France is a very attractive location for foreign companies seeking to raise funds for European expansion or other activities or needs.  At the geographic center of Europe, France benefits from a virtually seemless EU fundraising regime.  France is home to the greatest concentration of private equity in Europe and is central in proximity to venture capital sources throughout the EU.  Additionally, France is at the heart of Europe when it comes to securing a broad range of public financing and a broad range of debt financing options.  Laws in France are not only in harmony with EU standards, but also in large part with US and other foreign countries where companies seeking to do business in the EU emanate from.  I provide here an overview of the main sources of capital in France and EU-wide, and the legal and regulatory regime governing the raising of that capital.  Corporate management teams seeking to raise capital for activities in Europe are best advised to seek out expert legal counsel in devising a strategy that is both successful and in full compliance with all applicable EU requirements.

The main equity markets and exchanges in France

  • “The regulated equity capital market in France is NYSE Euronext in Paris, containing three segments based on market capitalisation: Segment A: over EUR1 billion, Segment B: between EUR150 million and EUR1 billion, and Segment C: less than EUR150 million.”, according to a report by PLC Cross Border.
  • The Professional Investor Market (compartiment professionnel) of NYSE Euronext in Parisisa regulated market segment for listings without a prior public offering, aimed at facilitating foreign companies’ listings in France and bolstering Euronext’s dual listing potential.
  • NYSE Alternext and Marché Libre is a non-EU regulated market of NYSE Euronext for small and mid-cap companies.”

Market Activity

As PLC Cross Border reports, however, since mid-2007 there has been a significant slowdown in IPO activity.

Regulatory bodies

The general regulator for all securities listed in France is the Autorité des marchés financiers (AMF).

Legislative framework

As PLC Cross border outlines, the main rules applicable to equity capital markets are contained in: Directive 2003/71/EC on the prospectus to be published when securities are offered to the public or admitted to trading (Prospectus Directive), Regulation (EC) 809/2004 implementing the Prospectus Directive, The French Monetary and Financial Code (MFC), the AMF general regulations and related instructions and recommendations, and regulations issued by NYSE Euronext.

Equity Offerings

A listing application usually requires a prospectus to be approved by the AMF and Euronext

Minimum size requirements

  • Euronext:  Different size limits apply to different segments of Euronext.  At the time of admission to listing, 25% of the company’s issued capital must be publicly held, with some caveats.
  • Alternext:  Previous placement activities totalling a minimum of EUR2.5 million are required.
  • Marché Libre:  No size requirement

Trading Records and Accounts

  • Euronext:  A series of requirements exist including published audited financial statements.
  • Alternext:  Published accounts for the last two years are one of the requirements
  • Working capital:  Only “those stipulated by the Prospectuses Regulation during the 12 months following the date of the prospectus” are required.

Structuring an IPO

  • In order to offer securities to the public in connection with an IPO on NYSE Euronext in Paris, one must prepare a direct admission (cotation directe), maintain a minimum-price offer (offre à prix minimal), establish a fixed-price offer (offre à prix ferme), and make an open-price offer (offre à prix ouvert).

Structuring secondary equity offerings

  • A subsequent equity offering can be structured as a share capital increase or as a pure secondary offer.  A prospectus must be approved by the AMF and made available to the public.

The procedure for a foreign company listing

  • A prospectus approved by the competent body of an EU or European Economic Area (EEA) member state is valid in France, provided that the AMF is notified of the approval and receives a French translation of the summary note.
  • An issuer whose registered office is in a non-EEA country must file a prospectus containing information equivalent to that required from French companies by the AMF.
  • For Euronext, an application for admission to listing must also be filed with Euronext.  There is general mutual recognition with the US and Israel.
  • With the Professional Investor Market (compartiment professionnel) of NYSE Euronext in Paris, there are some waivers from existing AMF requirements, reflecting the professional status of the investors.
  • There are som transfer requirements when transferring a listing from Euronext to Alternext.
  • In an equity offering, certain main documents must be produced and made available to the public
  • The investment services provider, such as an investment bank, is primarily responsible for managing the offering process and co-ordinating the company’s other advisers.
  • Legal advisors provide advisory counsel on all legal aspects associated with a listing.
  • Accountants advise the company on all accounting matters associated with the transaction, and in addition, the company’s own accountants must issue a certificate (lettre de fin de travaux) to the company and the AMF on the content of the prospectus used in the offering.
  • A Share registrar shall also be used

Requirements of a Prospectus

  • In the case of some offerings on a regulated market, a prospectus must be submitted for the AMF’s approval.
  • In some specific cases, issuing or selling securities does not qualify as a public offering, however.
  • Generally, if offers concern new shares offering or the admission to trading on a regulated market of financial securities does not constitute a public offering.
  • The obligation to prepare and file a prospectus does not apply to the admission to trading of some securities.
  • Some exemptions from the requirements for publication or delivery of a prospectus do exist.
  • A prospectus must include all information required for investors to make an informed decision regarding the assets, liabilities, business activities, financial position, profits and losses and prospects of the issuer, as well as regarding the rights attached to the securities offered, although exact requirements depend on circumstances
  • The prospectus is prepared by the issuer’s legal advisers, with input from the issuer, the statutory accountants and the investment services providers.
  • Financial instruments are sold only on the basis of the prospectus, but for an IPO marketing may include some traditional marketing methods.
  • Potential liabilities must be outlined

Bookbuilding is commonly used in institutional and/or international offerings

A series of general underwriting requirements apply

Price Stablisation

The AMF General Regulation gives rules on price stabilisation with regard to Directive 2003/6/EC on insider dealing and market manipulation (Market Abuse Directive) and Regulation (EC) 2273/2003 implementing Directive 2003/6/EC as regards exemptions for buy-back programmes and stabilisation of financial instruments (Buyback and Stabilisation Regulation).

Taxation

From 1 August 2012, a new financial transactions tax will apply (at a 0.1% rate) to acquisitions of shares (and, more broadly, to any securities giving rights to receive an equity security) issued by French companies.

Continuing obligations can include:

Periodic financial reporting, annual financial reporting, half-yearly financial reporting, quarterly financial reporting.

Specific disclosure obligations apply to French and foreign companies

Compliance

The AMF and Euronext oversee continuing compliance. Failure to comply with these obligations may result in sanctions and, for certain breaches, Euronext can request the issuer’s de-listing.

Companies can de-list subject to certain rules

Debt capital markets

  • Euronext Paris is the main regulated market in France for debt securities.
  • Debt securities can also be admitted to trading on Alternext and on the Marché Libre and Delisted Securities Market, which are both multilateral trading facilities operated by Euronext.
  • “Statistics from the Bank of International Settlements indicate that as of the end of the third quarter of 2011, France remained the most important European jurisdiction by volume of corporate bond issuance and the second most significant jurisdiction worldwide, with approximately US$469 billion equivalent of corporate bonds outstanding”. according to PLC.
  • The AMF regulates all transactions relating to debt securities admitted to trading on a regulated market and/or offered to the public in France.
  • The offering, listing and trading of debt securities in France are subject to the French Monetary and Financial Code, the General Regulation of the AMF and the Prospectuses Regulation.

Listing Debt Securities

  • The main requirement is a regulator-approved prospectus
  • The minimum issuance size for admission to trading on Euronext Paris is EUR 200,000
  • The issuer must have at least three years of audited financial statements.
  • There are no specific working capital or minimum denomination requirements
  • Debt securities are issued by French companies in a variety of forms, depending on, among other things, the nature of the issuer, the purpose of the issue and the expected investor base.
  • Most debt issuances by French companies are privately placed with qualified investors and/or are otherwise structured in a manner so as not to constitute a public offer in France or in any other European jurisdiction.
  • Trust structures are often used in connection with secured bond issues by French issuers if English law is chosen as the governing law.
  • The issuance and listing of debt securities by French issuers generally involves one or more lead managers or dealers, one of which typically has the role of documentation manager.
  • A prospectus is required in connection with a public offering of financial securities or for admission to trading on a regulated market. The exemptions from the requirements for a prospectus are identical to those for equity securities issues, except where the exemption is limited to shares
  • The two main sections of debt securities prospectuses are a section with details about the issuer, including information about its business, risks, financial situation and earnings, and a section describing the debt securities.
  • The prospectus is prepared by the issuer, in the same way as for equity securities.
  • The timetable for issuing and listing debt securities can vary from a few days to several months.
  • A new financial transactions tax (at a 0.1% rate) has been introduced by the amended finance bill for 2012 and should enter into force from 1 August 2012.
  • There is no restriction on the currency of issue. The EUR is the most common currency of issue.
  • Some proposals for reform of both equity and debt capital markets/exchanges have been proposed and may come into force in the foreseeable future.

Equity and Venture Capital

According to the French Private Equity Association, private equity in France “supports a significant portion of employment in France and represents one of the main growth drivers for the French economy. In 2009, AFIC’s members invested more than €4,1 billion in more than 1,450 companies. Accounting for 20% of the European market, the French Private Equity business is the largest in Continental Europe and the third-largest worldwide.”

According to AmericanExpatinFranceblog, citing figures originally reported in La Tribune: “Venture capital funds in France invested about €1.05 billion in 2010 (compared to €910 million in 2009). This is the highest amount since 2000, when VC reached €1.14 billion.  Most venture capital firms invest in the last stage, or second rounds, instead of early stage investments. Early stage made up only 7% of VC investments in the last ten months of 2010.  Health, life sciences and pharmaceutical industries make up almost 25% of venture capital investments.”

Importantly, rules applicable to French companies also apply to foreign companies seeking private equity or venture funding in France.

Support for Small and Medium-sized Enterprises (SME’s)

Recently, the Council and the European Parliament under the recent Danish Presidency has agreed on two key initiatives in the Single Market Act; initiatives which can abate the current financing challenges for especially innovative and newly established companies in the EU.  With the proposals venture capital and social entrepreneurship funds, whose total amount of assets do not exceed 500 million Euros, can obtain an “EU passport”. This means that if they fulfil a number of criteria, the funds can be marketed across borders in the EU without meeting additional national requirements.  With vibrant tech and other entrepreneurial companies throughout Europe, accessing funding sources via Paris is an excellent way to secure the necessary capital to move your young business forward.

Indeed, the French Government has recently enacted legislation to provide tax relief to those who invest in small and medium-sized enterprises.  At present, the climate of support for innovative and disruptive technologies in Europe is strong. As the FT recently reported, a new pan-European stock exchange for entrepreneurs is being planned by NYSE Euronext, to plug the gap in funding for small companies and help them raise money from investors more easily.

Again, importantly these rules and initiatives apply equally to foreign companies as they do to French and other EU companies.

Conclusion

European political and business leaders are working hard to establish new initiatives for raising capital in Europe to add to the already seemless system in place for raising capital at all levels of the funding tree.  Paris is a natural place in which to center one’s efforts and gain the valuable insight into how and where in Europe to go about raising the capital you need, as well as to secure best legal and strategic guidance in how to do so.

Benoît LAFOURCADE

Co-Founder, Partner & Solicitor -
International Corporate Law & Litigation

Benoît, Delcade’s co-founder, is a Paris Bar lawyer and UK Solicitor (London).

Advisor for various embassies, working closely with the firm's team, Benoît offers his services to French and foreign companies requiring cross-cutting strategic and legal support in business law.

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