A collapse of private equity investment this year seems increasingly emblematic of France's deep-seated economic problems and how hard it may prove to change a vicious cycle of poor growth and weakened companies.
Deals in a sector that is often essential to fuel the expansion of small and medium-sized businesses have slowed to a trickle, $437 million in the first quarter of 2013 compared with a peak of $36 billion in 2006, and sector players say there is little prospect of a pickup anytime soon.
Some point to the perceived anti-business stance of leftist President Francois Hollande and his unwillingness to shake up labor rules, as well as tax moves that have lowered the profitability of private equity deals.
But either way, France's problem with generating growth and competing have played a key role in the slide, along with some companies' reluctance to hive off the type of units that are traditionally appetizing targets.
That in turn may be because sellers are holding out in the hope of getting more for assets later, with the debt they incurred to buy them originally currently cheap to service. But it is also a measure of how bearish buyers are.
"One country where there seems to be consensus is France. Everybody is absolutely negative," Lionel Assant, the head of European private equity at Blackstone, told delegates at a recent industry conference in Berlin.
"Structural reforms have not started. The country is effectively denying the inevitable."
"IN THE TOILET"
After thousands of job losses at major firms including PSA Peugeot Citroen, Renault and ArcelorMittal, Hollande badly needs to find alternative sources of growth at a time when he is having to find budget savings.
Sector players argue that private equity investment, while sometimes about squeezing cash out of existing businesses, tends to fuel the kind of swift growth and corporate change that an economy bound in the models of the last century badly needs.
Thomson Reuters data shows volumes of European deals this year have sunk 44 percent compared to a tripling of U.S. takeovers, and France is among the most dramatic of slides.
Deal volumes in Germany doubled last year by contrast, and in the first quarter even those in the Czech Republic, whose economy is less than a tenth of the size, boasted volumes several times higher than France's.
The collapse in Spain and Portugal has been comparable but some investors believe those markets offer more upside because of the tough reforms they have had to implement in return for European bailout funds.
Elior, a French catering company owned by British private equity group Charterhouse which had been expected to fetch up to 4 billion euros, has been delayed while the company seeks to make an acquisition..
"When you go to your investment committee with an opportunity in France, maybe it does currently receive heightened scrutiny," said Jean-Michel Steg, a former Blackstone executive who is now advising boutique bank Greenhill.
"Their (limited partners) will ask 'why are you investing my money in France?'"
For some, the culprit is the anti-business rhetoric of Hollande, whose government has scaled back the deductibility of interest on loans from 100 percent to 85 percent. Higher capital gains taxes, important for the sector, also loom.
"Employment laws and the confiscation of assets through tax are not good for oiling the wheels of business,", said Jeremy Coller from private equity firm Coller Capital.
Asked where he puts France on a scale of potential investment targets he said "in the toilet."
There are some signs of life on the private equity market, but they are chiefly for companies whose growth prospects are driven by markets outside France.
PAI Partners on Monday agreed to buy Britain's R&R Ice Cream from rival Oaktree Capital in a deal worth about 850 million euros ($1.1 billion). Fashion brands Sandro, Maje and Claudi Pierlot were snapped up by KKR after a hard-fought auction earlier this year driven by their potential for international expansion.
"The French market offers tempting brands (in the luxury area, for example) whose growth is geared toward markets outside of Europe," said a London-based banker, cautioning that: "If you want to buy a company that is heavily dependent on the French economy then you would have a hard time convincing yourself."
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