United States: Corporate M&A, 2017

Last Updated: October 27 2016
Article by Jean-Pierre Martel

1. Trends

1.1 M&A Market

One major difference between 2014 and 2015 was that sev­eral significant transactions occurred in 2015 even though some of them were announced in 2014: the Lafarge and Hol­cim merger (EUR32 billion), the buyout of SFR by Numeri­cable (EUR13.5 billion) and GE's acquisition of Alstom's en­ergy businesses (EUR12.35 billion). Widely reported M&A transactions happened in 2014 but with lower amounts, such as L'Oréal's buy-back of 8% of its shares from Nestlé (EUR6.5 billion) combined with the sale of its stake in Gal­derma (EUR3.1 billion), and the capital increase of Peugeot SA (EUR1.95 billion).

If global M&A activity in 2015 saw a record year (EUR4.282 billion) due to the USA's dynamism, the French M&A mar­ket declined to USD160.8 billion (EUR147.21 billion), drop­ping by about 30% compared to 2014, according to Thom­son Reuters. However, acquisitions of foreign companies by French groups increased in 2015 and are expected to grow until France ranks the third largest country in Europe in 2017, after the UK and Germany.

Currently, France is one of the preferred destinations for American, British, Italian and German investors. Since 2010, France has overtaken Germany in terms of the number of transactions. In 2015, 2,794 transactions were completed in France, closely followed by Germany, which recorded 2,648 transactions. According to the Banque de France, the USA was the leading foreign investor in France in 2015 with EUR114.3 billion.

Other figures illustrate the attraction of France's economy: Paris is still the world's second largest host to multinational headquarters and over 500 multinationals have their home office in Paris (such as Bouygues Telecom, LVMH and To­tal). Furthermore, France is 27th out of 189 countries in the 2016 Doing Business report (ranking first in Trading across Borders). France also continued to move up on the FDI Con­fidence Index in 2015 and ranked eighth out of 25 countries. On this basis, we can expect 2016 M&A activity in France to remain strong.

1.2 Key Trends

In 2015, M&A activity was marked by a series of particularly large deals rather than many small and medium-sized trans­actions. Large companies are being forced to combine forcesin order to face global competition, whereas medium-sized companies are not as anxious to merge. In 2015, deals were viewed as defensive deals. The above-cited Lafarge-Holcim and SFR-Numericable deals are considered to be illustrations of this trend, as is the aborted Orange-Bouygues Telecom deal.

The desire to secure deals has increasingly led market players to attach fixed-price conditions to their M&A transactions. Under these 'locked box' types of deal, earn-out provisions are ruled out and all risks are borne by the acquirer between the date of the reference accounts and the closing date. Mar­ket trends seem to show that investment funds particularly value fixed-price transactions for reasons of time efficiency and risk control.

More generally, the French M&A market in 2015 and 2016 has shown multiple trends.

Firstly, foreigners' interest in French companies has grown. Indeed, US investors have been significant buyers and Asian investors are showing strong interest in French companies (eg Club Méditerranée, PSA and Toulouse-Blagnac Airport) and some negotiations with Qatari investors are ongoing (eg GFI Informatics).

Secondly, the CAC 40 companies were also very active in the M&A market. In April 2015, Capgemini acquired IG­ATE Corporation, a US IT services company (EUR3.7 bil­lion). In November 2015, Air Liquid revealed the buyout of Airgas, a US distributor of industrial, medical and other gases (EUR12.5 billion). In December 2015, AccorHotels announced the acquisition of FRHI Hotel and Resorts, a Qatari luxury hotels group, including the Fairmont, Raffles and Swissôtel chains (EUR2.6 billion).

Finally, the 2016 H1 French M&A market was characterised by numerous abandoned transactions, as is also the case at a global level. The proposed merger between Orange and Bouygues Telecom which collapsed after lengthy negotia­tions is one example.

1.3 Key Industries

In 2015, M&A transactions were particularly important in certain sectors, in particular the telecommunications, indus­trial and chemical, business services, consumer goods, real estate and energy sectors. M&A activity has also taken off in construction (eg Lafarge-Holcim) and high-technology (eg Sopra-Steria).

Telecommunications remained one of the major M&A sec­tors in 2015. This resulted in the acquisition of Alcatel-Lu­cent by Nokia for EUR15.6 billion in April 2015. Moreover, Altice, the parent company of SFR-Numericable, acquired Cablevision, a US cable provider, for EUR15.7 billion in September 2015. But all sectors should be involved in 2016.

Capgemini realised a major acquisition with IGATE Cor­poration in April 2015. This significant M&A operation is viewed as a wish by the French company, firstly, to strength­en synergies (IGATE Corporation is a prominent USA-listed IT company which also provides outsourcing) and, secondly, to gain market share of the US market.

Addition, in 2015, French technology represented around 40 deals in the French M&A market. The transactions included Showroomprive's IPO with a valuation of EUR660 million valuation and Dailymotion's acquisition by Vivendi for EUR217 million. Thirty-four per cent of the French M&A market in 2015 involved venture capital-funded companies: the USA and the UK were the main buyers of French start-ups.

Also, the hotel sector was highlighted with the buyout of FRHI Hotels and Resorts by the French-listed hotel company AccorHotels. This transaction was interpreted as an oppor­tunity for the French company to add prestigious brands to its portfolio and to step forward in the luxury hotels seg­ment.

Lastly, Air Liquide's acquisition of Airgas was the main deal in the gas distribution and welding equipment sector.

2. Overview of Regulatory Field

2.1 Acquiring a Company

The most common means of acquiring a company in private M&A transactions is the use of a share deal, although as­set deals also represent a significant proportion of private business combinations. For small businesses in particular, mergers and contributions of assets are less frequently used in this context.

Public M&A transactions can be made in several ways. Takeover offers are usually employed when the target is not closely held, or when there is no controlling shareholder(s). Voluntary takeovers are also employed in the case of hostile bids. Otherwise, because many French-listed companies are closely-held, many investors prefer to make an acquisition of a controlling interest first, resulting in a mandatory of­fer that is triggered pursuant to Article 234-2 of the Gen­eral Regulation of the French Financial Markets Authority (AMF) when any person, acting alone or in concert, crosses the threshold of 30% of the share capital or voting rights of a listed company.

A France-listed company may also be acquired by a merger transaction, defined in France as an agreement between two companies according to which all of the assets and liabilitiesof one of the companies are transferred to the other, while the transferring company disappears. In return, the share­holders of the disappearing company receive shares from the beneficiary company.

Foreign investors may acquire control of a company by a contribution of business or assets in exchange for shares. Contributions of business or assets follow similar rules to mergers. They require the company receiving the asset to ap­prove the transaction via an extraordinary general meeting.

2.2 Primary Regulators

Numerous regulators supervise M&A activity in specific sec­tors, such as banking and insurance (ACP, Prudential Su­pervisory Authority), energy (CRE, Commission for Energy Regulation), telecommunications (ARCEP, Regulatory Au­thority for Electronic Communications and Postal Services), broadcasting communication (CSA, Independent Authority to Protect Audio-visual Communication Freedom) and data privacy (CNIL, Independent Authority on French Data Pro­tection). More generally, the Competition Authority (Au­torité de la Concurrence) is responsible for merger control, and works to prevent illegal economic practices. As for pub­lic M&A, they are regulated by the AMF, which has to give its approval (visa) of the public documentation filed by the bidder. The AMF regulates corporate finance transactions by listed companies and checks documents issued by such companies when they make transactions such as IPOs, capi­tal increases and rights issues, public cash offers, exchange offers, buyout offers, squeeze-outs, mergers and demergers.

2.3 Restrictions on Foreign Investment

Foreign investments are defined as:

  • The creation of a new business in France by a foreign busi­ness or a non-resident person;
  • The acquisition of all or part of a branch activity of a French business by a foreign business or a non-resident person; or
  • All operations performed with the capital of a French busi­ness by a foreign business or a non-resident person, where, after the transaction, the capital or the voting rights held by the foreign business or non-resident person exceed one-third of the capital or the voting rights of the French business.

Some foreign investments, as defined above, are subject to prior approval by the Minister for the Economy if made in one of the listed strategic business sectors. Until May 2014, these strategic business sectors focused primarily on mili­tary and defence-related activities. Following GE's offer to acquire Alstom's energy businesses, the French government has broadened the scope of foreign investment to include six other sectors: energy (electricity, oil and gas), water, transport, telecoms and health, as well as installations and infrastructure of 'vital importance' (as defined in the French Defence Code).

Examples of strategic business sectors are:

  • Businesses involved in the gambling industry;
  • Regulated businesses providing private security services;
  • Research and development into or the manufacture of means of fighting the illegal use of pathogens or toxic sub­stances by terrorists and preventing the adverse health-related consequences of such use; and
  • Since the 'Alstom decree' of 14 May 2014, all activities linked to equipment, products or services, including ac­tivities ensuring the safety and proper functioning of such installations or equipment, which are essential to the pres­ervation of the national interest in terms of public policy, public safety or national security in the six sectors listed.

It should be noted that the Minister for the Economy may subject authorisation of a foreign investment to certain con­ditions, including the sale of activities carried out in one of the listed strategic business sectors.

For statistical purposes only, foreign investors must file a declaration with the bank of France when the investment exceeds EUR15 million and involves the purchase of more than 10% of the capital or voting rights of a resident French company or the crossing of a 10% ownership threshold in such a company, any direct foreign investment between related companies, including loans, deposits, or real estate investments, or the purchase or sale of real estate in France by a non-resident.

2.4 Antitrust Regulations

French antitrust law applies when certain turnover thresh­olds are exceeded and European merger control does not take precedence.

In France, the merger of two or more previously independ­ent companies, the acquisition by one or more companies of the whole or parts of one or more other companies, and the creation of a joint venture performing the functions of an autonomous economic entity in a sustainable manner must result in a notification to the French Competition Author­ity if:

  •                   The parties' worldwide pre-tax turnover is greater than EUR150 million; and
  •                   The pre-tax turnover achieved by at least two of the parties in France is greater than EUR50 million.

The calculation of turnover is made in the same way as for European merger control. Some sectors (banking, insurance, retail, etc) are subject to special regulations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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