Growing Local & Global Private Equity Interest in French Technology
The technology ecosystem in France is booming. In 2021 alone, French startups raised more than €10 billion in venture capital financing, a 2x increase over 2020. To date, the number of unicorns more than quintupled from 5 in 2018 to 26 today. Twenty-five startups raised over $100m last year, including Payfit (€254m), ManoMano ($355m), Alan ($223m) and Younited Credit ($170m).The largest round ever in the French tech market was Sorare ($680m).
Unicorns are only the visible tip of the iceberg—a more profound and fundamental shift is happening. Like many geographies, the pandemic accelerated technology growth in France. Technology companies, particularly software, saw their revenues accelerate and their valuations grow during COVID-19. Specific to France, growth also stemmed from an education system that favors science, technology and engineering pathways. Moreover, an existing pool of strong talent has buoyed the sector as children of current successful entrepreneurs take over or start their own technology businesses.
Lincoln International identified the following items French technology market participants should consider to differentiate and successfully deploy their capital.
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These trends spurred investor interest in France from all over the world. On average, one-in-three financing rounds involved U.S. based (Coatue, Tiger, Sequoia) or Asian (Softbank, Tencent) investors. Venture capital investors have pursued opportunities for more than 15 years but recently, private equity has been particularly active in the space. Mature companies, small players with vertical specialization as well as large, local companies driving transformation are all attractive investments given their recurring revenues, brand visibility and ability to provide an investment safe harbor. Together these qualities have driven high valuations among technology assets.
|Annual number of PE-led application software transactions globally
International investors are drawn to France given its high-quality assets and extraordinary tech-focused talent. Historically, PE funds were more active in countries with a larger tech presence. In 2021, the unicorns and market growth in France brought more global PE interest, and competition, to the French market.
When global players enter the French market, they build platforms that combine company strengths to accelerate growth and establish an international presence. The most common moves in the cross-border playbook include consolidation within European markets before moving to the U.S. (the largest software market) and/or Asia, depending on market maturity and competitive pressure.
All components of technology, from SaaS to cloud capabilities to infrastructure technology—and notably cybersecurity—have flourished within France. As the French technology market intertwines more and more with other global markets and private equity looks to deploy capital, Lincoln International identified the following items market participants should consider to differentiate and successfully deploy their capital.
|Importance of sector specialization
Today’s deal processes are more competitive and closing faster than ever. A hunger for quality targets is driving financial sponsors to develop sector, and subsector, specializations. Financial sponsors who have developed a subsector specialization can provide unique value, experience, and industry connections to stand out in today’s rapid deal environment.
Historically, financing for technology transactions was available with clear market provisions. Venture and minority transactions provided new capital to developing tech companies while other market transactions (like LBOs) involved larger, profitable companies with debt leverage. Today, following the U.S. market, technology financing becomes more sophisticated with ARR-based leverage issuing debt to companies that are not yet significantly profitable.
|Accelerated growth thesis
Companies are increasingly interested in working with investors that not only bring capital but also help them accelerate their growth—organically and through acquisitions, oftentimes international. To differentiate, more and more funds set up teams of business specialists (sales & marketing, pricing strategies, M&A integration,) and play an active role in M&A strategy to help their businesses unlock growth levers and thrive.
In 2021, Lincoln International advised on a record fifteen TMT transactions in France. These transactions involved both strategic acquirers and financial sponsors from multiple geographies in a number of different sectors, such as B2B software, cybersecurity, ICT, eCommerce & marketing technologies, and video games.
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Information Technology Services Year-End 2023 Report
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Recent Transactions in Technology, Media & Telecom
Lincoln International advised Enko Capital on the sale of Netis to Amethis, AfricInvest, Proparco Group and International Finance Corporation
Lincoln International advised e-Attestations on its sale of a minority stake to Keensight Capital
Lincoln International advised management and Isatis Capital on their sale of a minority stake in Ekstend Group to Siparex Intermezzo and Smalt Capital
Lincoln International advised Apera Asset Management on the refinancing of Objectware with new unitranche and acquisition facilities
Lincoln International advised Aldebaran Capital Partners on the acquisition of Numworks, with senior debt and mezzanine acquisition financing provided by Caisse d'Epargne Ile-de-France, Banque Populaire Rives de Paris, BNP Paribas and Access Capital Partners
Lincoln International advised Groupe Berto on the sale of Simpliciti to Omnes
Lincoln International advised management, minority shareholders and Capital Croissance in its sale of Equativ to Bridgepoint Development Capital
Lincoln International advised Actito on its sale to QNTM, a portfolio company of ALTOR
Lincoln International advised Founders and NextStage AM on the sale of majority stake of WiiSmile to Eurazeo
Lincoln International advised Leitmotiv Private Equity and founders on the sale of Agorastore to 21 Invest, Bpifrance and management
Lincoln International advised Apax Partners and New Alpha Asset Management on acquiring majority stake of Mailinblack