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Public To Privates in France

The predicted boom in take privates of French listed companies has yet to materialise. During the last five years, there has been an average of six public to private deals each year in France, compared to 39 in the UK, says SJ Berwin. What’s more, the average market capitalisation of French targets is half that of those in the UK.

These facts have led the AFIC, the French venture capital association, to ask: "has the PTP a future in France?" in a recent survey carried out by Arthur D. Little for AFIC's LBO commission. The key question they address is why private equity firms in France are not exploiting such a potentially strong pipeline.

As well as legal and technical factors, other barriers – cultural, psychological or historical – play an important role in the PTP's relative scarcity in France.

For example, in France, share ownership is more concentrated than in the UK, and less share capital is publicly held. According to the survey, 65% of listed companies in France are controlled by a family; the equivalent number in the UK is just 23%. The shareholders controlling a French listed company may not welcome a PTP offer on the basis that the delisting threatens the company’s public renown and profile. The prospect of losing control of the company can also act as a "psychological break" for the "entrepreneur".

But French regulation undoubtedly plays its part: PTPs are harder to do in France than in the UK. For instance, an offer for the shares of a French listed company must reach an acceptance level of 95% to squeeze-out the remaining minority shareholders and delist the target, as well as to achieve tax integration (which allows interest on the acquiring newco's debt to be offset against the target's profits).

This threshold is seen as too high, and sits badly with another rule: the highest threshold usually accepted by the French stock market authorities before an offer has to be declared unconditional is two thirds. These rules have to be compared to the situation in the UK, where the threshold to squeeze out the minority shareholders is 90%, it is always possible to delist a company with the shareholders’ consent and the acceptance level can be set at the same level as the squeeze out threshold – 90%. In the UK, unlike in France, you never have to complete a bid until you are certain of getting 100% of the target.

Another technical barrier is the difficulty that target companies have in managing access to information about them, and in maintaining confidentiality, as a result of the legal requirement that all competing bidders must be given access to the same information.

In response to this problem, the Commission des Operations de Bourse (the previous French stock exchange authority) has set recommendations for the organisation of data rooms in offer situations and rules to limit the risk of insider dealing.

The AFIC survey's five main recommendations are:

• To allow offers to be conditional upon the threshold for delisting.
• To lower the 95% threshold required to squeeze out minority shareholders.
• To lower the 95% threshold required to allow tax integration.
• To allow bidders to offer different prices dependent on the threshold reached.
• To include companies subject to a PTP in the quota for French funds that must be dedicated to unlisted investments, even when the company remains listed.
• If these proposals win support from French regulators, the environment would certainly improve and a new source of deals would quickly emerge.

SJ Berwin is a pan-European law firm with a particular focus on private equity. It has offices in London, Frankfurt, Munich, Berlin, Madrid, Paris and Brussels. If you would like further information on its services to the private equity industry please contact Jonathan Blake or Simon Witney in its London office +44 (0)20 7533 2222 or visit our website at www.sjberwin.com