Fortress France?

First it was the chairman of Germany’s ruling Social Democratic Party that sought to make political gain out of unflattering comments about private equity. Franz Munterfering denounced top firms as locusts ahead of an election in a key German state. Now a British politician, Conservative leadership contender David Willetts, is locking horns with the French administration about moves to shield French industries from takeover.

With a vitriol to rival President Chirac’s disdain of British (and Finnish) cuisine in the run-up to G8, Willetts accused Paris of “stupidity” and “double standards” in the press. On the same day that French building materials group Saint-Gobain was preparing a £3.68bn bid for UK plasterboard group BPB, Willetts also said France would make itself “the laughing stock of the financial markets”.

The quotes are colourful and the timing is ironic, but beneath the headlines there could be some serious implications for European private equity. Buyout firms are raising ever-larger funds, just as politicians are threatening to block takeovers in strategic industries in one of Western Europe’s core buyout markets. There are rich opportunities to be had further afield in India and China, but it would be a backward step indeed if protectionism were to derail the French buyouts business just as activity in the UK is falling.

Make hay while you can

Reverse flexes for Travelex and Kwik-Fit indicate that sentiment in the high-yield debt markets continues to recover for stronger credits, heralding the possibility of tighter pricing in the last quarter of the year. That is all well and good, but private equity firms might be advised to recap sooner rather than later because anecdotal evidence suggests that investors are cooler on LBO debt generally and that the long-mooted uptick in restructurings could become a reality at some point next year. 

Gate Gourmet is regarded as an isolated case owing more to the downside risk implicit to the airline industry than a wider meltdown in the world of leveraged finance. Nevertheless, there is often no smoke without fire, and a number of other LBOs are touted as upcoming candidates for covenant waivers or full-scale workouts eventually.

Even more telling is the small but growing number of investors who quietly admit that value investing will be a greater proposition when it comes to investing their next fund. To say nothing of the banks – not the usual investment bank suspects either – that have been selling down loans in greater scale and more quickly than ever before in the secondary market.