France may not always present itself as the most business-friendly country, but French buyout firms have consistently outperformed many of their peers, according to a recent study.
Private equity firms in France generated a gross IRR of 10.7 percent during the 10 year period ending 31 December 2012, above both European and American general partners, which returned at 8.1 percent and 9.3 percent, respectively, according to the French Private Equity Association (AFIC), Ernst & Young and Thomson Reuters. The study looked at the performance of 631 funds managed by 93 GPs in France.
French GPs also outperformed all other main European markets excluding the UK, which also posted 10.7 percent over the period. Other large European countries were found to significantly lag behind, with German GPs generating a 4.2 percent return, Spain returning 2.9 percent and Italy 0.7 percent.
“Against the expectations of some, France can call on a great reserve of talented entrepreneurs, cutting-edge technology and sophisticated private equity investor base,” Louis Godron, chairman of AFIC, said in a statement. “The reforms enacted over the past months in France are reducing labour costs and creating new flexibility in the employment market, while most of the inefficient measures debated in 2012 have now been discarded.”
Since-inception returns also demonstrated robust performance, with France’s 14.1 percent return exceeding the average 11.6 percent return in Europe and 11 percent return in the US.
The study’s positive findings will be welcome news for French private equity, which came into the limelight last year after Francois Hollande’s new government pushed through a number of tax reforms deemed unfavourable to buyout firms. Compounded by renewed macroeconomic worries in the Eurozone, the reforms led to a marked decrease in both fundraising and deal activity last year, raising questions about the future of a private equity industry often described as the most mature in continental Europe.
The outlook has brightened since the outset of 2013, however, with a less volatile economic climate as well as the more accommodating political stance toward the business community, allowing for a relative uptick in deal activity.
Large transactions this year have included Bain Capital’s acquisition of furniture maker Maison du Monde for around €700 million, AXA Private Equity and Fosun Capital Group's €700 million take-private of resort operator Club Med and Kohlberg Kravis Roberts' secondary buyout of fashion retailer SMCP for €650 million. It is also expected that the sale of Elior, a catering business owned by Charterhouse Capital Partners, could reach up to €4 billion in the coming months.