LOCAL VIEW FRANCE

Au Cœur de la France

The French mid-market is deep and idiosyncratic. Staying at the top requires a mix of attributes that can’t be bought – they must be earned.

April 2023

IF YOU WANT to be successful in France’s private equity mid-market, it helps to be dexterous. To be genuinely local and demonstrably international; to have a depth of experience and to see every opportunity with fresh eyes; to be both collaborative and decisive; to be in the centre of Parisian deal-making and know where the value is truly created.

Equistone’s long-established and highly successful French team enjoys all of these traits.

Let’s take ‘local’ first. It’s important in most markets, but in France, more so. Even French businesses with a very international outlook tend to value a shared cultural understanding when it comes to choosing their own investment partners.

France’s entrepreneurs and managers want to deal with people who speak their language – both literally and figuratively – and the positioning of the Equistone offer to management teams has been a key prong of the France team’s strategy.

“Language and cultural fit matter,” says Equistone senior partner, Grégoire Châtillon. “The management teams of French SMEs are very dedicated to their businesses and may prioritise things such as keeping R&D investment and jobs in the country, and sharing equity with employees, in a way that may differ from other countries. Management teams want to make sure that their shareholder is a partner aligned with their values, and it is easier to build that fit with a local manager.”

In addition, when it comes to prosecuting a mid-market investment strategy across France, there is a simple matter of geography.

“The French private equity market is centralised in Paris, but when you are targeting the mid-market, the companies can be anywhere in France. With a Paris base and a French-speaking team, we can get out and meet management teams wherever they may be,” says Maëlle Deruaz, investment manager at Equistone.

Most international investors will be familiar with the grand boulevards and luxury hotels of Paris, but many of the team’s important interactions and observations happen further afield. Whether it’s at a product tasting deep in the Rhône Valley, with recently realised Charles & Alice, or visiting one of Courir’s 283 sneaker retailers in France (or the 320 across Europe), Equistone’s team is to be found where the action is.

Outward-looking

While international resource is common among large buyout investors, Equistone’s international franchise remains a rarity in the mid and lower mid-market.

For instance, under Equistone’s ownership, Averys, became Europe’s second-largest industrial rack manufacturer, before being sold to a large asset manager.

“When it comes to buy-and-build, we have the pan-European infrastructure to take local champions and make them European or global champions,” says Thierry Lardinois, a partner at Equistone. “In most industries in the mid-market space there is fragmentation and an opportunity to consolidate. It is a common theme across most of our investments in most sectors. We have the experience to guide management through that process.”

When it comes to buy-and-build, we have the pan-European infrastructure to take local champions and make them European or global champions.

Experience and market affinity

Longevity in the market is a big advantage when it comes to making judgements on investments in France.
“Some other firms just won’t look at something if it is not ideal from the start,” says Grégoire. “We still like the low risk deal opportunities, but we are equally comfortable taking on opportunities that require a bit more work.”

Take Vertbaudet, a children’s retailer that the Parisian corporate finance community had long since pigeonholed. Or Bruneau, a French office supplier competing against internet giants, which Equistone sold in a highly successful secondary buyout in 2021. The potential of such businesses cannot be determined by a commercial consultant’s report or from a spreadsheet analysis. It is only with autonomy and a grounded affinity with what is possible in France that a truly distinctive portfolio, such as Equistone’s, is achievable.

“The team’s time in the industry is a key differentiator to market,” says Maëlle, who joined Equistone in 2022 after working for Goldman Sachs in London and Paris.

“When I was working in M&A advisory, the reputation of Equistone as a reliable partner that invests in relationships with management was well known. It is a stable and experienced team with a well-developed culture. These were key drivers in my decision to join,” Maëlle says.

The reputation of Equistone as a reliable partner that invests in relationships with management was well known.

Reliable and collaborative

“The firm’s heritage and visibility are complemented by a reputation for delivering on commitments to sell-side advisers and acquisition finance lenders,” says Thierry.

“We are well known in the M&A community and the firm’s longevity means the market knows what deals we like and how we behave. We are not the most aggressive player in terms of valuations and leverage, but we are always clear on when we are genuinely interested in a deal and we are a very reliable bidder when we are motivated by a transaction and a management team,” Thierry says. “Advisers know they can rely on us. That opens a lot of doors.”

The team covers a broad range of sectors and has thus built deep institutional knowledge of looking through wrinkles on multiple deals in multiple sectors.

“We present ourselves as a generic player with longstanding and deep experience in selected sectors. Equally, we are not a manager with a fixed set of ideas on how a business in a certain sector should be run,” Thierry says. “Management teams will have their own strategy. We want to understand that and decide if it is good and management is capable of implementing it.”

The structure of Equistone’s French deal teams and the investment committee model add a further layer of support – encouraging dealmakers to be inquisitive, look beyond the obvious.

Deal teams are lean and made up of only four people, including two partners. This accelerates the learning curve for junior staff and provides them with insight into all aspects of a transaction.

“It is great to be exposed to many situations, management teams and opportunities. I think it’s how you gain experience,” Grégoire says. “We seek out everybody’s point of view and maximum input. We want everyone to be involved through all stages of the transaction. It makes everyone feel responsible for the investments.”

Navigating a competitive market

Working as a team where everyone is pulling in the same direction is not to be underestimated in the crowded French buyout space, where clarity of strategy and a clear firm identity are essential points of differentiation.

France’s private equity market has evolved into one of the most competitive in Europe. And yet Equistone’s Paris team has proven adept at securing assets at attractive entry valuations and lead these companies through to profitable sales.

Indeed, the French team has delivered a consistent flow of exits in recent years, including the realisations of Averys, Charles & Alice, Bruneau and insurance brokerage Finaxy in a sale to Ardian. The firm has been active on the new deal front too, with the acquisitions of retailers Courir and Vertbaudet, modular construction specialist GSCM and aluminium gate and door manufacturer Gardengate.

“We tend to stay away from the very tough and competitive processes where we feel like we have little or no angle. We position ourselves to get into smaller processes where there are only two or three other players and where we have the space to get closer to the business,” Grégoire says. “We also like transactions that are driven by management and where management has a say in the choice of buyer. These situations are not exclusively price driven.” ☐

A full version of this article appeared in PLATFORM 08, Winter 2022/23