Strong Fundamentals Drive M&A Growth In France

Author:Mr Xavier Doumen
Profession:Hogan Lovells

2019 buoyed by large cap and PE buying Regulatory reforms support renewed corporate confidence Restructuring-led processes to support M&A activity in 2020 The French M&A market closed out 2019 in spectacular fashion with the announcement that LVMH, the world's largest luxury goods company, and owner of iconic luxury brands such as Louis Vuitton and Bulgari, had agreed to buy Tiffany, the U.S. jeweller, for a record US$16.2 billion.

It was a cross-border deal that reverberated around the world, redrawing lines in the global luxury market, while putting the spotlight back on Paris and a French M&A market that has been re-establishing itself in recent years.

Despite signs of decreasing activity in the large-cap sector during the first half of 2019, together with an overall slowdown in global and European M&A, activity in France during the year was strong.

M&A deal volume remains resilient

The headline story in H1 2019 was the impact of private equity buying, which fuelled resurgence in mid-cap M&A activity, peaking in July. A pause for breath in September was short lived with deal flow picking up significantly in the final quarter of the year, yielding a strong 12 months for French M&A overall, in terms of both deal volume and value.

The resilience of the French M&A market in the face of unprecedented levels of political uncertainty around Brexit, coupled with expected economic headwinds, can be attributed to several factors.

Fundamentals remain very strong among French corporates, supported by an abundance of liquidity and record valuations.

The implementation of large number of government reforms has also bolstered business confidence, and in turn, positively impacted M&A activity. Revisions to key employment laws, simplification of corporate law, and a reduction of the squeeze-out threshold from 95% to 90%, are just some of the notable changes that have helped the French business environment and fuelled appetite for M&A.

Restructuring a catalyst for M&A activity

Perhaps one of the most significant drivers of M&A activity in France has been restructuring-led M&A. Many companies are being forced to re-evaluate their business models in the face of increased competition and industry disruption.

It would be wrong to call this distressed M&A - in contrast to the financial crisis of a decade ago - because covenant breaches on financing terms have not been the catalyst for such activity. Instead, we have observed active intervention by the...

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