The French presidential race has seen the private equity industry anxious not to become a topic of campaigning.
Trade union lobbyists, and notably Collectif LBO, a grouping of anti-LBO trade unionists, have of late been vocal against LBOs and their consequences on employment and the working environment.
Press articles in Le Monde, parliamentary hearings and proposals for more stringent rules, have suddenly placed the private equity industry under intense public scrutiny, and in a negative way. A communist MP has convinced both its right and left wing colleagues to establish a special committee to study the consequences on employment of acquisitions with leverage.
The report, which was submitted to the French Assemblée Nationale, highlighted the acquisition by Charterhouse of TDF, which was recently sold back to a new consortium composed of TPG, CDC, and Axa Private Equity, and the 1,000 jobs which were destroyed during the ownership of Charterhouse. Further, according to the report, trade unions claimed that more than 3,000 jobs were suppressed during Charterhouse and Enterprise's ownership of Cegelec, which was the subject of one of the most successful LBOs in France, and a former division of Alcatel.
However, the management of Cegelec claimed that only 580 jobs were suppressed out of 12,700. The current and incumbent president, Jacques Chirac, has even advocated that employees receive 20% of any capital gain in case of sale of the company to a private equity fund.
Meanwhile, in successful LBOs (and currently there are many), top management and an increasing number of employees get bonuses and huge capital gains. Even lower ranking employees benefit from increased profits through company-sponsored management schemes (FCPE or PEE) or compulsory profit sharing schemes (participation légale) applicable to French companies with more than 50 employees.
Certain private equity houses are ready to extend the capital gain bonanza to an even greater number of employees. Recently, the CEO of Vivarte, which was owned by PAI and taken over by Charterhouse in one of the major secondary LBOs of the year in France, announced that special three-month bonuses will be given to each of the 15,000 employees.
The powerful French association of private equity firms (AFIC) has sought to explain the social benefits of LBOs. AFIC commissioned a special report by accounting firm Constantin, which unsurprisingly came to the conclusion that the private equity industry has led to a global and significant increase in the number of jobs in France over recent years.
Patrick Sayer, the current chairman of AFIC and CEO of Eurazeo, explained in an interview with the leading French newspaper Le Figaro that on average, the amounts due to employees through compulsory profit sharing scheme have increased by 15% in companies involved in LBOs and that more than 60% of such companies have put in place company-sponsored management schemes (PEE).
The financial press did not take long to underline the benefits of LBOs for the French labour market: Les Echos claimed that groups owned by private equity houses increased their headcount by 4% per year, and the finance and economy section of Le Figaro claimed that funds have created more jobs than the 40 French leading groups (CAC 40).
Finally, former CEO of Paribas André Levy-Lang has in a recent article in La Tribune depicted the private equity industry as a renewing force of French capitalism. With a growing and successful private equity industry, and with heavyweights such as PAI Partners, Eurazeo, LBO France or Axa Private Equity, it is no wonder that the business community has not taken long to react.
The public opinion battle has only begun, but not just for presidential candidates.
By contributing editor Serge Tatar of Gide Loyrette Nouel