by Raffaele Lorusso, La Tribune
In a recent report by the National Assembly on corporate failures, the Interministerial Committee for Corporate Restructuring (Ciri) defines these particular players as follows:
“They play a key role in so-called ‘distressed M&A’ cases due to their expertise in emergency situations and operational restructuring,” said Guillaume Primot, Secretary General of the CIRI, during his hearing in May. “It would be inaccurate to consider investment funds as inherently less legitimate investors than others. In many cases, they play a structuring and sometimes decisive role. Their familiarity with emergency situations and operational restructuring, as well as their appetite for risk, which is often greater than that of other players, enable them to intervene in contexts where they are sometimes the only ones able to do so,” he insists.
These players — such as Verdoso, Mutares, Butler, Alandia, Flacks Group, Perceva, Greybull, and Alpha Blue Ocean, representing fewer than 50 French and international players in France — use strong-arm tactics: redundancy plans, asset disposals, downsizing, site closures, etc. “Turnaround funds like to describe themselves as emergency doctors who have to amputate limbs to save vital functions,” explains a banker specializing in restructuring, with a cryptic smile.
More explicit discourse
Others are more explicit in their discourse. Take, for example, financier Michael Flacks and his Flacks Investment Group. “I’m the one who buys cheaply when no one else is interested in the company,” the investor told La Tribune. In other words, Flacks Group specializes in buying companies at low cost, or even at a negative price.
Not only does the group acquire them for a symbolic euro, but the purchased company also comes with money in its accounts to finance operating and investment costs for the coming months. “It’s a win-win situation for everyone,” says the financier who bought the paper business of mining giant Imerys and German submersible pump manufacturer Pleuger.
By being willing to take “what no one else wants,” Flacks Group offers to either rethink the business or manage the slow death of certain businesses doomed to disappear.
The Association of Business Turnaround Professionals (ARE), which brings together 300 professionals in this field, reports that the climate is difficult, even for restructuring specialists, to the point that even they are struggling to fulfill their mission. “The turnaround fund business is proving very complicated today,” observes Xavier Bailly, partner in charge of restructuring at Eight Advisory and president of the ARE.
“At the end of the Covid-19 pandemic, there were numerous public financial support measures that effectively took the place of these players. In addition, in recent years, industrial companies in difficulty have become impoverished by selling their assets in an attempt to find solutions on their own. This makes it more difficult to take over these companies, regardless of the buyer,” says the expert.
Foreign players and predatory methods
The association is particularly concerned about the growing presence of foreign players on the French market, especially German and British ones. “Some of these turnaround funds are predators, and the French market is certainly attractive to them due to the rise in corporate failures,” notes Olivier Lluansi, professor at the Conservatoire national des arts et métiers (Cnam) and specialist in industrial issues, who calls for better oversight of these funds.
The mass arrival of foreign players is reinforced by the lack of French players specializing in this niche. “There is not enough European capital to fuel the French turnaround fund industry and, within this scope, not enough financial players capable of intervening in complex situations,” explains a source at the French Ministry of Finance. “This is why Bpifrance has been strengthening its fund activity in recent years with a view to bolstering French turnaround players and giving them the means to act,” says the entourage of the outgoing Minister of Industry and Energy, Marc Ferracci.
Innovative industry
Is it the fate of French industry to attract only players with a pessimistic view of the sector? Some investment funds have made winning bets in France, on condition that they develop a form of innovation that makes the country competitive.
One example is the investment company Eurazeo, which invested in Seqens, a pharmaceutical company that is relocating paracetamol production to France — a first. The company, which also received €13 million in capital from the government as part of the Relance 2030 plan, “has developed a cutting-edge production solution that enables continuous paracetamol production,” says Arnaud Vincent, Managing Director Healthcare at Eurazeo. “This enables us to compete with Asian rivals,” he adds.
Such initiatives, however, remain too few and far between.
Original article by La Tribune (France) — read the full version here.
