Wed, Jun 26, 2019
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Private Equity Strategies

French Employment and Tax Reforms Set To Boost Private Equity Buyouts

Monday, December 11, 2017

By: Latham and Watkins, LLP

President Macron recently unveiled employment and tax reforms to increase France’s appeal for deal makers. While France ranks highly as an investment destination for private equity firms, complex and inflexible French employment laws have been perceived as a hindrance — perpetuating the belief that France can be an unfriendly jurisdiction for businesses and investors. In our view, these reforms — which focus on employee termination, collective bargaining, and employee consultative bodies — will make doing business in France easier and, coupled with proposed tax reforms, should facilitate an even stronger French dealmaking environment.

Collective Bargaining and Employee Termination – Developments and Implications for Private Equity

Rules on collective bargaining agreements, a key feature of the French labour market, are changing. Previously, French companies could not change employment terms with workers if such changes were less favourable to employees than the rules set by industry-level agreements. Under the reforms, employers can now agree to company-level deals with unions that will supersede industry-level rules. This allows PE owners more flexibility to tailor agreements that better align with their actual business needs.

There is further positive news for PE regarding collective dismissals. Previously, international businesses were forced to demonstrate economic reasons for French redundancies. Yet, crucially, they needed to show problems at international or group, rather than local, level. Under Macron’s reforms, companies need only demonstrate economic problems in France.

Further, French employers have historically been vulnerable to unlimited damages claims for unfair dismissal. The reforms introduce minimum and maximum damages caps, enhancing certainty and bringing cost foreseeability to terminations. Claims for discrimination, harassment, and overtime pay remain uncapped. These kinds of claims may increase, therefore diminishing the reform’s overall effect on labour exposure. However, our overall view is that these changes, which bring unfair dismissal and discrimination claims exposure more in line with the UK, are a positive development.

Consultation Requirements – Simplifying the Put Option Process?

French employee representative bodies have prior consultation rights that employers must meet before a binding sale or asset purchase agreement is signed. Generally, parties finalise terms and enter into a put option whereby the preferred bidder commits to buy the target on such terms. The seller is not bound to sell, but agrees to an exclusivity undertaking with the buyer. Consultation with employee bodies then begins.

Dependent on size, French companies can have multiple employee representative bodies: a works council, health and safety committee, and staff delegates — each with differing requirements and time limits for consultation. The reforms will streamline all employee representative bodies into a single body, named the “social and economic committee”. Put option and exclusivity undertaking procedures will remain a feature of French deal making, but the changes will facilitate more efficient employee consultation for PE firms, reducing time spent on duplicate meetings and documentation.

Tax Reforms – Monitoring Required

Sweeping tax reforms may also provide a boost for PE. The French government’s 2018 Finance Bill proposes corporation tax rate cuts from 33.3% to 25% by 2022, which may spur further buyout activity. The Finance Bill also proposes abolishing the 3% dividend distribution surtax, which has caused tax leakage from PE transactions. PE firms will also welcome the government’s proposal to cancel limitations on the deductibility of interest expenses incurred in respect of the acquisition of participating shareholdings. However, cancellation of the limit may only extend to EU buyers, and is subject to ongoing discussion in parliament.

The changes will facilitate more efficient employee consultation for PE firms, reducing time spent on duplicate meetings and documentation.

Finally

Overall, the labour and tax reforms send a positive signal that France is open for business and keen to attract PE investment.

 
This article was published in Opalesque's Private Equity Strategies our monthly research update on the global private equity landscape including all sectors and market caps.
Private Equity Strategies
Private Equity Strategies
Private Equity Strategies


Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. New Launches: Hedge fund Cheyne raises $1.12bn for stressed loan fund, Private equity groups prepare to unleash mega funds, TCV, Warburg veterans launch new growth equity firm Farview, Carlyle closes European real estate fund at $604m, Consumer brand-focused H Ventures registering two new funds, Catalys Pacific targets $100m for first VC healthcare fund[more]

    Hedge fund Cheyne raises $1.12bn for stressed loan fund From FT: London-based hedge fund Cheyne Capital has raised €1bn ($1.12bn) for a new fund that will aim to profit from European banks selling down their loan portfolios to meet new accounting and regulatory standards. The

  2. PE/VC: The myth of private equity: Funds struggle to beat the market[more]

    From Guru Focus: Private equity is a glitzy industry, but does it actually beat the market? The data suggests it does not. In an October 2018 episode of "Talks at Google," former fund manager and academic Jeffrey Hooke explained why the sheen has come off of private equity in the last decade. A

  3. News Briefs: Fixing the Sharpe ratio: A machine learning approach, Sotheby's snapped up by French tycoon Drahi for $3.7bn, SALT announces its signature global thought leadership conference in Abu Dhabi, UAE[more]

    Fixing the Sharpe ratio: A machine learning approach From All About Alpha: The Sharpe ratio has long served as a simple but important item in the due diligence tool kit. Formulated by William F. Sharpe in 1966 and first called the "reward to variability" ratio, the number arises from a

  4. New Launches: Private-equity firms are raising bigger and bigger funds. They often don't deliver, Adams Street Partners closes sixth global secondary fund at $1.05bn, Cathay Capital's venture affiliate seeks $560m for latest fund, Kempen raises $134m in second closing for latest fund, Amethis hard-closes Pan-African fund after surpassing $336m target, Access Capital hits $461m first close for European FoF[more]

    Private-equity firms are raising bigger and bigger funds. They often don't deliver. Blackstone Group is in the final stretch of raising what would be the largest private-equity fund ever. Big funds, however, don't necessarily translate into big returns. The private-equity gia

  5. Investing: Paul Tudor Jones likely made a killing off a timely call last week to buy gold and stocks, Equity-market cycle should continue, with spikes in volatility[more]

    Paul Tudor Jones likely made a killing off a timely call last week to buy gold and stocks From Market Watch: Billionaire investor Paul Tudor Jones must be rolling in bullion right now. The famed hedge-fund investor made a notable call last week, citing a cocktail of a dovish Federal Res