Private Equity In France: Focus On Available Exit Routes

Author:Ms Florence Grangerat
Profession:Soulier Avocats
 
FREE EXCERPT

Private equity involves the association of one or more entrepreneurs and one or more financial investors who provide financing to unlisted companies and even sometimes listed companies.

For the year 2018, the amounts invested in private equity in France reached 14.7 billion euros1, making France the second country in the European Union after the United Kingdom.

In private equity transactions, investors are expected to exit in the short or medium term. Several exit routes are available to capital investors: trade sale, transfer to the management team, sale to another investment fund or initial public offering.

The objective of private equity transactions is to finance the start-up phase, development, transfer or acquisition of a company.

Private equity encompasses several categories of transactions that are generally classified as business lines. Just to name a few:

- venture capital which helps finance technology-intensive companies during the creation or start-up phase,

- growth capital which is targeted at companies that have reached profitability and wish to develop new products, increase their production capacity or their sales force,

- buy-out capital which consists in the acquisition of a company by a team of managers from inside or outside the company together with capital investors.

For the year 2018, the amounts invested in private equity in France reached 14.7 billion euros2, making France the second largest country in the European Union after the United Kingdom.

Main key sectors that attracted private equity investments include industrial goods and services and chemicals (4.6 billion euros), consumer goods and services (3.6 billion euros), medical and biotechnologies (1.9 billion euros), IT and digital (1.8 billion euros) as well as financial services and transport (1.3 billion euros).

In private equity transactions, investors are expected to exit in the short or medium term. Several exit routes are available to venture capital investors: trade sale, transfer to the management team (known as "management buy-out" or "MBO"), sale to another investment fund (known as secondary "leveraged buy-out" or "LBO"), initial public offering ("IPO").

While the myth of an IPO remains widespread, in practice it only concerns a marginal percentage of divestitures.

As a matter of fact, the most common exit route for private equity investors is the sale of their shares to another investment fund via a secondary LBO. One of the main difficulties...

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