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Going private: France makes sacrifices for its startup nation

French president Emmanuel Macron has big dreams of turning the country into a ‘startup nation.’ In order to do that, he will need to sacrifice some of the state’s national champions.

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France has a long history of state ownership and keeping control of its so-called “national champions.” As the UK led a wave of privatizations across Europe in the late 1970s, its neighbor bucked the trend and, for a long time, remained committed to ensuring government influence in the boardrooms of its prized public assets.

The country has witnessed a break from tradition with the election of President Emmanuel Macron, who has fewer qualms than his predecessors about selling the “family silver” to help fund a new economic doctrine: the startup nation. While the French government holds €100 billion worth of stakes in more than 81 companies across a range of industries, it’s turning its back on the old certainties of public ownership in favor of building an innovation-driven economy. Macron’s zeal for reform means he is willing to do what was once unthinkable and dispose of long-held state assets—symbols of national pride that help fill the nation’s coffers—via the passing of a new law, the PACTE.

Although covering a myriad of issues related to the business world, a key element of the PACTE is facilitating the privatization of three companies with the aim of paying down the nation’s debt and creating a €10 billion innovation and industry fund.

The vehicle, announced last year by finance minister Bruno Le Maire, will be managed by Bpifrance and target so-called “deep tech” startups, with a particular focus on AI. Capital for the innovative companies won’t come from the €10 billion, but rather from the fund’s annual returns, which are expected to be in the range of €200 million to €300 million.

Up for the chop

The first government-held company to be put on the block is lottery operator Française des Jeux. The group, of which the state owns 72%, generated 2018 revenue of €1.8 billion and contributed €3.5 billion to public finances. Rather than sell the entire holding, the government plans to reduce its stake to 20%. FDJ currently holds the monopoly in France on lottery games with 26.1 million players and its status will be maintained even if it’s sold—a very attractive target for whoever lands it.

Next on the list is French utilities giant Engie, which has a presence in nearly 70 countries. Revenue amounted to €65 billion in 2017 and the government’s 24.1% stake is worth some €7.8 billion. As with FDJ, the state plans to reduce its holding, reportedly to around 15%, in order to retain veto power over future business decisions.

The final company that France is looking to divest is airport operator Groupe ADP (formerly Aéroports de Paris), in which it holds a controlling 50.6% stake worth around €8.8 billion. ADP is the most eye-catching of the three slated to be sold, considering the rising number of air passengers, but its privatization has been vehemently opposed by some of the French public and unions. A petition launched in June could lead to a referendum on the sale if it reaches the 4.7 million signature requirement, according to Reuters. Opponents have reportedly claimed that the Macron-led government is “flogging the family silver” by selling off state-owned assets.

Shortsighted or investment in the future?

Whether or not this is true, it is worth looking at the potential end result. The question is whether the state is better off by selling stakes in these companies when the goal is to improve public finances. Its holdings in these three companies generated dividends of around €777 million in 2017, according to documents from the French Senate. Assuming that the dividends remain stable, the country could be losing out on a sizable chunk of future annual income. Of course, the additional money raised will be used to invest in startups which will grow, scale and lead to profitable exits for the state, but the VC cycle takes time to bear fruit. So, at least in the short-term, the public purse could be short by a significant amount.

Despite the passing of new legislation and the government’s eagerness to shift toward new technologies and break away from the past, the French population has a habit of getting what it wants—one only needs to conjure up an image of yellow vests to see how protective the French are of their assets. Whether Macron can push through his plans or take a similar turn to many of his other pro-business policies remains to be seen.

Featured image via AlxeyPnferov/iStock/Getty Images Plus

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  • leah-hodgson-photo.jpg
    Written by Leah Hodgson
    Leah Hodgson is a London-based senior reporter for PitchBook covering venture capital across Europe and the Middle East. Leah graduated from the University of Surrey with a BA in international politics with French. She has previously been a radio reporter in France. She later turned to financial journalism, covering the wealth management industry. She joined PitchBook in 2018.
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