French cross-border M&A activity rises as corporate M&A appetite returns across North America and Europe
Europe has seen over $450bn worth of M&A deals in H1 2014, the highest half year value since before the global economic downturn, with France (domestic, inbound, outbound) accounting for a quarter of this activity. French outbound M&A value has almost doubled in the last twelve months to June 2014 (LTM 2014) compared with the previous twelve months (LTM 2013) and French inbound M&A value has almost quadrupled over the same period. In the current low growth economic environment, corporates are looking to M&A for growth, using cash on their balance sheet and / or accessing the relatively liquid debt markets in the US and Europe. Investor support for large acquisitions and a desire to trump rivals in consolidating markets have driven demand for multi-billion dollar deals.For the LTM 2014 period, the United States (US) was the most common M&A partner to France, followed by the UK and Germany. US targets accounted for 18% of outbound deal count and US acquirers accounted for 27% of inbound deal count. Industrial, information technology (IT), consumer and business services have been the most active M&A sectors, accounting for the majority of French cross-border deal count. Leveraging its global presence and sector expertise, Baird has advised on four cross-border transactions with a French acquirer or target since January 2014.
Selected Outbound M&A Transactions
French strategic acquirers have completed a number of notable transactions in 2014 including:
- Acquisition of Ecova, a North American provider of technology-enabled energy and sustainability management solutions, by GDF SUEZ, a French multinational utility company, for $335m in June (Baird sell-side)
- Acquisition of Magic Holdings, a Hong Kong listed manufacturer of facial masks, by Paris based L’Oréal, the world’s largest cosmetics maker, for $843m in April to expand in the fast growing Chinese beauty market
- Acquisition of Maxxam, a Canadian headquartered provider of analytical services and solutions to the energy, environmental, food and DNA industries, by Bureau Veritas, a French headquartered provider of conformity assessment and certification services, for CAD$650m in January (Baird sell-side)
- Acquisition of Invensys plc, a UK listed provider of process automation solutions, by Schneider Electric for £3.4bn in January. This transaction reflects the industry trend towards the provision of one-stop-shop solutions, in this case across discrete and process automation, to an increasingly global customer base. Revenue synergies were estimated at €400m and cost synergies at €140m, totalling €200m at the EBITDA level
Schneider Electric, headquartered in Paris, is one of the world’s most acquisitive energy management companies having completed over 40 acquisitions since 2010, including Summit Energy Services in the US for $268m and M&C Energy in the UK (both Baird sell-sides). Such acquisitions drive revenue growth by aligning client-focused service platforms in complementary geographies with secular trends such as energy procurement, monitoring and efficiency.
France is Europe’s second largest private equity market after the UK and maintains a well-established debt financing market. French based private equity firms, seeking to deploy dry powder, are also looking abroad for investment opportunities. Transactions in 2014 include the acquisition of VPS, a UK headquartered provider of vacant property security solutions and management services, by PAI Partners in July (Baird sell-side) and the acquisition of Schleich, a German toy (traditional figurines) manufacturer, by Ardian in May.
Selected Inbound M&A Transactions
Foreign strategic acquirers have announced deals in 2014 including several multi-billion dollar transactions:
- Acquisition of Alstom’s Thermal, Renewables and Grid business units by General Electric (GE) for €9.9bn in June. The French government agreed to grant foreign investment authorisation if Alstom retains a 50% interest in the three energy joint ventures along with the French state owning 20% in Alstom. The Alstom business units have a larger presence in China and India, while GE has a greater presence in the US, the Middle East and Africa. GE will gain scale in the supply of gas turbines and has targeted $1.2bn of annual synergies by 2020
- $44bn revenue merger between France based Lafarge and Switzerland based Holcim in April to create the world’s largest cement company. However, both companies would be required to sell assets with revenues of €5bn to gain clearance from the competition commission. The merger would help Lafarge and Holcim cut costs and reduce debt to counter the effects of higher energy prices and weaker demand since the economic downturn
- Investment in Laboratoires Prodene Klint, a French headquartered manufacturer of professional hygiene, wipes and disinfectant products, by GOJO Industries, a US headquartered producer of skin health and hygiene solutions for away-from-home settings, in January (Baird buy-side)
France, as the second largest economy in the Eurozone, has seen significant increases in deal values, proving itself as an attractive inbound M&A alternative to Germany. Real GDP growth is forecast at 0.9% in 2014, up from 0.4% in 2013, providing investors with confidence that the French economy is on a relatively stable growth trajectory.
The Future for French Cross-Border M&A
Companies are increasingly required to supply products and services to their customers on a global basis. Baird expects cross-border M&A activity to flourish as European, American and Asian buyers acquire targets in other jurisdictions. Baird anticipates continued involvement from French acquirers and targets in cross-border transactions as they further embrace globalisation and foreign investment, having increased their share of European M&A activity.
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Baird’s Investment Banking team comprises over 250 professionals across the United States, Europe and Asia. Baird’s global team operates in a fully integrated manner in order to leverage the collective strengths of its M&A advisory, equity financing and debt advisory capabilities through dedicated industry teams. Baird’s bankers focus on industries where the bank has deep sector expertise and valuable insights regarding key corporate entities and financial sponsors around the globe. Since the start of 2010, Baird has advised on over 285 M&A transactions, representing over $70 billion in transaction value. Baird advised on four French cross-border transactions in 2014: