french m&a and restructuring forum

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Forum 2009: French M&A and Restructuring Forum

Post-event briefing

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2 FRench M&A FoRuMJune 2009

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3FRench M&A FoRuMJune 2009

conTenTS

05 chair’s welcome address

06 Where next for the French economy?

09 new ethics for tomorrow’s capitalism – the future of shareholder value

11 Is more regulation the solution?

14 corporate finance in the post-crisis economy

14 how to get a deal done in France

17 The importance of technology in an M&A transaction

18 Is restructuring the way out?

20 historical data

22 Where the debt breaks


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chAIR’S WelcoMe AddReSS

PAtrick VAlroff, chief executiVe officer, cAlyon

PAtrick VAlroff, chief executiVe officer, cAlyon

the french M&A and restructuring forum began with a welcome speech by Patrick Valroff, chief executive officer of corporate and investment banking firm calyon.Mr Valroff started the forum by quoting a famous line from Giuseppe Di lampedusa’s bestseller, The Leopard: “if we want things to stay as they are, things will have to change.” Valroff likens this to the predicament faced by modern-day regulator’s who, one year on from the bankruptcy of uS investment bank lehman Brothers, are calling for a new balance to be struck between shareholders and stakeholders, companies and banks and employees and the market in order to promote a new form of wealth distribution.

According to Valroff, there is a need for reform within the financial Services sector but he warns that, in the context of the economic crisis, such an approach heightens the risk of reducing competition and impairing free markets. the only way to avoid this is for regulatory bodies the world over to take concerted and united action so as to avoid regional disparities between different jurisdictions – especially in the case of north American and european markets.

furthermore, Valroff explained that there is a robust correlation between global stock

markets and M&A activity. it was argued that the principal impediment to deal-making activity is the mismatch between bidder and seller expectations and not, as many commentators have been speculating, a lack of deal financing options being available.

Valroff also said that the current crisis will invariably cause a reshuffling of the cards. Players who were able to maintain a strong balance sheet throughout the downturn will be in a good position to snap up weaker players in their respective industries. in conclusion, Valroff urged decision makers to worry about the real economy rather than ‘hydroponic finance’. the governance of regulatory bodies around the globe remains a key issue that needs to be addressed in the future with too much regulation today likely to have a negative impact in the future.


Philippe Mills began his keynote speech by looking at the international response to the banking and financial crisis over the past two years. According to Mills, the response was both quick and coordinated with both the Federal Reserve and the european central Bank cutting interest rates swiftly and decisively. Furthermore, in october 2008, following the collapse of lehman Brothers, european leaders met in Paris to hold an emergency finance summit and in december, they agreed a european economic Recovery Plan, equivalent to around 1.5% of the annual GdP of the european union.

At the national level, Mills recalled that the french plan was designed to be temporary, targeted and delivered on time as a means of restoring confidence and increasing liquidity within the domestic economy.

Mills took an optimistic view of the final outcome of these measures and suggested that there is a considerable ‘potential upside’ in terms of the wider economic recovery. he explained that economists tend to underestimate the extent of economic recoveries after recessions and generally adopt a conservative stance in terms of growth predictions – as was the case in 1993.

however, Mills also warned that there are a number of potentially mitigating factors which currently exist and these could serve to hinder the economic revival. Such factors include the price of commodities, macroeconomic imbalances caused by the rapid expansion of emerging markets and the exchange rate environment.

Paradoxically, the global economic downturn also served to highlight some encouraging characteristics of the french economy, namely its diversity and lack of exposure to the financial Services and real estate industries, as well as a relatively low level of indebtedness. this perception has been supported by the rating agencies as they have remained bullish about the french economy throughout the crisis, having placed france in the ‘very fundable’ category – a rating which is unlikely to change going forward.

PhiliPPe MillS, chief executiVe officer, AGence frAnce treSor

WheRe nexT FoR The FRench econoMy?


the panel began with both nicole notat and Augustin de romanet emphasising that companies need to consider all their stakeholders when examining the value creation chain. De romanet went on to suggest that a company’s employees should also be considered within such a chain – especially given the increasing tendency for companies to incentivise their employees now with shareholding schemes.

colette neuville added that the short term emphasis on shareholder value has been the result of an incorrect definition of what real shareholder value actually is. She argued that only by integrating the company’s external costs into shareholder value would the true definition of the concept actually be achieved – a process that would only take place over the long-term.

De romanet went on to explain that he believed there could be three ways to maximise long-term value: firstly, by having long-term shareholders; secondly, by improving the financing of small and medium-sized enterprises (SMes) in order to support domestic family businesses; and thirdly, by taking corporate governance away from quarterly short-term reporting. notat particularly agreed with the second point and added that SMes should be given the means to reach the next stage of their development.

neuville pointed out that financial market volatility has encouraged investors to increasingly adopt short-term views. As a result of this, governance should be put in place so as to allow for the more efficient management of savings and investments, “one cannot get people on board if they don’t share the company’s profits and long term vision.” De romanet added that “this puts a lot of old business models into question.” he argued that capitalism has been transformed in recent times, away from the traditional family model seen in smaller businesses.

neuville agreed with de romanet’s viewpoint, suggesting that the true owners of capital now are not shareholders but mutual funds. in addition, the key question for a new form of capitalism was how to reconcile risk-taking with profit-making. She acknowledged that it will be very difficult to change the managers of mutual funds into shareholders as they are ultimately not interested in being associated with a company over the long-term, instead seeking short-term profits.

equally, the company’s directors are rarely chosen by the shareholders. indeed, they are typically chosen by the management and presented to shareholders at the AGM. neuville believes that such a procedure has been, at best, inappropriate given that shareholders have now lost control over the decision-making process with regards to capital raising and reduction, or debt issuance.

neuville and notat both offered some interesting thoughts for the future. firstly, directors should represent the shareholders and not the management. Secondly, it is crucial to set management’s bonuses on a long-term basis as a way to reintegrate the risk attached to running a business. thirdly, it was argued that the board of a business should look to play some role in managing risk within the firm.

AuGuStin De roMAnet, chief executiVe officer, cAiSSe DeS DePotS colette neuVille, founDinG Director/PreSiDent, ADAM nicole notAt, founDinG PreSiDent, ViGeoAnton BrenDer, Director of econoMic StuDieS, DexiA ASSet MAnAGeMent (MoDerAtor)

neW eThIcS FoR ToMoRRoW’S cAPITAlISM – The FuTuRe oF ShAReholdeR vAlue


“ BAnkS neeD ViSiBility in the current cliMAte AnD A coVenAnt reSet neGotiAtion iS not SiMPle AS it rAiSeS queStionS of BuSineSS PlAnS where SoMetiMeS there iS no ViSiBility ABout where the BuSineSS iS GoinG.”

fABrice keller, MAnAGinG Director, Duff & PhelPS


Anne Perot started off the discussion by tackling the problems posed by state aid. She claimed that although the aid is meant to improve the way the market operates, it can actually distort it. the first issue with aid is that, often being ill-informed, the state is not always best placed to decide how or where to improve the market. the second risk is that it can prevent poor performing companies exiting the market and thus constitutes an obstruction to the market’s automatic regulation.

the european commission therefore needs to act as quickly as possible to help rescue troubled companies while ensuring that state aid effectively meets companies’ needs on a short-term basis. companies can sometimes face short-term difficulties but state-sponsored consolidation in certain sectors will have long term consequences.

Jean-Paul Betbèze pointed out that the financial crisis impacted on the whole global financial system and caused such panic that it forced governments and regulators to act quickly. this time pressure inevitably led to inequalities and certain perversities and those companies which benefited from such support now have an advantage over those that did not. As a result, the market has become slightly distorted in certain areas and this will have to be rectified as soon as possible.

Pierre fleuriot went on to compare state intervention in the uS and european financial Services sectors. he highlighted that the uS Government intervened and oversaw the notional buyouts of Bear Stearns and Merrill lynch before allowing lehman Brothers to enter bankruptcy. in europe, the solution revolved around state support and private remittances back to various governments are yet to be fully established. fleuriot warned that regulatory bodies could encounter difficulty in managing the exits of state investment in various banks.

fleuriot moved on to say that as a result of several ‘overnight mergers’ in September and october 2008, consolidation in the financial Services space could accelerate once market conditions improve. Behind such a consolidation is not the idea that the bigger the banks are, the less likely they will be to fail, but more to do with the fact that banks will now be more connected.

the process of consolidation among stock exchanges has also seen some important changes, Jean-françois théodore noted. Between 2000 and 2008, there was strong competition between european stock exchanges and the search for economies of scale drove M&A activity. however, since 2008 there has been a drop off in activity involving european

bourses largely due to valuation issues. in europe, the implementation of Markets in financial instruments Directive (MifiD) in november 2007 has enabled multilateral negotiation platforms to gain market share free of the rules imposed upon regulated exchanges. Such conditions will be at the centre of revisions to MifiD, scheduled to start in november 2009.

According to Betbèze, the September G20 summit in Pittsburgh acknowledged the need for accounting norms and harmonisation of the regulation of financial markets across the globe. fleuriot added that a new strand of global governance is emerging behind the evolution of these norms, highlighted by the transformation of the G8 into the G20.

while europe is addressing the regulation of financial markets by looking to give more power to authorities, théodore warned that europe is less advanced than the uS or china in this respect. indeed, the united kingdom and europe disagree on some crucial issues, highlighting that, to a certain extent, continental regulation remains a very much localised affair.

JeAn-PAul BetBeze, chief econoMiSt AnD Director of econoMic StuDieS, creDit AGricole Pierre fleuriot, chief executiVe officer, Pcf conSeilJeAn-frAncoiS theoDore, DePuty chief executiVe officer & Director, nySe euronextAnne Perrot, Vice PreSiDent, l’Autorite De lA concurrence ArnAuD De BreSSon, Director GenerAl, PAriS euroPlAce (MoDerAtor)

IS MoRe ReGulATIon The SoluTIon?


thierry francq, AMf General Secretary, started the afternoon session by looking at the current state of corporate finance in france. francq noted that that, notwithstanding the financial Services sector, the levels of share placements and rights issues in france were generally down. while there have also been few initial public offerings (iPos), the market has lately shown signs of recovery thanks in part to the changing regulatory environment.

Going forward, such changes will undoubtedly have an impact on corporate activity. firstly, the AMf has reviewed the definition of threshold levels in light of the use of derivatives to take control of listed companies. Secondly, declarations of intentions have also been made more specific, including financing methods and the future strategy towards the listed company. the period for declaration has also been shortened from ten to five days and this should help transparency by better identifying the shareholder structure of listed companies and alerting the market of stake building.

thirdly, the AMf has also planned to lower mandatory offer thresholds from 33% to 30% so as to prevent stealth takeovers in a market where valuations remain depressed. francq commented that although a date is yet to be set, the change should be made some time in 2010.

looking at corporate restructurings, france has seen the continued strengthening of the ‘sauvegarde’ procedure. however, francq stressed that while it is possible to delay, for a limited period of time, the publication of information to preserve the company’s interests, such an approach has to be strictly governed. Meanwhile, the current environment has seen an increase in debt-to-equity conversions although these require the authorisation of the AMf, francq added.

More generally, francq summarised that the financial crisis has seen the AMf review its strategy towards restoring confidence by protecting savings and taking a more proactive role in the domestic economy. on a european level, the most significant change for the regulation of european financial markets revolves around the institutional empowerment of the committee of european Securities regulators (ceSr). in the long-term, this will aim to create a set of rules to implement european directives.

thierry frAncq, GenerAl SecretAry, AMf (Autorite DeS MArcheS finAncierS)

coRPoRATe FInAnce In The PoST-cRISIS econoMy


“ frAnce tenDS to Be one SteP AheAD of other euroPeAn countrieS with reGArDS to the M&A MArket, on Both the uP-SiDe AnD Down-SiDe.”

Axel kirStetter, ProDuct MArketinG Director, intrAlinkS


The discussion began with moderator Beranger Guille quoting mergermarket M&A data which shows that the total value of deals in France for the first three months of 2009 is down 77% compared to the same period last year. In volume, the numbers of deals also saw a sharp decrease, from 404 last year to 222 this year.

Sophie Javary, Managing Partner of rothschild in Paris, noted that while deal flow has been considerably reduced over the past 12 months, the first signs of recovery have started to emerge. the recovery is primarily being driven by strategic players who are now targeting companies they had been eyeing for some time. examples include kraft foods’ attempt to take over cadbury, Suntory’s bid on orangina and Abbott’s acquisition of Solvay’s pharmaceutical business.

Private equity players have so far been largely absent from the top end of the market and this is likely to remain the case due to the difficult debt financing environment. however, Serge weinberg, chairman of weinberg capital Partners, concurred that the market was beginning to come out of a period of great uncertainty. the rally in global equity markets and better availability of debt for industry players will likely continue to fuel M&A while weak growth in exposed sectors will also drive consolidation with firms needing to realign and reduce their costs.

Bernard Gault, Partner of Perella weinberg Partners, argued that debt is still scarce and confidence remains fragile, making the M&A outlook uncertain in the short term. According to Jacques Buhart, many deals that have occurred recently have been paid in shares as opposed to cash

or debt. to a certain extent, this was the case in the joint venture between orange and t-Mobile and the acquisition of razorfish by Publicis. nevertheless, some targets such as cadbury are reluctant to enter into agreements, likely due to a lack of visibility in the equity markets.

weinberg noted that while strategic players could get financing for large deals, this was not the case for private equity players. indeed, there are few examples of large transactions brokered by financial investors over the past year, except for the acquisition of minority stakes in large listed companies.

on the other hand, financing remains available to private equity players that are making acquisitions in the mid-market. Although difficult, it is definitely possible to get €100m financing on a €300m deal. weinberg also argued that lowered multiples and the scarcity of debt can have positive consequences on sellers’ expectations and these will have to be adjusted downwards over time to take into account the new economic reality.

however, Javary stated that the lack of visibility over future economic conditions and the inherent difficulty valuing a business continue to constitute the main obstacle to a recovery in deal activity. in this context, deal structures will become more innovative with vendor financing becoming

JAcqueS BuhArt, PArtner, herBert SMithfreDeric DuBuiSSon, MAnAGinG Director, Duff & PhelPSBernArD GAult, PArtner, PerellA weinBerG PArtnerSSoPhie JAVAry, GenerAl PArtner, rothSchilDGilleS ourVoie, MAnAGinG PArtner, PMi fActory SerGe weinBerG, PArtner & chAirMAn, weinBerG cAPitAl PArtnerSBerAnGer Guille, DePuty eDitor, MerGerMArket (MoDerAtor)

hoW To GeT A deAl done In FRAnce


more common. there is also the capacity for sellers to remain shareholders and value creation participants post-deal. 'in these cases, the seller can agree to an initial lower price while also benefiting from any potential future upside.

frédéric Dubuisson, Managing Director of Duff & Phelps, also concurred that buyers could get away with lower transaction prices if they can guarantee a future upside for the seller when the market recovers. these models can be applied to carve-outs or the sale of distressed assets where healthy strategic players broker deals that offer good synergies without raising a lot of debt.

Gilles ourvoie, Managing Partner of PMi factory, stressed that the overall success of a deal is down to its execution in particular in times of economic crisis. in this regard, it is crucial to think of the postmerger integration (PMi) process as part of the M&A process rather than a mere consequence of it. ourvoie highlighted that SMes tend to lag behind large companies when it comes to integrating strategies – M&A specialists at large have a role in activating PMi expertise early.

the panellists also went on to discuss the impact of government intervention and regulation on M&A activity in france. Javary said that governments

won’t remain shareholders in financial services companies in the long run and this could lead to consolidation. elsewhere, the governments will also help secure transactions and give moral backing and this should be a positive factor for deal activity going forward.

Gault argued that, whilst governments could help push a deal through in some instances, it will now be more difficult than ever before to acquire french companies that are deemed strategic. weinberg moved on to warn that state intervention has not always been a good thing for the competitiveness of the french economy although it is seen as a positive both politically and socially.

in spite of the economic downturn, Buhart said that antitrust rules will not be bent or softened by the european commission (ec). the uk has seen the striking example of the merger between hBoS and lloyds although this deal was ultimately not referred to the ec as more than two thirds of these banks' activities were domestic in nature. the Secretary of State for Business and enterprise also said that the public interest in ensuring the stability of the uk financial system outweighed competition concerns raised by the office of fair trading (oft) and as such, the merger did not need to be referred either to the oft or to the competition commission.

in italy, similar state intervention ensured that the merger between Alitalia and Air one went through. in france the antitrust authority scrutinises deals on the sole criteria of competition although the finance Minister can approve or veto a deal on the grounds of public interest.

looking at future M&A activity, Javary noted that M&A will continue to return to defensive sectors such as Pharmaceuticals and consumer. other panellists had slightly different views with Dubuisson predicting that the technology sector will be active while Buhart named the energy and telecoms spaces as likely to see significant deal making going forward.


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IL_M&Aforum_A4ad_FINAL.indd 1 06/11/2009 14:22


KeynoTe: The IMPoRTAnce oF TechnoloGy In An M&A TRAnSAcTIon

Axel kirstetter, Director of Product Marketing at intralinks, discussed the evolution of the M&A process over the last decade and the role that technology has played in the development.

kirstetter began by highlighting the difficulties involved in the process; managing and collaborating securely with internal and external parties, the need to gather and analyse information in real time and the ability to capture best practices involved throughout the process.

kirstetter suggested that one of the main issues when conducting transactions is viewing them as a single event rather than a structured process. he further commented that when viewed as a single event, technology usage is limited to the use of spreadsheets containing lists of people, activities and cost, together with simple project management tools to manage the timing and execution of projects and intranet sites and email to manage, store and share information. however, when M&A follows a more structured process, other tools can be utilised, such as virtual datarooms and software-based project management tools, to add increased efficiency and security.

kirstetter argued that to ensure internal resources are productive, buyers fulfill commitments and the asset achieves the best value, M&A business process tools should be used across the entire lifecycle of the M&A process.

he stated that this should start in the deal preparation phase where online tools, such as intralinks, can be used for document discovery and approval, utilising workflow and versioning functions to ensure the correct information is approved and stored in a central secure repository.

in the marketing phase, these tools can then be used to send out offering memorandums, teasers and confidentiality agreements, allowing the marketing of a deal to be conducted online from a central location.

Due diligence is the phase in which virtual datarooms have been widely utilised, adding both speed and security to this part of the process, by reducing the need to travel and allowing buyers from across the globe to conduct due diligence simultaneously on a secure platform.

however, kirstetter highlighted that there are also innovations happening in this phase, with the q&A process for example. traditional q&A is a spreadsheet-driven, insecure and labour intensive process. using an online q&A tool can help the sell-side team, the subject matter experts and the bidders streamline this part of the transaction.

kirstetter also asserted that using technology solutions in the closing phase generates further time savings with legal teams being able to collaborate and communicate on the drafting of final documentation.

he stated these online tools are also being used when the deal has been signed, to facilitate the post-merger integration process, where platforms are being used by teams to collaborate and develop integration plans and analysis in a neutral, secure environment.

finally, kirstetter discussed deal trends that intralinks was witnessing in the french market. he commented that france tends to be one step ahead of other european countries in regards to M&A, on both the up-side and down-side. looking at recent announced deals, intralinks has seen that the real estate, consumer and Pharma sectors have been most active in the past few months. in terms of listings, kirstetter remarked that the intralinks platform has not seen a single initial public offering (iPo) in france in 2009.

furthermore, between 2007 and 2008, 36% of all european financing activity on intralinks platforms took place in france, although such activity was down 200% in 2009. Additionally, he stated that france has been responsible for around one third of overall european restructurings seen on intralinks this year, although the average value of these transactions has dropped by around 50%.

Axel kirStetter, ProDuct MArketinG Director, intrAlinkS


fabrice keller started the discussion by distinguishing between operational and financial restructuring. financial restructuring typically involves debt re-negotiation, covenant resets or repayment waivers and this is often a complicated process even if there is no need for new money.

keller added that banks need visibility in the current climate and a covenant reset negotiation is not simple as it raises questions of business plans where sometimes there is no visibility about where the business is going. People are asking where the 2009 debt wall is and the answer is probably in 2010 as both banks and businesses try to hold on as long as possible through effective cash management and good use of working capital.

Gonzague de Blignières estimated that there were around 2,200 french companies that are significantly levered with 60% to 70% in breach of covenants. Around 20% of these 2,200 companies have a value of more than €50m, meaning that funds will think twice before investing new money in them. one of the issues is that private equity firms need to raise money every four to five years and the only way to do this is to return money to limited partners. this leads some funds to invest new money in portfolio companies for which they might previously have overpaid. when a portfolio company is facing difficulties, it is important to start negotiations as early as possible with debt holders. however, this process is made more complicated by the fact that

to renegotiate the debt you need to have a unanimous agreement from the banks.

Bruno Basuyaux stressed that from a legal point of view, the tipping point was the suspension of payments. An important development over the past few years was the passing of the eu insolvency regulation in 2000 which allows distressed french companies to open insolvency proceedings in other european member states so long as their ‘centre of main interest’ is the said country.

Judicial Administrator laurent le Guernève strongly believed that preventing proceedings have been empowered by the recent reforms on insolvency. however, he noted that while ‘sauvegarde’ has been used successfully with regards to financial restructurings, it has not prevented companies from losing the trust of its partners. thus, one must give emphasis to preventing proceedings.

from a communication standpoint, laurent Perpère, Managing Partner at Brunswick, argued that a company has to acknowledge that information will be made public sooner or later. this is due to a number of reasons including the large number of participants and debt holders, the potential social and political consequences as well as different strategies pursued by the participants. the management of a distressed company tends to defend the interests of the company and not the interests of the private equity owner. opinions vary and an important factor is that communication now happens

in real time and Debtwire plays a significant role in this respect. consequently, one has to be constantly prepared to react to new events and handle divergent views.

Michel rouger also conceded that views are not always aligned in a restructuring. furthermore, tomorrow’s restructurings will be very different from the deals we see today as accounting and financing tools are in constant evolution. in summary, the know-how of a company and the quality of its management should not be ignored at the expense of the accounting books when analysing a company that is going through a restructuring.

Jacques Gounon, chief executive officer of eurotunnel, recalled the company’s own restructuring process that was undertaken to ease a considerable debt burden. the first measure taken by Gounon was to reduce the number of employees by around 30% while also communicating that, despite the debt burden, the company’s fundamentals were solid. Another challenge was to present a balanced solution that would enable every party to save face, including reluctant uS debt holders. the ‘sauvegarde’ process helped eurotunnel to find a way out as it forced different parties to address the following question: do you want to rescue the company? Gounon concluded by saying that a restructuring process should never be delayed (as was the case with eurotunnel) and should firstly aim to simplify the debt structure of the company.

Bruno BASuyAux, PArtner, herBert SMithGonzAGue De BliGniereS, co-heAD of PriVAte equity & MAnAGinG Director, BArclAyS PriVAte equityJAcqueS Guonon, chief executiVe officer, eurotunnel fABrice keller, MAnAGinG Director, Duff & PhelPSlAurent le GuerneVe, JuDiciAl ADMiniStrAtorlAurent PerPere, GrouP MAnAGinG PArtner, BrunSwickMichel rouGer, honorAry PreSiDent, triBunAl De coMMerce De PAriSyVeS De kerDel, le fiGAro (MoDerAtor)

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hISToRIcAl dATATOP 10 FRENCH M&A TRANSACTIONS, Q1-Q3 2009

Announced date

Status target company target dominant sector

target dominant country

Bidder company Bidder dominant country

Seller company Seller dominant country

Deal value (€m)

Aug-09 P Alcan Packaging (majority of businesses)

Industrials & Chemicals

France Amcor Ltd Australia Rio Tinto plc United Kingdom 1,433

Mar-09 C Motier SAS (37.1% stake) Consumer France Moulin family (private investors)

France BNP Paribas SA France 1,100

Jun-09 C CACEIS (Crédit Agricole Caisse d'Epargne Investor Services) (35% stake)

Financial Services France Crédit Agricole SA France Natixis SA France 595

Jan-09 C Crédit Foncier de France (23.4% stake)

Financial Services France Caisse Nationale des Caisses d'Epargne et de Prévoyance

France Nexity Initiale SAS France 540

Aug-09 C Kallista Energies Renouvelables SAS; Kallista France SAS

Energy, Mining & Utilities

France Holding Energies Renouvelables SAS

France Babcock & Brown International Pty Ltd

Australia 220

Aug-09 C Château Cheval Blanc (50% stake); La Tour du Pin (50% stake)

Consumer France LVMH Moët Hennessy Louis Vuitton SA

France Groupe Arnault SAS France 200

Jun-09 P NT1; TMC (40.00% stake) TMT France Télévision Française 1 SA

France AB Groupe SA France 192

Mar-09 C Groupe Lucien Barrière SAS (15% stake)

Leisure France Accor SA France Colony Capital LLC USA 153

Jul-09 C FPEE Industries SA Construction France Barclays Private Equity Ltd; Pragma Capital

United Kingdom AGF Private Equity; AtriA Capital Partenaires; Euromezzanine Conseil SAS; UI Gestion SA

France 150

Jan-09 C Société Foncière Lyonnaise SA (8.8% stake)

Real Estate France CALYON France Inmobiliaria Colonial SA

Spain 143

c = completed; P = Pending.

TOP 10 FRENCH PRIVATE EQUITY TRANSACTIONS, Q1-Q3 2009

Announced date

Status target company target dominant sector

target dominant country

Bidder company Bidder dominant country

Seller company Deal type Deal value (€m)

Aug-09 C Kallista Energies Renouvelables SAS; Kallista France SAS


France Holding Energies Renouvelables SAS

France Babcock & Brown International Pty Ltd

IBO 220

Aug-09 C Château Cheval Blanc (50% stake); La Tour du Pin (50% stake)

Consumer France LVMH Moët Hennessy Louis Vuitton SA

France Groupe Arnault SAS Exit 200

Mar-09 C Groupe Lucien Barrière SAS (15% stake)

Leisure France Accor SA France Colony Capital LLC Exit 153

Jul-09 C FPEE Industries SA Construction France Barclays Private Equity Ltd; Pragma Capital

United Kingdom AGF Private Equity; AtriA Capital Partenaires; Euromezzanine Conseil SAS; UI Gestion SA

SBO 150

Mar-09 C Autodistribution Industrials & Chemicals

France TowerBrook Capital Partners LP

USA Investcorp SA SBO 110

Sep-09 C Geoxia Maisons Individuelles SAS

Construction France LBO France SAS France Initiative & Finance Investissement SA; NI Partners SA

SBO 100

Jun-09 C Eminence SA Consumer France Orium; Pechel Industries III

France MBO 100

Feb-09 C CTR Leyton Business Services France Gimv NV; Pragma Capital France Capzanine; iXEN Partners SBO 100

Feb-09 C Compin Industrials & Chemicals

France Barclays Private Equity Ltd

United Kingdom LBO France SAS SBO 95

Jul-09 C Michel Thierry SA Industrials & Chemicals

France Fonds de Modernisation des equipementiers Automobiles; HTP Investments BV

France Deutsche Bank AG; MatlinPatterson Global Advisers LLC

Exit 85

c = completed; P = Pending.


0

20

40

60

80

100

120

140

160

180

Q309

Q209

Q109

Q408

Q308

Q208

Q108

Q407

Q307

Q207

Q107

Q406

Q306

Q206

Q106

Q405

Q305

Q205

Q105

Q404

Q304

Q204

Q104

Num

ber o

f dea

ls

Valu

e of

dea

ls (€

m)

Number of deals

Value of deals (€m)

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

29%

11% 15%

15%

11%

3%

6%

6%

4%

North America

UK & Ireland

Germanic

Iberia

Benelux

Italy

APAC

CEE

Other

22%

9%

20%

18%

6%

4%

6%

3%3% 3%

6%


Consumer

TMT

Business Services

Financial Services

Pharma, Medical & Biotech

Construction

Leisure


Real Estate

Transportation

0

100

200

300

400

500

600

700

Num

ber o

f dea

ls

2004

228

46

91

281727

259

67

107

482720

284

55

136

54

2234

301

72

143

462531

287

52

96

3016

20

146

3340

11

4

2005 2006 2007 2008 Q1-Q3 2009

Not disclosed <€15m

>€500m

€15m-€100m €101m-€250m

€251m-€500m

59%

9%

16%

6%

1%

1% 1%1% 4%

2%APAC

UK & Ireland

North America

Germanic

Iberia

Africa

Nordic

Benelux

Italy

Other

27%

9%

24%

16%

6%

4%

4%

3%

2% 1%

4%


Consumer

Financial Services

TMT

Real Estate

Construction

Business Services

Leisure


Pharma, Medical & Biotech

Transportation

oVerAll M&A trenDS in frAnce

GeoGrAPhic SPlit of inBounD croSS-BorDer M&A ActiVity in frAnce q1-q3 2009: VoluMe

Sector SPlit of M&A ActiVity in frAnce q1-q3 2009: VoluMe

DeAl Size SPlit of M&A ActiVity in frAnce: VoluMe

GeoGrAPhic SPlit of inBounD croSS-BorDer M&A ActiVity in frAnce q1-q3 2009: VoluMe

Sector SPlit of M&A ActiVity in frAnce q1-q3 2009: VAlue


Income approach the income approach faces limitations in the current economic environment, including:

Challenges in estimating the Cost of Capital

• which risk-free rate should be used?

• what is the proper equity risk premium?

• how did the collapse in the financial industry affect my firm’s beta?

Assessing the reasonableness of financial projections

• Are the projections aggressive or conservative given the current environment?

• how do we treat the net operating losses, a tax asset, of a company?

• what is the amount of 'new money' necessary for a company to achieve its business plan?

Market multiple approachthe market multiple approach has a multitude of questions as well:

• Should a valuation use current, historical or projected multiples?

• is the current eBitDA appropriate for applying to the multiple?

• will the historical peak-to-trough cycle of a company match the future peak-to-trough?

Valuation-driving market multiple selections are even more critical if the value falls within the “red zone” in which slight adjustments could dramatically affect a conclusion.

WheRe The deBT BReAKS

roBert A. BArtell, cfA (MAnAGinG Director, lonDon)freDeric DuBuiSSon (MAnAGinG Director, PAriS)

Senior Debt Second Lien Term Loan / Mezzanine Debt Enterprise Value

The “Red Zone”

Positive Equity Value

Low Multiple High Multiple


to assess the financial viability of a company, long term projected performance needs to be reviewed in conjunction with the current situation. companies that look solvent today may not be solvent tomorrow. A simple example comparing

two companies with similar free cash flow but different capital structures demonstrate the importance of not only measuring the current health of a company but also estimating its future strength.

in the first scenario, company 1’s enterprise value exceeds the outstanding debt but company 1 may not have the ability to refinance in the current environment.

Solvency TestsBalance Sheet: PassCash Flow: Fail

Solvency TestsBalance Sheet: failcash flow: Pass

Duff & Phelps is well positioned to provide a debtor, creditor or security trustee an independent going concern business enterprise value and expert testimony. we are confident in assessing and defending 'where the debt breaks' in connection with negotiations amongst various stakeholders.

in the second scenario, company 2’s enterprise value is less than the outstanding debt but company 2 should have the ability to service upcoming payments.

Step 1: Balance Sheet Assess where the debt Breaks

Which company is in a better position?

Step 2: Cash Flows Assess company liquidity

Step 3: conclude Which company is in Better Position

Is enterprise value greater than outstanding debt?

can cash flows paydebt obligations?

(€ in 000s) (€ in 000s)

Company 1 Company 2

Enterprise Valu €e 300,000 Enterprise Valu €e 140,000

Debt Securities Debt SecuritiesSenior Debt (125,000) Senior Debt (125,000) Second Lien Term Loan / Mezzanine Debt (100,000) Second Lien Term Loan / Mezzanine Debt (100,000)

Aggregate Equity Value Surplus / (De it) €75,000 Aggregate Equity Value Surplus / (De it) -€85,000

(€ in 000s) (€ in 000s)

Company 1 Company 2

Enterprise Valu €e 300,000 Enterprise Valu €e 140,000

Debt Securities Debt SecuritiesSenior Debt (125,000) Senior Debt (125,000) Second Lien Term Loan / Mezzanine Debt (100,000) Second Lien Term Loan / Mezzanine Debt (100,000)

Aggregate Equity Value Surplus / (De it) €75,000 Aggregate Equity Value Surplus / (De it) -€85,000


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Karina cooperPublisherT: +44 20 7059 6324 E: [email protected]

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