LBOs are the subject of a white paper recently published by the French national venture capital association, AFIC. The paper describes France as the leader in LBO transactions on the continent, but lagging behind when compared to the UK and the US, where the total value of LBOs is over two times that in France.
Arnaud de Dinechin of the association says the paper was put together by AFIC’s LBO commission to emphasise the importance of the contribution of LBOs to the French economy. The white paper outlines the regulatory and institutional issues that are an obstacle to the development of the LBO market in France. One of the main issues underlined in the paper is the allocation to private equity by French institutional investors. Most funds in France come from the US and foreign investors as the provision of pensions by the French State is underdeveloped. France is lacking a large institutional investor, says de Dinechin and AFIC is lobbying for the government to find a way to channel French savings to LBO funds.
The paper is also encouraging more flexibility regarding regulations and security and hopes to facilitate transactions without being forced to change current company and tax laws. De Dinechin also mentions public-to-privates as an area for improvement. “These are difficult to achieve in France due to tight regulations. If you want to be approved by the authorities, you need to get at least 95 per cent of the target company which is difficult,” he says.
AFIC’s LBO Commission was created in September last year with the objective of providing the opportunity for professional investors who specialise in LBOs to meet and work together. There are four sub-groups within the commission: the first focuses on the impact of the Loi sur les Nouvelles Regulations Economiques, which was introduced last May. This group aims to inform AFIC members about possible difficulties they may encounter complying with this complex law covering the taxation of stock options. The other groups focus on management incentivisation and how to share profits with buyout teams, ways in which the country’s laws and regulatory environment could be improved to favour buyouts and how to promote buyouts as a financing method.