Buying a French company
“Peter, I have just had an interesting phone call. I am really not sure whether it means we are in for a nightmare or a windfall.”
I took the call last summer. I had only been working with Denis’s company for a few months and I didn’t yet feel I had gained his trust and confidence, so the openness came as a bit of a surprise.
The call had come from Yves, one of the company’s key suppliers based just north of Paris.
The MD had announced he was going to retire and was hoping Denis would buy out him and his fellow shareholders. The company provided a key product range that represented about ten per cent of the global turnover of my client.
After an hour or so of calm debate we agreed we couldn’t afford to ignore the opportunity. Denis would approach Yves for some more financial details and then I would start doing some projections.
As I have said before in these pages, I have had relatively little acquisition experience and have never bought a company in France. I knew I would have to work my network to make sure I was fully aware of any pitfalls and opportunities.
It’s been quite a ride. We’ve learnt a lot. We have been helped hugely by some contacts but hindered – usually accidentally – by others. While I wouldn’t say we would do things in exactly the same way again we don’t seem to have made any critical errors.
By the time this article is published I confidently predict my client will be the proud owner of a French subsidiary. The deal will be funded by a loan from one of the big French banks. The three UK banks I approached were really not interested.
One of them got very excited and then came up with an offer that gave the company less funding than it has at present.
Despite agreeing the loan, we’re still a little anxious about the contact at our prospective French bank. Our suspicion is that this is a much bigger deal than he usually negotiates and his inexperience is starting to show.
We have had to question several of the details and often found we were right. Fortunately, the loan agreement itself seems to be cast in stone.
Legal and accounting support has been mixed. Our language skills are limited, so we needed experts in France who spoke fluent English. Our UK lawyer found us a good French associate but he often has bigger fish to fry.
When he is able to concentrate on us he has given sound advice. He introduced us to an accountant who seemed rather quiet at first. However, when we have asked specific questions he has always responded helpfully.
I have this nagging feeling that there are some areas where he knows more than he has told us – we just haven’t asked the right questions.
The bureaucracy is a black art. In the end we stopped asking “Why?” and just got on with the forms.
Given the level of salary add-on costs (38 per cent) and corporate tax (33 per cent plus five per cent of any inter-company dividends being taxable) it’s not hard to see why companies don’t rush to invest in France.
However, it seems that the red tape once the business is established – as long as you know the ropes – may be less onerous than in the UK.
Have we made the right decision? Any other decision could have had a very damaging impact on the rest of the business so we really had little choice. Let’s hope we can continue to avoid the nightmares.
Tags: french company, french subsidiary, france, loan agreement, language skills, subsidiary, french bank,
