Even though France is perceived to have a burdensome regulatory regime, it is clearly open to investment. M&A transactions involving French targets totaled €120.6 billion in 2014, a sharp increase on 2013 when just €28.6 billion of deals were completed, according to Mergermarket. The spike in French M&A contrasts starkly with a flat-lining economy.
While many acquirers and investors, such as PE sponsors, are learning that the regulatory environment is more welcoming than many would think, the availability of financing is also bolstering the number and value of transactions. A dynamic high yield bond segment has helped to boost the PE buyout sector especially and acquisition financing options have widened with the once beleaguered French banks returning to the market.
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France has always had an unhealthy and often undeserved reputation for imposing too many barriers to foreign investment. Even in 2014 a series of new laws were introduced that appeared to restrict the ability of acquirers and investors to close transactions. One area of particular interest to strategic acquirers and PE sponsors is France’s approach towards change of control deals and the requirement to consult with the target’s works council. Often the works council must be allowed to provide an opinion on whether the transaction would have a positive or negative impact on the workforce, including the outlook for long-term employment. In practice, the regulation does not really hinder an investor’s ability to complete deals — the works council’s opinion cannot actually prevent acquisitions and any potential delays to deals were reduced in 2014 when a new law required works councils to provide a response within a month of the initial offer.
Another law introduced in 2014 superficially looks onerous to investors. Again, the law focuses on change of control deals and requires that sellers give employees the option to make an offer for the company. In reality, this requirement is limited to companies that fall within a specific size range, and the seller is not obligated to consider or accept an offer, if indeed one is made.
France has always taken a tight line on foreign investments involving areas of public policy, public security and defense. In June last year, the French government extended the scope of the law to additional sectors such as energy, transport, public health and telecoms. Again, this restriction could have been perceived as an anti-investment move, but in reality the responsible ministries take a pragmatic approach and will often authorize deals within three to four weeks.
France has recognized its reputation for being a difficult place to do business and has taken steps to address this observation. New laws have been proposed that are intended to develop and facilitate business in France. Sanctions have been reduced for failure to inform and consult a works council prior to a change of control deal. New regulations are expected which would allow PE sponsors to offer further incentives for employees and management in PE transactions. All signs point to a convivial environment rather than a hostile one. The data indicating the significant rise in M&A and PE investments bears this out. Our view is that as long as there are attractive targets in France, the perceived legal and regulatory hurdles can continue to be navigated with limited impact on deal fundamentals.