed his concern over the short-term impact of increased competition on the French market.


Peninon said that, with an increasing number of private equity firms entering the market, there was a risk that French deal flow may not be able to accommodate particularly those funds investing in large LBOs, creating an overhang of funds raised versus funds invested. This would lead to more competitive bidding processes and result in higher asset prices. 


However, Peninon also said prospects for the mid- to long-term were encouraging. “[The short-term impact of a greater supply of capital] is being counterbalanced by the number of large corporate sellers who are under increasing pressure from their own banks to improve their balance sheets,” he explained.


Peninon said that more demand would generate greater supply of investment opportunities in long term. “More active players will encourage more examples of deals in the press, generating more ideas and a greater market size,” he said.


Peninon was speaking alongside George Pinkham, head of SJ Berwin’s Paris office. Pinkham was confident about the prospects for secondaries in France, predicting a rise in the number of French banks and insurance companies offloading private equity assets.


The past five years has seen the arrival of a number of private equity houses in France, including spin-offs from French banks. These include the of PAI from BNP Paribas, MBO Capital from BP Naxtexis, Chequers, which recently closed a E300m mid-market buyout fund, from Charterhouse and Perfectis from 3i.


2002 has been an active year for private equity investment in France. Recent data from the French Venture Capital Association (Afic) revealed a 20 per cent increase, to E1.43bn, in private equity investment in French businesses in the first six months of 2002, driven by a significant increase in LBO activity. Members of Afic raised E2.5bn in new capital during the first half.