France’s M&A market had a solid run of deal activity in 2022 and continues to demonstrate resilience. There were 1,320 transactions in the country, up 3% year-on-year and the highest number of deals in the country annually on Mergermarket record, although activity slowed after the summer. At the same time, the average deal size decreased significantly as financing conditions tightened and buyers turned away from the very top end of the market. M&A value came to US$101.2 billion, down 40% from the US$167.5 billion in deals made the year before.
From EDF to a landmark de-SPAC
The biggest deal announced in 2022 was the French government’s offer to take Électricité de France (EDF) back into full state ownership by acquiring the remaining 16% of the shares that it does not already own. According to Mergermarket, the deal was valued at just under €10 billion.
However, there are still obstacles to overcome in the transaction. In November 2022, a group of minority shareholders brought a case against the government to prevent the squeeze-out, and therefore the full nationalization of the company. In January this year, the state's shareholding agency confirmed it would pause until the Paris appeals court rules on the legal challenge, expected in May 2023.
While the EDF deal continues to attract media attention, the second largest deal in the country in 2022 was noteworthy for its own reasons. Tikehau Capital and other sponsors made headlines when they successfully completed the biggest de-SPAC in Europe to date. The Parisian private equity (PE) and private credit firm launched two blank check companies in 2021. One of these, Pegasus Entrepreneurial Acquisition Company Europe—a Dutch SPAC listed on the Euronext Amsterdam—combined with FL Entertainment on the basis of a €7.2billion enterprise value in July 2022.
FL has two business lines: Banijay, a TV production and distribution company and the world’s largest international content producer, with over 120 production companies under its wing; and Betclic Everest Group, the fastest-growing online sports betting platform in Europe.
SPAC activity dropped significantly last year as investors made a risk-off pivot and this will likely remain the case for some time to come. There were only 20 blank check company public offerings on European exchanges in 2022, down 55% from 2021’s 44 listings, according to Dealogic data. Proceeds were also down by 81% year-on-year, from US$8.8 billion in 2021 to US$1.7 billion.
A leading TMT deal
US PE group Apollo Global Management was behind the third largest deal of the year in France when it acquired the point-of-sale terminal business of European payments company Worldline for just under US$3 billion. Worldline jettisoned this lower-margin side of its operations as it concentrates on online payments, having bought fellow French competitor Ingenico in 2020 to create one of the largest payments groups in Europe. Shortly after its divestment to Apollo, it acquired a 55% stake in Softpos, a Polish fintech that converts Android devices into payment terminals.
The Apollo carve-out accounted for 16% of the US$18.9 billion worth of computer software deals made in France in 2022. These are a subset of the leading technology, media and telecommunications sector, which, at US$27.1 billion, accounted for 27% of all French M&A value last year. This put it just ahead of the energy, mining and utilities sector’s 20% share of value, pegged at US$20.4 billion.
Energy transition in France
The fourth and fifth largest French M&A transactions of the year were of roughly equal size and both featured renewables targets, a trend that is expected to persist across Europe as countries on the continent strive to become carbon neutral by 2050 and reduce their dependence on Russian gas.
A consortium led by Macquarie Group and including British Columbia Investment Management Corporation and German reinsurer MunichRe bought solar farm developer Reden Solar for an enterprise value of €2.5 billion.
In a similar vein, KKR bought an 83% stake in Albioma, valuing the solar company at just under US$2.7 billion. French sovereign fund and PE investor Bpifrance, which has been a shareholder in Albioma since 2016 and holds a 5% piece of the company, rolled its equity over in the deal.
The outlook
France’s M&A market was one of the most resilient in Europe in 2022 but, as is the case elsewhere on the continent, investors are digesting ongoing inflation and its impact on economic demand, and the effects of rising rates to curb rising prices. The European Central Bank hiked the bloc’s interest rate for the first time in 11 years in July 2022 and then by 75 basis points in September—the only hike of this size since a temporary measure when the euro was first launched in 1999. This was followed by additional increases announced in October and December 2022, and another in February 2023, with at least one more hike yet to come.
Against this unfamiliar backdrop, deal volume is likely to show greater resilience than value, judging by the recent volatility in public credit markets. Further tightening should bring asset prices down, and tighter financing conditions in public markets should favor small to mid-size deals sponsored by PE firms that can access private debt from direct lenders.