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As management terms converge, deal teams must still navigate cross-border differences in ratchets, put and call options, and management warranties.

By Alexander Benedetti, Tom Evans, David Walker, Neil Campbell, Catherine Campbell, and Eric Loubet

French and UK private equity firms are increasingly looking across the Channel for attractive buyout opportunities. Cross-border transactions involving French and UK sponsors have grown steadily since the global financial crisis, with an uptick in activity in recent years. According to PitchBook, French sponsors bought 33 UK-headquartered companies last year, the highest volume at any point in the past decade. Meanwhile, UK sponsors acquired 56 French-headquartered companies in 2018, up from 34 companies 10 years ago. The long history between the two nations continues to facilitate a strong level of deal flow.

Given the prevalence of pan-European management advisors and the increased number of cross-border deals, cross-pollination of deal terms is occurring. While we expect management equity terms in France and the UK to continue to converge, specific conditions under local tax regimes mean that there are still key areas of distinction. In our view, sponsors considering a buyout across the Channel must carefully navigate differences in the treatment of management equity terms in each jurisdiction. In a sellers’ market, appealing to management can help to win a deal. However, sponsors should proceed cautiously and avoid a one-size-fits-all approach, taking note of the following key developments.

By Matthias Rubner, Denis Criton, Olivia Rauch-Ravise and Bénédicte Bremond

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President Macron recently unveiled employment and tax reforms to increase France’s appeal for deal makers. While France ranks highly as an investment destination for private equity firms, complex and inflexible French employment laws have been perceived as a hindrance — perpetuating the belief that France can be an unfriendly jurisdiction for businesses and investors. In our view, these reforms — which focus on employee termination, collective bargaining, and employee consultative bodies — will make doing business in France easier and, coupled with proposed tax reforms, should facilitate an even stronger French dealmaking environment.

France ranks just 31st in the World Bank’s 2017 Ease of Doing Business index — the Macron reforms aim to improve this.

Collective Bargaining and Employee Termination – Developments and Implications for Private Equity

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Rules on collective bargaining agreements, a key feature of the French labour market, are changing. Previously, French companies could not change employment terms with workers if such changes were less favourable to employees than the rules set by industry-level agreements. Under the reforms, employers can now agree to company-level deals with unions that will supersede industry-level rules. This allows PE owners more flexibility to tailor agreements that better align with their actual business needs.

By Paul Davies and Michael Green

In August 2015, the French government amended the French Energy Transition Law to include provisions rendering “planned obsolescence” a misdemeanour. In the latest wording of the provisions, article L.441-2 of the Consumer Protection Code (Code de la consommation) defines planned obsolescence as “… resorting to techniques whereby the entity responsible for the placement of a product on the market deliberately intends to shorten [that product’s] life span in order to increase its rate of replacement”. Interestingly, this is the French government’s second attempt to define planned obsolescence since introducing the provision two years ago.

Violation of the prohibition on planned obsolescence carries a potential two-year prison sentence and a criminal fine of up to €300,000. As an added deterrent, the law further provides that the courts may increase the fine to up to 5% of the annual turnover of the entity concerned (based on the average of the entity’s turnover in the three years prior to the date of the offence). The courts will therefore have the option of increasing a fine, provided the fine is proportionate to the infringing party’s gain (see Consumer Protection Code, art. L.454-6).

By  JP Sweny, Matthew Brown and Rachel Croft

The Transfer from Coface to Bpifrance

After seven decades as France’s export credit agency (ECA), on 31 December 2016, Compagnie Française d’Assurance pour le Commerce Extérieur (Coface) transferred its State export credit guarantee activities to Bpifrance Assurance Export S.A.S. (Bpifrance A.E.).

Bpifrance A.E., a subsidiary of the French public investment bank Bpifrance S.A., is now responsible for managing France’s export credit guarantees. The French State will control Bpifrance A.E.’s management, with France’s Minister of Economy appointing key positions. All existing insurance policies and export credit guarantees issued by Coface have been transferred directly to the French State to be managed by Bpifrance A.E. The amending legislation effecting the transfer (Loi n° 2015-1786 du 29 Décembre 2015 de Finances Rectificative pour 2015) stipulates that the transfer does not impact rights and obligations under existing Coface policies or guarantees, or give rise to any termination or compensation rights under any such document or any right to invoke a default or early repayment clause under any facility benefitting from any such policy or guarantee.

By Benedicte Bremond and Gaetan GianassoFrench Civil Code image

Since the era of Napoleon Bonaparte, French contract law has largely been governed by the same Civil Code. This year has seen a quiet revolution in the French legal system, bringing about modernisations that will improve the investment environment for buyout firms, particularly as relates to management equity. In our view, these changes will help drive further growth in private equity investment in France, building on what has already been a strong year for deal activity.

The French government is addressing perceptions that France is not business friendly, earlier this year approving sweeping reforms to the Civil Code to make the country’s legal system more attractive. The changes came into effect last month, providing private equity firms with a simpler legal framework for deals, enhancing France’s appeal as a place for buyouts.

By Paul Davies and Michael Green

France adopted an ambitious energy transition package in August 2015 that sets out various targets designed to achieve the gradual de-carbonisation and increased sustainability of its economy.

The package includes consumption reduction targets, energy production cuts and provisions for a long-term programming scheme for public authorities to manage the country’s energy mix.

The Objective

Consistent with the EU’s energy strategy, France’s objective is to:

  • reduce its energy consumption by 50 percent by 2050 (with reference to 2012 energy consumption levels)
  • achieve an intermediate target of an overall 20 percent reduction by 2030
  • reduce fossil fuels consumption by 30 percent by 2030

In parallel, and perhaps more controversially, France aims to significantly reduce its production of nuclear electricity. France currently sources 75 percent of its electricity from nuclear energy – the highest worldwide – and is targeting a one third reduction of its nuclear energy sourcing by 2025.