France – The year for a comeback?

Activity

Headwinds continued to blow into 2023 for M&A activity in France. Activity was down 29% in volume (1,749 deals) and 27% in value (€53.6 billion).

Headwinds and a valuation gap still to bridge

The challenges encountered in 2022 extended into 2023, with the significant hurdles predominantly stemming from high interest rates, inflationary pressure and geopolitical unrest. Amid economic uncertainty, buyers also exhibited heightened cautiousness on prices, while sellers were yet to tone down their expectations, leading to notable valuation gaps.

While parties made efforts to bridge these valuation disparities through pricing adjustments (in particular earnouts), a number of sale processes faced suspension due to the inability to reach a consensus on valuation. Notable instances included the Advent's attempted sale of Idemia, the interrupted sale process for Akuo Energy, and the sale of French gaming expert 52 Entertainment put on ice by HLD due to disappointing valuations.

Alternative transactions and the reshuffling of M&A players

Companies seeking to divest non-core business units opted for spin-offs, carve-outs or joint-ventures as compelling methods to unlock value. This was the case for Sanofi who announced plans to separate out its consumer health division, Sodexo which has prepared the spin-off of its meal voucher business into Pluxee, Vivendi who announced that it is studying splitting out different businesses to reduce its conglomerate discount and the French carmaker Renault who completed the spin-off of its electric vehicle business into Ampere, the listing of which was recently abandoned.

Corporate buyers with abundant liquidity better equipped to identify value in post-acquisition synergies also took the lead in dealmaking this year, benefiting from a window of opportunity left open by the relatively subdued activity of private equity players over the year (with the notable exception of CVC's sale of a controlling stake in April to KKR for €2.3 billion which completed in 2023).

Sectors

Deal volumes were highest in the consumer sector, followed by tech and industrials.

Legal trends

Amid the global economic and geopolitical crises, as elsewhere in the world, an accrued vigilance from regulators on M&A activity can also be noted. From an antitrust perspective, this is exemplified by Canal Plus's €100 million acquisition of OCS, which has been on hold since January 2023 as competition concerns are still being addressed with the French Competition Authority.

At the end of 2023 the French foreign direct investment (FDI) regime was reinforced by the publication of a decree which widened the prior FDI authorisation regime, in particular by adding new sensitive sectors (including the extraction and transformation of critical raw materials). This extended the regime to French branches of foreign companies and baked into the law the requirement for non-EU investors to obtain FDI authorisation when crossing the threshold of 10% of voting rights in listed companies. This is opposed to the 25% figure initially envisaged as being a temporary Covid-related protectionist requirement. The French FDI regulator also blocked several transactions in 2023 and in particular the acquisition of Canadian-based Velan by Flowserve, a US company, because the French subsidiaries of Velan manufacture valves used in French nuclear plants, submarines and aircraft carriers. See our Global M&A report piece "Merger control, FDI and FSR – the triple impact" for more on navigating regulatory issues.

From a sales process and contractual perspective, the signs of a more buyer friendly market have been very present this year. Particular trends that have been noted by many of the market players were more bilateral deals or bid processes involving fewer participants with more time left to purchasers to carry out more extensive due diligence on the targets (see our piece on "Selling the deal" in our global report for more on how deal processes have evolved). The terms of the transaction documents have also more often tended towards the purchaser's positions with more material adverse change clauses and conditions precedents being discussed and agreed.

Opportunities among the rubble

The return of major distressed M&A deals was a key feature of 2023, exemplified by the takeover of Orpea by a consortium led by the French State-owned CDC in the context of accelerated safeguard proceedings and the acquisition of control of Group Casino by a consortium led by the Czech billionaire Daniel Kretinsky as part of the restructuring plan of the company. This trend can expect to continue into 2024 as the levels of insolvencies continue to increase to pre-Covid levels.

Outlook for 2024

Will 2024 be the year of the market turnaround? Some were hopeful that 2023 would be the year for the pick-up of M&A activity in France. Whether this will take place in 2024 is difficult for anyone to predict. There are, however, reasons for cautious optimism as actors adapt to the market conditions and buyers' and sellers' expectations align. Many are also predicting the return of more private equity players which remain flush with dry powder that they will need to expend as well as a number of deals which were suspended or delayed in 2023 being put back on the market.