L’Etat, c’est… - Capital markets look ahead to French elections

Dealspeak ECM Pulse 20 April

L’Etat, c’est… - Capital markets look ahead to French elections

Once again, the first round of France’s presidential elections has produced a run-off between Marine Le Pen, the leader of the populist Rassemblement National party, and President Emmanuel Macron.

For equity capital markets, the vote on April 24 is one of binary outcomes: a confident French government moving forward on ambitious plans for energy and security independence versus the uncertainty of deal flow potentially halted by a new political reality.

A “political accident” could not be totally excluded, some French dealmakers flagged. The margin Macron had over Le Pen in 2017 (66% vs. 33%) has significantly narrowed, according to recent polls which placed Macron’s chances between 51% and 55%.

Several sources speaking to the ECM Pulse said that almost all deal prep is on hold until after the second-round vote on April 24.

Sources in France say the biggest risk to Macron is apathy among neutral voters who, while not keen to vote for Le Pen, may not turn out to vote for a candidate that has been portrayed in some corners of the press as elitist.

Nationalise and privatise

A Macron victory would likely signal a continuation of his government’s policies of selective state investment in sectors seen as strategically key and divestment in others.

It has been widely suggested that the government will seek to nationalise EDF [EPA:EDF], the French utility company, which is already 84% state-held. Given EDF’s EUR 32bn market cap, a 16% stake has a market value of around EUR 5bn and any privatisation would likely take place at a premium, a bonus for banks selling the company’s recent rights issue, according to two sources.

Nationalisation could take place hand-in-hand with privatisation in other sectors, a former ECM advisor to the French government suggested.

“If Macron wins then it is business as usual in some respects,” he said.

There has been public speculation that the government could sell down holdings in certain companies where it holds non-majority stakes such as telecom firm Orange [EPA:ORA] and utility firm Engie [EPA:ENGI], he noted.

The government could restart the privatisation of airport operator Groupe ADP [EPA:ADP], initially planned for 2019 but postponed amid political contentiousness and COVID-19; the deal was originally slated to go ahead alongside Française des Jeux [EPA:FDJ], the national lottery operator which was successfully listed in 2019.

A state spokesperson said “we are now setting out a roadmap for the next presidential five-year term on how our portfolio should evolve, where to sell a stake or where to increase our participation depending on the new government's priority,” while declining to comment on specific holdings.

Every single asset where the state is a shareholder is now being assessed though, according to the spokesperson.

Foreign investment at risk

A Macron victory is seen as key for ECM stability. “The political risk in France cannot be ruled out and a Macron re-election is favoured,” said a French ECM banker.

But Le Pen has closed the gap on her rival with a populist message aimed at tackling the cost-of-living crisis hitting France alongside other western economies.

A 2016-like upset, when a wave of populist electoral success saw the UK vote to leave the European Union and Donald Trump elected president of the United States, is seen as a remote possibility and there are fears that a Le Pen win would damage France’s appeal as a destination for foreign investment.

“France attracts foreign investment for many reasons and particularly because of access to the single market,” said Benjamin Melman - Global Chief Investment Officer at Edmond de Rothschild AM. “If Madame Le Pen were to be elected and obtain a majority, the questioning of certain major European principles such as the return of goods controls at national borders would discourage foreign investment.”

Two sources expressed hope that should Le Pen pull off an upset, she would be unable to do much given her party is unlikely to win a majority in France’s National Assembly elections in June.

But a Macron victory was seen by all sources speaking to The ECM Pulse as an important driver for French equity capital markets activity.

Slim pickings 

In 2021, despite a record year for French deal volume, only 6.79% of EMEA ECM transactions took place on French exchanges, according to Dealogic data. This was down from an 8% market share in 2020 and around a 9% market share in 2019.

This was the second worst market share for French ECM in EMEA for a decade, only just better than 2018, a year of domestic turmoil and protest, culminating in the gilets jaunes movement.

A global ECM slowdown in 2022, due to the return of inflation and the consequences of the war in Ukraine on energy and commodities prices, has slowed French transactions more than the elections per se, said the French ECM banker.

France’s most high-profile IPO candidate, Sanofi’s active ingredients unit EuroAPI, was scrapped in favour of a corporate spin-off.

There is still hope around other deals, with a potential return to the IPO market for Icade Sante, the French operator of care homes which postponed an IPO in 2021 but has publicly expressed its desire to return to market.

In the renewable energy space, the reported listing of French green-energy firm GreenYellow, owned by supermarket Casino [EPA:CO] could also occur in 2H22 despite the current macroeconomics headwinds, French ECM bankers agreed.

France which possesses 25 unicorns – start-ups valued at more than EUR 1bn – should see among those companies a fair amount of IPO candidates ready for listings in 2023 or 2024, ECM experts said.

Those candidates include French AI-based digital experience analytics firm Contentsquare, home improvement marketplace ManoMano, online retailer of refurbished IT products Back Market and digital employee-benefits card provider Swile, this news services reported in November.

One banker agreed the deal pipeline in France was “dynamic” although he expected less volume than in 2021, in line with the rest of Europe. Most French ECM is scheduled for the second half of 2022, in response to any potential volatility following the second-round vote on April 24, he suggested.

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