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Four drivers of French M&A

Acquirers may be in a hurry to complete deals before the end of the year.

Dealmakers polled by Mergermarket believe transactions may be affected once presidential election campaigns are in full swing in 2017. But strategic acquirers will continue with their M&A plans up to the end of this year. In this article, we summarise the key deal drivers for M&A in France and consider where advisers may see dealflow originate:

1. Strategic asset reviews in key sectors

In the energy sector, strategic reviews are ongoing at major oil and energy services companies, which may offer interesting investment opportunities.

In May, high-tech battery systems manufacturer Saft Groupe was acquired by French oil major Total for €950m. This takeover was highlighted as a deal driven by strategic modernization motives in the energy sector.

The French energy company will continue to be active this year. Italian energy group ERG and Total are looking to sell their Italian joint venture Totalerg in 3Q16, Mergermarket reported this month. The asset will attract the interest of foreign refiners and fuel retail players already active in Italy such as Qatar Petroleum, Kuwait Petroleum as well as Italian group Saras, as reported.

The French deals pipeline is already looking strong with some major ongoing auctions. The sale of Reseau de Transport d’Electricite (RTE), the French electricity grid network network 100% controlled by EDF valued at €7bn, the ongoing sale of French aerospace and defence group Safran’s identity and security subsidiary Morpho valued at €2bn, and the auction on the French regional airports of Lyon and Nice, which could reach a total value of more than €2bn, are among the most anticipated deals of the second half.

After merger discussions between French mobile phone operator Bouygues Telecom and French telco Orange failed in April, the consolidation of the telco sector in France could also resume. However, Orange's deputy chief executive Gervais Pellisier was recently quoted as saying that the European Commission’s (EC) recent decisions had deterred any hopes for large domestic acquisitions or cross-border deals. Earlier this year, the EC blocked the proposed acquisition of Telefonica’s O2 UK network by CK Hutchison due to concerns that greater market concentration would be detrimental to consumers.

2. France and China

"France's momentum in China has just started”, Head of China Asia Pacific at B&A Invesment bankers Emmanuel Gros claimed. “China is experiencing a surge of people entering the middle class so all the sectors linked to tourism, entertainment, consumer households’ products, healthy food, fashion and cosmetics will experience significant growth and France has a trump card to play there."

As reported, French ski and entertainment resorts operator Compagnie des Alpes, is in preliminary talks with Chinese investors, including Fosun Group. Shanghai-based conglomerate Fosun Group, already owns French resort operator Club Med.

Chinese and Japanese strategic investors could be among the bidders for the sale of organic cosmetics brand Melvita by French manufacturer and retailer of personal care products L’Occitane, as reported.

AccorHotels, the French accommodation group, has yet to find an agreement regarding the potential increase of China-based Jin Jiang International Holdings' stake in the group.

In May, French-listed airline Air France announced it entered into exclusives talks with HNA, a Chinese company operating in air transport, tourism, logistics and financial services, for the sale of a stake in its onboard catering subsidiary Servair, valuing the subsidiary at €475m.

The (relative) economic slowdown observed in China has recently encouraged Chinese players to further increase their focus on Europe and particularly France. Chinese investors have an interest in a large number of sectors, in particular technology-intensive but not only, and they have proved to be reactive, wise and efficient dealmakers.

Not only do Chinese investors plan on developing operations in Europe and providing access to their huge domestic market, but they usually have global strategic visions for the targets.

Time is also ripe for French companies in the digital, automotive parts, smart city and energy sectors to seek JVs or acquisitions opportunities in China in exchange for their technological expertise, according to Gros.

China has 700m internet users so it could be for example a great opportunities for French companies to develop web and digital services there through acquisitions and use China as a laboratory prior to global development, given the lead China has in this area compared to the rest of the world, he added.

3. France in Europe

"The €315bn EC’s Investment Plan for Europe known as the “Juncker Plan” should start to show some results in long term investments in the renewable energy, infrastructure, transportation and digital sectors in France and could have a positive impact on the M&A deal flows especially for SMEs," Partner at Paul Hastings Aline Poncelet noted.

The plan approved by the European Parliament in June 2015, established the European Fund for strategic investment (EFSI) with an initial €21bn of funding, managed by by the European Investment Bank and providing a first loss guarantee to encourage private investment in riskier projects.

4. Brexit - a benefit to France?

France could also benefit from the UK’s vote to leave the EU. At the International Financial Forum Europlace held in Paris on 5 and 6 July, French financial stakeholders called for further measures to make Paris the first performing financial market place in the EU.

France expertise in fintech developed within large banking and insurances firms should also attract international investors, CEO at the French national agency promoting trade and investment in France Business France Muriel Penicaud said during this forum. The FinTech network in France is made of around 800 start-ups, according to Penicaud.

The Paris region would however need to attract more PE funds and VCs willing to increase equity investment in start-ups and SMEs, Vice President of Paris Region Jérôme Chartier said, adding that France still needs to promote stability and visibililty and do more for SMEs and start-ups to address negative perception of its tax system.

by Arezki Yaïche in Paris with analyticsfrom Katharine Dennys in London

This article is an excerpt from Mergermarket's France H1 2016 Trend Report

Arezki Yaïche Paris Bureau Chief Mergermarket

Arezki Yaïche has joined Mergermarket in 2014 as Financial Journalist in Paris. He covers M&A and ECM situations. Arezki was previously PR officer specialised in Finance and European regulation at Enderby in Paris. He had also a 2 years experience as European Communication officer at Dexia Asset Management in Brussels and 2 years experience as Communications officer for European and French Public Institutions( French Embassy in Stockholm, French Ministry for Agriculture and the European Parliament).


Arezki Yaïche Paris Bureau Chief Mergermarket

Arezki Yaïche has joined Mergermarket in 2014 as Financial Journalist in Paris. He covers M&A and ECM situations. Arezki was previously PR officer specialised in Finance and European regulation at Enderby in Paris. He had also a 2 years experience as European Communication officer at Dexia Asset Management in Brussels and 2 years experience as Communications officer for European and French Public Institutions( French Embassy in Stockholm, French Ministry for Agriculture and the European Parliament).


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