Companies subject to a leveraged buyout are more likely to experience rapid economic growth than those that have not had private equity backing, according to a recent report published by the French venture capital association AFIC in conjunction with Constantin Associés and LEK Consulting.
The study examines the economic and social impact of an LBO on the development of a business in France. The sample reveals that in the first four years following an LBO the turnover of a company will grow on average by 30% compared with 16% for the rest of the economy. It also reveals the debt assumed in an LBO allows the company a greater freedom to invest and consequently expand, an opportunity that would not have previously existed under the previous management.
Most recent figures from AFIC reveal the value of private equity activity in France in the first half of 2003 increased by 16% compared to the same period last year, while across Europe as a whole activity has decreased by 8% in the same period. On a less positive note, the amount of new capital raised fell dramatically from around €2.5bn in the first half of 2001 and 2002 to just €804m in the opening six months of this year. AFIC calculates France’s share of overall European private equity activity has risen from 16% in the first half of 2002 to 21% in 2003. The French venture capital association has recorded 730 investments worth a total of €1.656bn for the first six months of the year, last year this period accounted for approximately 20% of the annual investment total.