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Point of View #07 - Q2.2007 The French M&A Market: Is France Heading For Change? |  |
The French M&A/PMI market environment is positive on a number of dimensions. For years, it has been very influenced by the global economic cycles. The direct connection in particular with the anglo-saxon business environment seem to diminish over time. The European business environment is geographically spreading and becomes a more integrated economic environment, enabling firms to find in the region the different aspects required for further profitability: New opportunities of concentration arise due to the integration in the European Union of Eastern Countries, and to the development as well of the relations with the neighbouring countries (EMEA, ex-USSR countries) New markets emerge with the increase in purchasing power observed in these countries. New opportunities of improvement and productivity gains are opened, in particular due to the huge number of well-educated people still paid below western standards.
French firms have matured their own international strategy, building on Europe's history and cultural knowledge: Each European country provides opportunities in terms of international coverage: e.g. Nordic countries with Russia, Germany with Central Europe, South-East Europe with MEA, France with North Africa and some part of Asia, Spain with Latin America. The multinational model of firm developped by the French organisations appears to be less top-down than "multi-domestic". This model can prove to be very efficient if the US-centric and standardised model is weakened. Alternative multinational models (chinese, russian, arabic,...) are yet to mature. World business leaders have emerged which are less dependent on US/UK knowledge and manufacturing capabilities: EADS, Lafarge, EDF, Alstom, Saint-Gobain, Areva, Credit Agricole-Suez, Air France/KLM, Renault-Nissan,...
The French macro-economic factors are somewhat disconnected from the UK and US: Interest rates are low. Corporate profits are high. The economic environment is expected to move positively under the new presidency of Nicolas Sarkozy, with a drastic economic reform expected.
M&A has also become more and more accepted by French groups as a normal and positive growth opportunity: The M&A market has been increasing since 2006 after a low wave between 2002 and 2005. After decades of negative experience in international transactions - and the major failures of the 2000's- a renewed confidence on the ability to implement M&A strategies is back. - The recent mega deals launched in 2006 (BPB-Saint Gobain, Mittal-Arcelor, Axa-Winterthur have had no significant negative impacts...:
- Renault-Nissan has shown profitability growth despite turnover slow-down,
- Air-France-KLM has just announced over 30% increase in operating profit in 2006.
Conclusions - Recommendations. The leading French groups have modelled over the past decade a specific view of the M&A strategy. Their cautious decision-making process, their long-term oriented governance model and their global sensitivity to the cultural issues have enabled them to build sustainable acquisitory strategies. The vision of how to leverage M&A transactions has been widely shared between French groups, in particular because of the strong inter-personal relations existing at board levels. The accumulation of integration successes over the last decade puts now French groups in a more advanced position than most European competitors. From a macro point of view, the issue today is more on how the small and medium firms will benefit from the examples of Renault, Air France, Axa and Saint Gobain and others? This probably will build on the industrialisation of the M&A/post merger integration approach at the next level. Author: Gilles Ourvoie (gilles.ourvoie@pmifactory.com). Gilles has worked for c.15 years on strategy and PMI projects for major international groups, and 4 years on the Financial Markets. He has created the Equity Research team of Finacor, now BNP-Exane (1989-1992). Within the Strategy & Transformation consulting activity, he has developped the French PMI Center of Excellence at Gemini Consulting and Capgemini (1997-2004). Between 2004 and 2007, he has launched the Transaction Integration Services practice of Ernst & Young France (within the TAS Corporate Finance), and in the CWEA Area (Italy, Spain, Belgium). As such, he was part of the TIS Global Leadership Team. Since 2007, Gilles is Partner at PMI Factory.
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