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

France’s early-stage medtech sector shows promise, but it will need heavy private equity (PE) investment to reach its potential.

French politicians were fiercely opposed to PE firm Clayton Dubilier & Rice‘s (CD&R) plans to invest in Sanofi’s [EPA:SAN] consumer health business Opella, the main producer of over-the-counter drugs like paracetamol. But they don’t show the same passion when it comes to supporting smaller medtech firms and keeping them at home.

The country of Louis Pasteur already underperforms rivals like the US and Germany in terms of deployment of medtech. A heavy-handed approach to PE could prove problematic in the years ahead, particularly given the lack of local capital to scale the best projects.

In France this year, financial sponsors’ exits in the healthcare space have so far reached EUR 141m over six deals vs. EUR 1.3bn over eight deals in Germany according to Mergermarket data. In the US, the leading geography for healthcare, 29 deals have been so far registered for a total value of EUR 8.1bn, data shows.

“In France, the backlog of promising medtech firms struggling to scale up and become European market consolidators is partly due to a lack of local growth or private equity funds dedicated to healthcare, able to source future champions,” said Jérôme Patenotte, partner and head of private equity France at Simmons & Simmons.

The lack of competition among local private investors creates a real gap in financing for French medtech companies already generating revenues, said Claire Poulard, investment director at Turenne Group’s healthcare investment arm.

There are dozens of mature French medtech firms with revenues in the range of EUR 20m to EUR 30m with sponsors struggling to exit, several M&A practitioners said.

Upcoming deals to watch include Astorg’s minority stake in French diagnostic company Echosens. At least one sponsor made a preliminary offer, as reported in June. Its EBITDA is around EUR 54m, although this could be adjusted to EUR 80m, as reported.

Meanwhile, Theravia, a French pharmaceutical expert owned by Mérieux Equity Partners, is set to join the exit pipeline this semester with Rothschild running the process, as reported. Theravia will be marketed off an EBITDA of EUR 20m.

Also, Motion Equity Partners has launched the sale of its portfolio company, health nutrition company EA Pharma, formally known as Olyos Group. Natixis Partners and Moelis are leading the sale with the company being marketed off EUR 30m EBITDA.

Strong public research 

In the 19th century, France was a superpower in innovative medical treatments, largely due to the work of chemist Louis Pasteur, who made discoveries in vaccines, fermentation and pasteurisation (a technique that carries his name).

France still has an impressive network of universities and healthcare research labs backed by European, national and regional digital health innovation funding schemes. But it still lags neighbour Germany when it comes to private-sector research and development (R&D).

The total size of the European medtech industry is estimated to be around EUR 160bn in 2023, or more than a quarter of the world market, according to trade association MedTech Europe. It is the second behind the US (47%).

France accounts for 14% of the European medical device market behind the leading country, Germany (27%), but ahead of Italy, the UK and Spain.

The shortage of European or European-centric healthcare scale-up funds and fragmented regulatory obligations within the EU lead to a brain drain to the US, Patenotte said.

To grow faster, French healthcare businesses should expand very early in the European market, while still striving for a leadership position at home, Poulard said.

Finally, streamlined regulatory obligations within the EU would encourage cross-border deals within Europe.

The new European Commission, which should take office this December, is expected to resume its efforts to explore ways to simplify and streamline regulatory obligations within the bloc and boost scale-up opportunities in the healthcare space. But in the meantime better exit opportunities in less regulated geographies like the US will continue to flourish.