France hopes for recovery after COVID deal dip

French M&A activity has suffered steep falls because of COVID-19, but green shoots are emerging as lockdown measures ease

Although a few large deals in the first quarter helped to cushion French deal value figures for H1 2020, COVID-19 lockdowns have taken a heavy toll on France’s M&A market.

Total deal value for the first six months of the year was down only 2% year on year to US$32.3 billion, but overall value figures were skewed by a handful of megadeals secured before the full impact of lockdowns hit. The pending US$10.1 billion merger between French payment processing giants Ingenico and Worldline and the US$5.5 billion funding round in veterinary group Ceva Santé Animale—both announced in early February—were among the jumbo deals to cross the line in Q1 and lift value numbers.

Deal volume data, however, reveals a clearer picture of COVID-19’s impact on activity levels in France. There were only 280 deals in H1 2020, a 43% drop on figures for the same period a year ago. Q2 numbers have been even more grim, with only 87 transactions worth US$5 billion, reflecting a 58% drop in volume and an 74% drop in value versus Q2 2019.

Challenging fundamentals

The steep decline in deal activity reflected a challenging wider macro-economic backdrop. Before the spread of COVID-19 accelerated, France was already navigating sluggish economic growth. GDP growth fell from 1.7% in 2018 to 1.3% in 2019 as the emergence of the populist gilet jaunes movement and protests against pension reform weighed on France’s economy. As a result of the pandemic, GDP is now expected to contract by over 8% in 2020, while the unemployment rate hit a record 23% in April 2020.

Stock markets, meanwhile, have been choppy. The CAC All-Share Index was down by as much as 25% before the end of Q1, and despite a market rebound, French equities are still close to 10% below the levels seen a year ago.

With GDP seemingly in freefall and stock markets capricious, it has been very difficult for dealmakers to take a view on company value and transact with confidence. Lockdown and social distancing have also made it impossible for counterparties and advisers to meet in person, adding a further layer of complexity and difficulty to setting deal processes in motion.

Light at the end of the tunnel

There are signs of recovery as the transmission of COVID-19 is brought under control and the French economy gradually reopens.

France’s government took strong steps to support the economy through the worst of the lockdown by freezing taxes and arranging the provision of emergency loans through state-backed bank BPI. The banking industry, meanwhile, granted a six-month suspension on all credit facilities, providing businesses with much-needed breathing room. These protections should help the economy to rebound, and the European Commission is forecasting GDP growth of 7% in France in 2021.

As sentiment has improved, deal activity has seen some early green shoots. In May, for example, there were 35 deals worth US$2.7 billion, which although down on May numbers for 2019 nevertheless represented a notable rise on the 22 deals worth US$903 million recorded the previous month. June’s figures, however, fell slightly to 30 transactions worth US$1.3 billion.

Overseas appetite

France’s dealmakers will also take confidence in the ongoing long-term attractiveness of French businesses to overseas buyers. Inbound cross-border deal volumes did fall 37% in H1 2020, but inbound deal value was actually 2% up year on year to US$18.3 billion, with four of the five largest deals secured in France this year involving investors from abroad.

The US$5.5 billion Ceva Santé Animale funding round, for example, was led by Japanese conglomerate Mitsui & Co and Singaporean sovereign wealth fund Temasek. DRT’s buyer Firmenich is based in Switzerland, while vinyl flooring maker Gerflor was sold to Belgian private equity firm Cobepa.

Domestic deal value has seen steeper falls. For H1 2020, year-on-year deal value is 7% down to US$14.1 billion, although the US$10.1 billion Ingenico/Worldline transactions shows that there are still sizeable domestic deals to be made.

After a very difficult Q2 period—which saw domestic deal value collapse by 90% to US$1.1 billion compared to the year before and volume dropped 61% to 49 transactions—dealmakers will hope that the reopening of France’s economy after lockdown supports a revival in domestic activity levels.

Private equity ready to pounce

With luck, private equity firms will be one of the main participants in a recovery in domestic and cross-border deals in France.

Private equity deal volume and value have fallen in H1 2020, dropping by 40% and 24% respectively to 116 deals worth US$17 billion. As was the case across the wider market, declines in activity were especially pronounced in Q2. There were only 38 private equity-related deals worth US$3.3 billion from April to June, a 55% drop in volume and 72% fall in value year on year.

But, although private equity firms stepped away from deals through the most uncertain period of the coronavirus crisis, large amounts of dry powder and lower valuations are likely to draw firms back into the market.

According to PitchBook, dry powder available for investment in France and Benelux deals is sitting at around €39 billion, while the Argos Index, which tracks the multiples paid for privately owned mid-market companies, recorded a drop in average pricing to 9.3x EBITDA in Q1 2020. Average pricing is expected to be even lower for Q2.

These dynamics will provide fertile ground for private equity firms when they return to market, and there have already been indications that buyout dealmakers see value and are ready to transact. Pan-European private equity firm Bridgepoint, for example, recorded the largest Q2 deal in France with the US$1.4 billion acquisition of mortgage insurance broker Financiere CEP at the end of May.

Tech and healthcare dominate

With respect to the most active sectors, activity in France has mirrored global trends, with technology and healthcare businesses attracting the greatest interest.

The TMT sector delivered the largest number of deals with 66 transactions, accounting for 23% of total French volume in H1. Business services was the largest sector by value in H1, totaling US$11.2 billion, although the US$10.1 billion Ingenico/Wordline merger (which did have a strong tech angle) accounted for the lion’s share of this figure.

The Ceva Santé Animale deal boosted overall pharma, medical and biotech deal value, but other notable deals in the sector, including specialist healthcare investor ArchiMed’s sale of a stake in Polyplus, a gene and cell therapy business, to global PE firm Warburg Pincus in April, contributed too.

The industrials and chemicals sector also ranked highly. Deal value for the sector in H1 2020 was down only 14% when compared to the previous year, with the Firmenich/DRT deal helping to boost overall deal value in the space to US$4.1 billion.


After an incredibly tough first half for M&A in France, there are some signs that H2 could see some recovery in activity. The slight uptick in deal volume and value starting in May is one positive sign.

Challenges remain. Stock markets are still unpredictable, the risk of post-lockdown COVID-19 flare ups is all too real and no one is sure how long it will take for a full recovery to take hold.

There are nevertheless reasons for optimism. Deal processes that were put on ice could come back online, there is plenty of pent-up private equity demand and GDP growth prospects are brighter than they were just a few months ago.

Dealmakers in France have grounds for faith that the worst is behind them.

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