French Bank Merger Allies Rival LBO Arms

Societe Generale, France’s largest listed bank, in early February launched an agreed takeover bid for Paribas that valued it at euro 15 billion. SG Paribas, as the new group will be known following completion of the merger in March, will rank as Europe’s eighth largest bank, with a market capitalisation of more than euro 30 billion.

At press time, the implications of the merger for the private equity operations of SocGen and Paribas were still unclear. Paribas Affaires Industrielles (PAI) is currently raising the PAI LBO Fund, a vehicle launched in January with initial commitments of euro 410 million. Herve Couffin, who heads Paris-based PAI Management, confirmed that the group is targeting a second closing during the spring but declined to specify the fund’s overall target. Commitments to date have come from Paribas itself and Copeba, the bank’s Benelux investment subsidiary, and third-party co-sponsors including CDC Participations and AXA Private Equity. Paribas’s private equity business has a euro 300 million portfolio that includes Danone, Gerflor, Laboratoires Beaufour Ibsen and IPC Magazines, where PAI invested alongside Cinven of the UK; Herve Couffin said these holdings would be transferred to form the basis of PAI LBO Fund’s portfolio. The PAI LBO Fund will focus primarily on the principal Continental European markets.

Societe Generale’s unquoted investment business, SG European Private Equity, was formed in autumn 1997, following the bank’s decision to allocate $1 billion (euro 890 million) for private equity investment worldwide, $250 million of which was earmarked for European buyouts. The group was already a long-established investor in its domestic market and had also built a $300 million portfolio of international fund investments.

Although SG European Private Equity’s team, led by Philippe Sevin, is headquartered in London, its principal focus, like that of Paribas, is on Continental Europe. In another parallel with Paribas’s strategy, SG Private Equity planned to raise a third-party fund once it had established itself as a top-rank European buyout house.

At press time, Societe Generale was not prepared to comment on its European portfolio or to speculate on the future structure of its European private equity business.

Given the similar geographic priorities and private equity ambitions of the two banks – which are also significant forces in the European buyout debt market – it seems unlikely that their private equity arms will operate as discrete, competing entities for long. Some form of joint venture or strategic alliance between PAI and SG European Private Equity is clearly on the cards. Whatever form it takes, there is every chance that the SG Paribas private equity business will rank as one of the pre-eminent indigenous buyout players in Continental Europe.