Raising Capital in France: A Guide for Foreign Companies

Corporate law

On September 12, 2012 By Benoît LAFOURCADE

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

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

Trading Records and Accounts

Structuring an IPO

Structuring secondary equity offerings

The procedure for a foreign company listing

Requirements of a Prospectus

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

Listing Debt Securities

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
Benoît LAFOURCADE Co-founder & partner

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