C'est la rentrée: French private dealmakers’ hopeful for post-summer catch-up effect after PE deals record low in 1H23

News Analysis 4 September

C'est la rentrée: French private dealmakers’ hopeful for post-summer catch-up effect after PE deals record low in 1H23

  • Healthcare, infra and education are the most resilient sectors
  • Potential distressed M&A in retail and tech

A long-awaited rebound in M&A activity could begin as early as this month with sponsor-led deals in focus, French dealmakers said.

Private equity (PE) activity plunged in 1H23 as a substantial number of French deals were postponed due to current market headwinds, including inflation and high interest rates, M&A experts said. 

However, with French GDP growth running at 1% in the second quarter versus the same period a year ago and inflation running just ahead of expectations at 5.7% in August, the tide could turn at any time. 

Toulouse-headquartered, healthcare-focused media and events company Europa Group is an example of a deal in the pipeline. It tapped Alantra with an official launch pencilled in for September, as reported by Mergermarket in July. Owned by Abenex, the business anticipates EUR 25m in EBITDA this year.

Sponsor-led M&A in France registered total volume of EUR 8.8bn in 1H23 across 103 deals, according to Mergermarket data. This is the lowest level since the record lows of 1H12; and represents a drop of 92% from 1H22 (EUR 19bn across 93 deals).

The coming school year is set to be busy, said Oriane Durvye, partner at advisory firm Alantra, adding that "now is the time" to finalise information memoranda (IMs). 

After a low-key first half, key players in the private equity sector are ready for its activity to pick up and are sensing the first signs of a M&A revival, sector experts agreed.

While global M&A activity dropped by 37% year on year (YoY) in 1H23, France managed to resist compared to the same period last year with EUR 53bn so far deployed over 1,067 deals, down 21% from the year to date (YTD) in 2022 (EUR 66.9bn across 1,251 deals).

Healthcare, infra and education still resilient

“PE firms and some large corporates are still sitting on huge amounts of cash”, Cyril Boulignat, partner at law firm Herbert Smith Freehills said. "Although they are still cautious in light of current market conditions, the less intense volatility observed could prod dealmakers to revive some deals put on ice previously in 4Q23 and next year ”, he added.

Deals expected to kick off as early as 2024 include the sale of IK Investment-owned Eres, and Bridgepoint-backed online marketing platform Brevo.

Healthcare, infra and education are especially the sectors that will continue to keep M&A activity afloat, several bankers agreed.

Mergermarket has reported that Equistone Partners was preparing to launch a sale of Paris-based telecommunications infrastructure development firm Camusat in July, appointing Macquarie Capital Advisers to handle the sale. Camusat has a score of 61, according to Mergermarket's Likely to Exit (LTE) predictive algorithm.*

Meanwhile, Groupe ADP is currently mulling a sale of its information and communication technology services subsidiary Hub One, a Paris-headquartered international airport operator, with local boutique firm Barber Hauler Capital Advisers as a sellside mandate, Mergermarket reported last week.

"PEs are also increasingly looking at higher education, which they see as being resilient at a time that other sectors are too volatile," Boulignat said.

AD Education, a French higher education platform backed by PE firm Ardian, could hit the auction block next year, one source familiar told this news service. The company has a LTE score of 37.

AD Education and Ardian did not reply to requests for comment.

Looming distressed sales

New potential restructuring or distressed M&A deals could be expected in sectors like retail, heavily dependent on households' consumption and thus badly shaken by the current market conditions, Stéphane Zeghbib, partner at advisory firm Altamoda, said.

In the wake of French retail giant Casino’s [EPA:CO] distressed sale to a consortium of investors including EP Global Commerce a.s., Fimalac and Attestor to avoid a default, more deals involving the supermarket group could emerge, several M&A bankers agreed. 

Start-ups that raised funds from venture capital (VC) firms at a high valuation in 2021 are now also facing major market headwinds and could be pushed to M&A, experts said. “VC investors struggle to find secondary liquidity after they invested at high prices in equity rounds to support unprofitable companies”, Durvye said. 

B2B tech whets investors’ appetite

If B2C assets are suffering, B2B is however doing fine, Durvye said. “Valuations have not dropped for great assets, which might even benefit from a scarcity premium. However, their definition has changed: today, a great asset has both a strong growth and high margins”, she added.

Sponsor Montefiore Investment would be expecting non-binding offers for its portfolio company, European Digital Group (EDG), a French B2B digital services platform, around late September, as reported.

“Financial and B2B services are very dynamic, buoyed by tech”, Michael Azencot, partner at advisory firm Cambon Partners said. “We are also noticing a real comeback of the travel and hospitality markets, which was deeply impacted in 2020 up to 1H22”, he added.

Keensight Capital has mandated Raymond James for a potential sale of Sogelink, a French construction software business. A decision is likely to be finalised in September, with the auction expected to kick off in 4Q.

Over the summer, Bridgepoint mandated JPMorgan to advise on the sale of its majority stake in French provider of mortgage insurance brokerage and credit brokerage services Kereis, as reported by French press. The auction, expected to launch at the end of the year, could value the business at EUR 2bn, or 10x to 11x its EBITDA.

*Mergermarket's LTE predictive analytics assign a score to sponsor-backed companies to help track and predict when an exit could occur through M&A, an IPO, a direct listing or a deSPAC transaction.

Your M&A Future. Today.

Next-generation Mergermarket brings together human insights and machine intelligence to deliver groundbreaking predictive analytics.

Be the first to know with next-generation Mergermarket

Book a demo today