French private equity fundraising and deal-making has record year

The country’s PE industry gathered a record €18.7bn from investors last year, with foreign LPs contributing nearly half of total capital raised.

France is proving to be the one of the most attractive destinations for private equity in Europe.

Capital raised by French private equity firms reached a record €18.7 billion last year, a 13 percent increase from the previous year’s €16.5 billion and the highest ever since industry association France Invest first recorded data in 1996, it said in its latest Activity of French Private Equity in 2018 report.

Nearly 50 percent of the amount raised last year was from foreign investors and an increase compared with 10 years prior when it was 39 percent, France Invest noted.

“What is clear is that some of the big private equity players in France now have become less shy and more accustomed to going and seeing big LPs in south America or Asia, as well as sovereign wealth funds in China or elsewhere, and pensions funds in North America,” Dominique Gaillard, France Invest chairman and Ardian veteran, told Private Equity International.

These large LPs put a relatively small amount of money the first time they come into a fund, according to Gaillard, but double or triple their initial amounts in the next fundraise if they are happy with the performance. He noted this is also one of the reasons why the big French firms have been successful in their capital raising efforts – benefiting from the reputation they built in their earlier funds.

President Emmanuel Macron’s reforms on capital gains tax, wealth tax and labour over the last two years have also been a positive change and France’s image has been “revamped,” Gaillard said, adding that it is much easier to do business.

“A typical question we had from LPs when we were fundraising five years ago was: ‘Why should I invest in France?’ Now we no longer have to answer that question,” he said.

Gaillard added that as a result of Brexit, French private equity might have “benefited from a slight re-valued LP appetite for continental Europe” especially when they make commitments to new funds.

Pension funds, insurers and funds of funds contributed 61 percent of capital commitments, while family offices and high-net-worth individuals backed 15 percent of total fundraising last year. The public sector accounted for 12 percent of the fundraising; sovereign funds 7 percent and industrial companies 4 percent.

Along with fundraising, investment activity also had a slight uplift last year to €14.8 billion from €14.3 billion in 2017. Almost two-thirds of private equity-backed transactions were in small and medium enterprises and 20 percent in mid-caps.

Transactions were also largely domestic, with 84 percent of the investments recorded last year in French companies. Ticket sizes were predominantly less than €5 million.

As in previous years, the leading investment sectors are industrial goods and services (31 percent), consumer goods and services (24 percent), and medical and biotech (14 percent), the report found.

On investment activity, Gaillard said that French private equity – especially buyout shops – are more worried today about the trade war between US and China than Brexit.

That today has more impact in our investment decisions than Brexit because companies targeted by private equity now have an international reach far beyond Europe.”

Buyout capital was invested in 385 companies last year, accounting for the lion’s share (65 percent or €9.6 billion) of the total amount invested. Venture capital invested €1.6 billion across 877 companies.

While the government’s moves to promote the French technology ecosystem has spurred more investments in local start-ups, Gaillard said the industry still needs larger growth funds of about €800 million to €1 billion that will be able to back Series B or C financing rounds.

“Seed and start-up phases are well financed in France. But financing of larger rounds, series D or pre-IPO rounds, is more difficult because there are not enough French active funds on this segment especially for biotech companies.”

Growth capital funds accounted for 32 percent of fundraising, compared with buyout funds at 53 percent, venture capital at 14 percent and turnaround at 1 percent, according to the report.