Deals in a hot climate

As is the case elsewhere in developed private equity markets, the French deal market is currently characterised by intense competition for assets and resulting high-prices, according to general partners on the ground. And like their counterparts around the world, French GPs are participating in an increasing proportion of secondary buyouts.

According to data from the Centre for Management Buyout Research at Nottingham University Business School, of the €7.9 billion in buyout transactions agreed in 2010, three-quarters were accounted for by secondary buyouts. 

Anecdotally, Maïré Deslandes, a Paris-based partner at Silverfleet Capital, says the French market has been characterised by low deal volumes. Last year, she says, there were just 15 French private equity deals which fell into Silverfleet’s mid-market sweet spot of between €75 million and €300 million and the vast majority of these were secondary buyouts.

Research commissioned by mid-market firm Argos Soditic, which operates in the French, Swiss and Italian mid-markets, shows that the average multiple paid by Eurozone private equity funds in the mid-market during the second half of 2010 was 6.7x EBITDA, up from the 5.8x paid in the previous six-month period. For the first time since 2005, buyout funds in the Eurozone’s mid-market are paying higher prices for companies than strategic buyers. A number of funds approaching the ends of their investment periods are, the report says, pushing up prices by accelerating the investment process. This is a phenomenon echoed by numerous GPs on the ground.

“There are a lot of people looking to deploy capital in the coming months,” says Dominique Gaillard, managing director at AXA Private Equity. “We are quite often finding ourselves outbid massively in auction processes as our strategy is to never over-pay for assets.”

Activa Capital, a Paris-based firm operating in the lower mid-market, exited two investments in 2010. Both of these were via secondary buyouts. Partner Charles Diehl says that “some sort of normality” returned to the French market last year, but that transactions were based around “top quality assets” commanding top prices. “Companies being put up for sale now are still of high quality, but not the outstanding quality we saw in 2010,” he says.

“In many ways 2011 will be a continuation of 2010, but with more financing available,” says Eddie Misrahi, chairman and chief executive officer of Apax Partners France. While the debt markets were loosening up last year, he continues, GPs were still limited to raising finance from the same group of banks on a club basis. Now, he says, the environment is more conducive to getting several banking consortia to compete with each other “even to a point where the banks are starting to underwrite deals individual”.

AXA’s Gaillard agrees that bank financing is definitely now there, but not at the same levels that existed during the boom leading up to 2007. “Banks are applying much more scrutiny than they did… and this is a good thing.
Although the banks are more generous, they only really want to back the financial sponsors they know have been responsible shareholders.”