An extract from The Real Estate M&A and Private Equity Review, 5th Edition

Overview of the market

In 2002, France became one of the first major European countries to introduce a listed REIT regime, referred to as 'SIIC'. The introduction of the SIIC regime provides listed property companies with a tax efficient regime, permitting them to unlock trapped value and attract significant investments. SIICs play a key role in the French real estate market, with an aggregate market capitalisation for French SIIC of approximately €70 billion in recent years.

A number of other investment structures designed for real estate investments are available, including SCPI and OPCI (a form of SCPI created in 2005, which is more flexible and provides heightened liquidity). OPCI (in the form available to qualified investors) tend to be the investment structure favoured by sophisticated private equity funds for their non-public investments.

Both pan-European and French specific private equity funds focused on real estate are active in France, with significant portfolios of office space, as well as clinics, hotels, retirement communities, and student housing. Logistics have been a key deal driver in recent years. The last twenty years have witnessed an ongoing professionalisation and consolidation of the French real estate market.

France is one of the most attractive jurisdictions in the world for foreign investment, and real estate is no exception, with foreign investors, both from continental Europe and further afield, playing a key role.

Recent market activity

i M&A transactionsUnibail-Rodamco Westfield (2017–2018)

On 12 December 2017, Unibail-Rodamco, incorporated in France, and Westfield, incorporated in Australia, two of the largest REITs in commercial real estate, announced that Unibail-Rodamco had entered into an implementation agreement to acquire the Westfield Group to create one of the world's premier developers and operators of flagship shopping destinations. The transaction implied an enterprise value for Westfield of US$24.7 billion. A year and a half later, on 5 June 2018, Unibail-Rodamco-Westfield Group's 'stapled shares' were admitted to trading on the Euronext Paris and Amsterdam markets.

Among the many constraints of this transaction, it was necessary to maintain a tax regime that was generally equivalent to those of the two groups, even though their respective legal and tax frameworks were very different.

The Westfield group was acquired partly by Unibail-Rodamco and partly by a Dutch company WFD Unibail-Rodamco NV created for the occasion, in which Unibail-Rodamco held 40 per cent of the share capital (the remainder being held by the public) and whose shares were 'stapled' with Unibail-Rodamco's shares, thus creating a two-headed group. The stapling principle means that the shares of Unibail-Rodamco and WFD Unibail-Rodamco trade as a single security.

To this end, the shares of the French company and those of the Dutch company held by the market are linked to each other by reciprocal provisions in the articles of association of each group prohibiting separate purchase and sale. This is not a dual-headed structure, since the shares are not separately and independently traded on separate stock exchanges. As a result, each company maintains its own legal personality, legal and tax regimes (and in particular the benefit of the SIIC regime in France and the FBI regime in the Netherlands). However, both companies maintain a common shareholding structure and, in light of the stapling and Unibail-Rodamco's 40 per cent shareholding in WFD Unibail-Rodamco NV, the group operates as a single financial group with accounting consolidation and global financing, which makes financial communication and rating at the group level similar to that of a traditional group. Finally, from the shareholder's point of view, the stapled shares are listed under a single quotation line similar to traditional trading in shares of listed groups.

Thus, the new group benefits from the advantages of two-headed group structures (such as dual-listed companies and other complex synthetic structures permitting to benefit from the legal and tax regimes specific to companies based in two separate countries) without suffering from the main disadvantages inherent in these structures.

Gecina/Eurosic – Foncière de Paris (2016–2017)

On March 2016, in order to create a new player in the service property sector, Eurosic, a SIIC, announced that it had entered into agreements and commitments accounted for a total of 79 per cent of Foncière de Paris SIICs' share capital and voting rights. Specifically, Eurosic had entered into outright share and purchase agreements with shareholders representing 26.6 per cent of the share capital and voting rights of Foncière de Paris, as well as contribution commitments with Covéa group and ACM VIE relating to an additional 52.5 per cent. In total these agreements and commitments accounted for a total of 79 per cent of Foncière de Paris' share capital and voting rights. This transaction was supported by Foncière de Paris' supervisory board.

On March 11, 2016, Eurosic filed a tender offer for the shares of Foncière de Paris for (1) a price of €136 per Foncière de Paris share contributed, or, at each tendering shareholders' election; (2) 24 Eurosic shares delivered for 7 Foncière de Paris shares contributed; or (3) 24 Eurosic OSRA delivered for 7 Foncière de Paris shares contributed.

This tender offer was cleared by the French Autorité des Marchés Financiers (AMF) on 27 April 2016 and the tender offer was opened on 19 May 2016.

However, on May 19, 2016, Gecina (which did not hold any shares in Foncière de Paris), another SIIC, also filed with the AMF a competing alternative tender offer to buy the shares of Foncière de Paris for (1) a price of €150 per Foncière de Paris share, or, at each tendering shareholders' election; (2) six Gecina shares delivered for five Foncière de Paris shares contributed; (3) 24 Eurosic OSRA delivered for seven Foncière de Paris shares contributed; or (4) 23 Gecina OSRA delivered for 20 Foncière de Paris shares contributed. At that time, Gecina was strategically refocusing on office real estate, and this transaction was expected to provide €2.6 billion fully complementary assets for a geographical coverage of Paris.

Gecina's tender offer was cleared by the AMF on 13 July 2016 and the tender offer was opened on 29 July 2016.

The main shareholders of Foncière de Paris, notably Covéa and ACM Vie, reaffirmed their intention to contribute their shares in exchange for Eurosic shares, due in particular to the investment strategy and tax considerations. For this reason, but also because of the block of shares already held by Eurosic, Gecina's competing offer was blocked due to its failure to cross the 50 per cent threshold.

Challenging the reiteration of the commitments made by Foncière de Paris' main shareholders to contribute to a lower offer, the French Association for the defence of minority shareholders (ADAM) and Gecina submitted a request to the AMF to withdraw the clearance decision of Eurosic's tender offer published on 27 April 2016.

The ADAM and Gecina respectively argued that the AMF's clearance decision was obtained through fraud. According to them, the behaviour of Eurosic, Covea and ACM Vie, in particular because of the maintenance of the commitments to contribute to Eurosic's 'less expensive' offer, characterised on the one hand a concert between these shareholders which had not been declared and on the other hand, the irrevocable nature of the contribution commitments entered into by Covea and ACM Vie for the benefit of Eurosic.

In response to their request, the AMF informed the ADAM and Gecina on 11 August 2016 that no fraud likely to justify the withdrawal of the clearance decision had been demonstrated. The AMF considered that shareholders were free to tender their shares to a first tender offer after having had the opportunity to revoke their contribution commitments in the event of a competing offer and that proof of the existence of a concert was not provided and would in any event have no effect on the financial characteristics of Eurosic's offer. ADAM and Gecina appealed the AMF's decision before the Paris Court of Appeal in August 2016. All of ADAM and Gecina's arguments were rejected on appeal.

Finally, in June 2017, Gecina announced its plan to acquire all the shares of Eurosic, after unanimous approval by its board of directors. This friendly transaction between Gecina and Eurosic was supported by Eurosic's main shareholders, representing 94.8 per cent of the share capital, via the conclusion of firm agreements for the sale of blocks and commitments to contribute to the mandatory tender offer that would be filed thereafter.

Following the acquisition of the blocks of shares on 29 August 2017, Gecina held nearly 85 per cent of Eurosic's share capital on a diluted basis and filed a tender offer with a cash and an exchange option. Following the tender offer, Gecina held 47,079,603 shares, which represented 99.67 per cent (Eurosic share capital post dilution from convertible bonds and excluding treasury shares) of the share capital of Eurosic, and 17,491,754 OSRA (Obligation Subordonnée Remboursable en Actions, a sort of convertible bond) Eurosic, representing in total 99.75 per cent of the diluted capital. Therefore, Gecina announced its intention to proceed to a squeeze-out and delisting to allow the transfer of shares and OSRA of Eurosic not already owned by Gecina.

ii Private equity transactionsAccorInvest (2017–2018)

In a novel transaction completed in 2018, Accor SA spun off the property ownership of its hotel real estate (HotelInvest) permitting the entry of long-term financial investors into that business, including two sovereign wealth funds, Saudi Arabia's Public Investment Fund and Singapore's GIC Private Limited, an institutional investor, Predica, and two asset management firms, Colony NorthStar and Amundi Immobilier, while maintaining its franchising and management activities as a separate business (HotelServices). The purpose of the transaction was to enable the Accor Group to acquire the resources and agility needed to accelerate the growth of its core business, finance its various development projects (including digital diversification) and expand its offer through targeted acquisitions. At the same time, the new structure was designed to permit AccorInvest to optimise its strategy for the development of the hotel portfolio.

The first step was an asset contribution by way of spin-off governed by the law on demergers. At the shareholders' meeting on 30 June 2017, the shareholders approved (by a 99.67 per cent majority) the proposed creation of a new subsidiary, AccorInvest Group SA, a Luxembourg société anonyme, comprising all of the hotels operated by HotelInvest and dedicated to operating owned and leased hotels and managing the related hotel properties. This was accomplished through the contribution of all of the assets, liabilities, rights and obligations comprising Accor's AccorInvest business in continental Europe.

The shareholder approval paved the way for the next stage in the project, whereby Accor sold a controlling interest in AccorInvest, while retaining a significant minority stake in its capital. Accor negotiated with a group of French and International investors, for the sale of a controlling stake in AccorInvest's share capital.

On 31 May 2018 Accor announced that it had completed the sale of 57.8 per cent of the capital of AccorInvest to Public Investment Fund (PIF) and GIC, Colony NorthStar, Crédit Agricole Assurances and Amundi. Accor retained 42.2 per cent of the capital of AccorInvest. A shareholders' agreement was entered into to govern relations between the investors and Accor.

For Accor, the transaction resulted in a gross cash contribution of €4.6 billion.

As part of the transaction, Accor and AccorInvest will maintain their close, long-standing relationship through very long-term partnership agreements. Commercial relations between the Accor Group and AccorInvest are governed by hotel management contracts describing Accor's commitments as operator towards hotel owners on terms consistent with the contracts generally entered into between the Accor Group and third-party hotel owners. A separate management contract has been signed for each hotel, covering a period of between 15 and 35 years depending on the hotel category.

Accor, AccorInvest and their respective subsidiaries also entered into a master partnership agreement organising the preferred relationship between Accor Group companies and AccorInvest Group companies, temporary reciprocal exclusive rights and reciprocal tag-along and drag-along rights for hotels, describing the basis for possible transfers of hotels and hotel management contracts, and agreeing possible waivers of certain terms and conditions of the hotel management contracts.

The master partnership agreement also includes a five-year exclusivity clause prohibiting AccorInvest entities from entering into a management or franchise contract on any hotels with another hotel operator, the restriction being gradually scaled down over this period. In return for this exclusivity clause, the AccorHotels Group entities would have a five-year obligation to offer AccorInvest companies a priority right to invest in any hotel acquisition or development projects and to enter into a hotel management agreement covering the hotels concerned.

Foncia (2016)

European private equity firms Eurazeo and Bridgepoint became shareholders of Foncia group in 2011 via a common subsidiary.

Foncia operates in residential real estate and property management services and in joint-property management, lease management and renting. Since July 2011, under the impetus of Eurazeo and Bridgepoint and its new management team, the group had radically transformed itself, focusing on service quality and innovation and completing more than 60 acquisitions. Foncia posted revenue of €696 million in 2015.

On 9 June 2016, Eurazeo and Bridgepoint announced that they had entered into exclusive discussions with Partners Group, the global private markets investment manager, with a view to selling Foncia in its entirety. Partners Group was leading a consortium of investors, including Caisse de dépôt et placement du Québec and CIC Capital Corporation, a wholly-owned subsidiary of China Investment Corporation, as well as Foncia's management team. The deal, involving the sale of the entire Foncia group, was concluded for an enterprise value of €1.833 billion.

In July 2016, the European Commission approved the takeover and the closing took place on 7 September 2016.

Partners Group announced that, following the acquisition, the Partners Group consortium will work with Foncia's management team to continue Foncia's successful strategy of consolidation in the French property management market, develop Foncia's offerings in related product areas, and accelerate its international expansion.