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Private Equity Overview - France 2000

The French private equity sector had more than E15.9bn of portfolio capital under management at the end of 2000. All areas of the market were active, especially the buy-out sector. This EVCA overview has the key figures.

The French private equity sector relies mainly on dedicated and collective tools and funds, notably taking the form of private equity funds (Fonds Communs de Placement à Risques, FCPR), innovation-investment funds (Foods Communs de Placement-Innovation, FCPI) and venture capital companies (Sociétés de Capital Risque).

French banks and other big institutional investors remain the major players in this sector, operating through dedicated subsidiaries or via participation in external fund raising.

It is worth noting that the private equity business in France continues to diversify through a growing number of initial start-up funds, incubators, corporate venturers and business angels. The French market is also becoming increasingly international as more foreign players enter the picture.

All the areas of the French private equity market have been active in the year 2000, thus contributing to another exceptional vintage year. The strong performance of the venture capital market has confirmed the dynamism of business start-ups in France this year, although the second semester was marked by a stock market slowdown.

The buy-out market was also very active, confirming the growing role of private equity in transfers of company ownership, and in particular, family business takeovers.

Thus, at the end of 2000, the French private equity sector managed portfolio capital in excess of E15.9bn.

Sources of capital

New funds raised almost doubled during the year 2000, confirming the trend observed in recent years towards the growing strength of French private equity, both domestically and throughout Europe.

At E4.4bn, funds raised by independent and semi-captive contributors continue to be the principal source of funding for private equity in France and represented 58 per cent of the total in 2000. The amount of capital raised by captives increased to E1.8bn and represented 23.5 per cent of the total funds raised, against 17.7 per cent of the total in 1999.

Banks continue to be the main source of new funds, contributing 38.8 per cent of the total raised in 2000. Corporate investors, having raised E0.8bn and 13 per cent of the total in 2000, increased their share of fund raising against a six per cent share of the total in 1999, indicating the rise of corporate venturing in France. Pension funds contributed 17 per cent of total funds raised in 2000, mainly to the detriment of funds from insurance companies whose relative share was more than halved.

The share of non-domestic funds raised increased from 22 per cent to 42 per cent of the total and, at more than E3.2bn, is more than triple the amount raised from non-domestic sources in 1999.

Investment patterns

Investments almost doubled compared with 1999, going from E2.8bn to E5.3bn in 2000, with approximately two thirds of this amount being devoted to initial investments.

A total of nearly 3,000 investments were made in 2000, approximately 20 per cent more by number than in 1999.

Even if the share of investments made by the public sector remains low, it is interesting to note that the E102m invested in 2000 is almost six times the amount invested by this sector in 1999. This is largely the result of the public sector initiatives for the creation of new businesses.

Buy-out operations attracted the largest share of the total amount invested, at 38 per cent against 35.5 per cent invested in expansion stage, and 22 per cent in seed and start-up stages.

Approximately 55 per cent of the total amount invested was committed through non-syndicated operations, up from 44.6 per cent in 1999. Deals syndicated on a transnational basis again accounted for approximately 13 per cent of the total, while the share of nationally syndicated deals decreased in 2000.

Domestic investments represented 88 per cent of the total, compared with a figure of 80 per cent in 1999.

High-tech investments accounted for 45 per cent of the total amount and continue to he the primary investment sector in France, up from a 29 per cent share of total investment in 1999.

On an industry basis, biotechnology investments have risen by a factor of 3.3 compared with 1999 (from E50m to E164m) and consumer goods investments have increased by a factor of 2.7 compared with 1999 (from E340m to E907m).

Legal and fiscal environment

The status of venture capital companies (Sociétés de Capital Risque, SCR) has changed and now allows a reduction in the complexity of management with regards to both legal and fiscal aspects.

Similarly, the implementation of improved procedures for investing in private equity funds (FCPR), has contributed to increased flexibility with regards to the contractual relationship with investors.

Moreover, the FCPI fiscal system, which was programmed to run until 2001, will now run until 2006, and should continue to encourage investment in emerging companies as well as those with growth potential in the technology sector.

Similarly, following the first public fund for venture capital funded by the state and the European Investment Bank in 1998 (for a total of FF900m), a project for the development of a second public fund for Venture Capital has been started (for a total funding of approximately E150m).

The Association Française des Investisseurs en Capital (AFIC) is also working to further improve the status of the FCPR.

Exiting

After the two years 1998 and 1999 yielding a high level of divestments - at a historical cost of E1.92bn and E2.38bn respectively - 2000 showed a clear slowdown with a total amount of
E 1.05bn divested at cost.

The trade sale remained the primary vehicle for divestment, however, divestment via IPO represented a significant exit - the amount divested by this means is more than double that reported in 1999. These operations are in line with a favourable stock market environment in the first months of 2000 (notably on the Nouveau Marché where 52 flotations occurred in 2000 against 32 in 1999) and the end of certain periods of ‘lock-up' for listing operations that occurred in 1999 or before.

This extract is taken with kind permission from the EVCA Yearbook 2001

The European Venture Capital Association's mission is to promote globally and to facilitate the development of the European private equity and venture capital industry through active lobbying and development initiatives. It seeks to help create an entrepreneurial environment in Europe and promote European private equity and venture capital to institutional investors worldwide. For more information, please visit www.evca.com
         
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