The France Deals Pulse is a regular column looking at the hottest dealmaking trends in French capital markets.

In one of Back to Future’s most iconic scenes, Marty McFly urges his young father to ask his young mother for a dance or to regret it for the rest of his life. French private dealmakers also need to step onto the dancefloor or risk being left out of the party.

Over the last year, several French exits have been postponed, despite inflationary pressure lessening and decent, although limited, growth prospects of portfolio companies.

After harmful summer snap elections and over two months of drama around the formation of a Barnier government – still hanging by a thread – the morale is down for private equity funds’ limited partners’ (LPs), as they gasp for liquidity.

It seems like France might be back to the 2010s when former prime minister Francois Fillon’s post-credit crunch austerity policy curtailed growth opportunities. At that time M&A experienced record lows.

As private equity buyouts have so far this year more than doubled compared to 2023, with a value of EUR 21.5bn across 154 deals (vs. EUR 8.1bn for 223 deals), the exits volume has so far plunged by 57% to its lowest value since 2013, with 70 exits for a value of EUR 7.9bn (vs. EUR 18.7bn across 105 exits) according to Mergermarket data.

While the value of buyouts so far are the third highest since 2010 after 2021 (EUR 45.5bn for 285 deals) and 2022 (EUR 26bn for 258 deals), French exits are back to the value registered in 2010 (EUR 7.9bn for 73 exits). 2010 registered the third lowest value after 2012 ( EUR 2.9bn for 77 exits) and 2013 (EUR 6.6bn for 92 exits), the data shows.

France entered the summer clouded by political uncertainty heralding less business-friendly policies and a national credit situation which has considerably deteriorated.

After S&P downgraded French debt in May due to a soaring deficit, credit ratings including S&P and Moody’s warned of further downgrades after June/July elections if the country’s budget expected this October does not help to reduce the debt.

The European Commission has opened a procedure this summer related to the excessive deficit against France which was set to reach a deficit 5.5% of its GDP this year. The French economy ministry recently explained the deficit could even reach 6% if nothing changes.

This month, as LPs and General Partners (GP) met in Paris at one of the biggest PE events in Europe, the IPEM (International Private Equity Market), a busy pipeline did not outweigh the mounting worries of GPs scrambling to secure new funds.

The event was especially crucial as fundraising for vehicles has become increasingly harder with dragged-out closings, funds never raising their hard cap or even their target size, and even a few GPs having to throw in the towel. One of them is Loomis Sayles Capital RE, which stopped its fundraising activity only a year after obtaining the green light from the French regulator, as reported by the French press.

But to attract LPs, sponsors must start to pull the trigger on exits, something many seem unwilling to do.

Faced with what is perceived as a tough market, many PEs chose to postpone auctions expected for the second half, betting instead on 2025. Montefiore, who picked M&A boutique Cambon Partners to prep its exit from French IT services company Groupe Open, postponed the sale until the business completes its 2024 fiscal year after inconclusive early talks this year, as reported this week.

But beware of the jam! As many sellside players opt for betting on a year that seems now full of promises, they might jeopardize their fundraising and face accrued competition. A large number of sponsors are prepping 2025 exits, such as Five Arrows who has hired Evercore to sell its portfolio company, healthcare software business Softway Medical, as reported.

The wait to capitalise on old assets means sponsors are being held back from new investments at a time where other bidders are prepping for purchases.

Attractive assets for private equity firms are now also being chased by cash-rich industrials and could become scarcer.

Family offices are also not to be underestimated, both as LPs but also as potential bidders, as shown by Dentresssangle’s latest deal. The French family-run investment holding company is close to buying French medical imaging software provider EDL from local PE Abenex, as reported. If the IPO market picks up sponsors will also face competition from public market investors.

For French PEs, there is no time like the present to start gearing up for business.