French buyouts in doldrums

According to the latest data from Thomson Reuters, private equity-backed buyouts in France are showing little evidence of a recovery in 2009. But while the figures give very little to cheer about, there are some signs that deals in the mid-market sector are managing to hold up.

French buyout transactions in the second quarter of this year totalled US$26.8m, down from US$209m in the first quarter and US$3.7bn at the same point a year ago. The largest transaction so far this year, according to the data, is TowerBrook Capital’s acquisition of Autodistribution, worth just US$138m.

“Activity has slowed down drastically since the beginning of 2009, with only two leveraged buyouts in the French market above €100m EV,” said Philippe Poletti, a managing director at AXA Private Equity, who added: “That’s very small for a market that is the second largest in Europe.”

Despite the negative trends at the top end of the market, advisers in the mid-market are reporting that deals with the right valuation are still getting done.

“Owner-led and management buyouts are still happening in the 2x–4x Ebitda range. Also, banks are more relaxed to enter a leveraged deal in the mid-market sector,” said Philippe Nataf, managing director at Duff & Phelps.

According to Frederic Dubuisson at Duff & Phelps, some of that activity is taking place in the healthcare industry in France.

“We have seen some evidence of mid-market deals emerging this summer in the healthcare sector together with some capital raisings, but although this is positive, it’s unclear if it will continue,” he said.

The reported increase in deals is good news for advisers, but may dash any hopes they had of a long and quiet summer break.

Figures released on June 19 by the European Private Equity and Venture Capital Association (EVCA), show fundraisings across Europe also suffered in the first quarter of this year.

Fund closings in the first quarter stood at €2.5bn, of which €1.3bn was for buyouts. That was down from €19.6bn in the fourth quarter of last year, of which €15.6bn was for buyouts. On the bright side, the EVCA reported that although investment and divestment activity continued to fall, it was doing so at a slower rate.

Until exit conditions improve, that means private equity firms will need to hold on to their portfolios and concentrate on improving their core business.

“Private equity firms will spend the rest of 2009 renegotiating debt covenants and reviewing the IRR targets for management incentive packages,” said Dubuisson at Duff & Phelps.