Recent Trends

The recent trends in private equity transactions and M&A deals more generally in France in 2024 and early 2025 are outlined below.

Global trends affecting French market

M&A volumes globally continue to decline, in particular in the French market: numbers of transactions involving a French entity dropped by 29%, while values increased 5%.

This global trend is reflected in the French market, where fewer but larger transactions are being completed.

Sector-specific trends

Between the first half of 2024 and the first half of 2025, aerospace and defence, chemicals, asset and wealth management, and power and utilities have all seen growth in deal values. In contrast, retail and consumer, pharmaceuticals, automotive and industrials have experienced declines.

Consolidation remains a strong trend, particularly in strategic industries, while technology, traditionally a driver of M&A, is going through a slowdown.

2025 Outlook

While a gradual recovery is expected in 2025, economic and geopolitical uncertainty remains a brake. The M&A market in 2025 is heading for a cautious recovery, marked by a concentration of transactions on large deals. Several indicators remain to be monitored:

• growth in high-value deals;
• decline in overall volume, particularly in France;
• pressure on private equity and expected increase in sale; and
• the key role of artificial intelligence and digital infrastructures.

Most Active Sectors

Private equity firms and strategic acquirers are increasingly focused on investing in strategic sectors, such as healthcare, technology, and wealth management. These sectors are seen as being more resilient to economic downturns and offer the potential for long-term growth.

In healthcare, add-ons are usually roll-ups of smaller entities, like individual facilities and centres, that are easy to integrate into a larger network.

Impact of Macro-Economic Factors

Interest rates and inflation finally came down during 2024. Economic growth in many markets remained stable. In response, deal investment and exit value increased.

Lower interest rates will reduce the cost of acquisition financing and allow private equity sponsors to return to leveraging their deals more effectively. Also, lower interest rates are expected to loosen the more restrictive bank lending practices experienced in recent times.

Fundraising remained tough – down 24% year over year for traditional commingled vehicles, marking the third consecutive year of decline. Investment returns were muted, especially compared with buoyant public markets.

The French private equity market in 2025 shows a clear preference for defensive, growth-oriented sectors like technology and healthcare. While macro-economic conditions have improved with declining interest rates and inflation, the market continues to face challenges from valuation gaps and reduced fundraising activity. The gradual economic recovery and stable geopolitical environment (absent new major shocks) provide a cautiously optimistic outlook for continued sector-focused investment activity.

Consolidation and Expansion of Foreign Investment Controls

The expanded foreign investment control regime has significantly increased the complexity of due diligence processes for private equity transactions. Investment funds with any foreign investor in their chain of ownership must now carefully assess whether their target investments fall within sensitive sectors requiring prior authorisation.

The list of sensitive activities continues to expand, now covering an even broader range of sectors including critical raw materials processing and extraction, quantum technologies, and advanced biotechnologies.

Enhanced Regulatory Scrutiny

The antitrust and foreign investment regulations have been enhanced over the past few years and now apply to a larger scope of transactions, including private equity transactions. Further, recent French case law relating to the tax treatment of management packages may cause difficulties in private equity transactions.

Practical Implications for Private Equity Investors

Transaction timing and structure

The consolidation of foreign investment controls as permanent features of the French regulatory landscape means that private equity investors must now systematically integrate these considerations into their transaction planning from the outset. The authorisation process can add several months to transaction timelines, requiring earlier engagement with regulatory authorities.

Enhanced legal due diligence

The role of legal due diligence has become even more critical, with law firms now required to conduct comprehensive assessments of foreign investor exposure throughout the entire ownership chain, not just at the direct investment level.

Portfolio company considerations

Private equity portfolio companies operating in sensitive sectors must now consider foreign investment implications not only for their own operations but also for any future strategic initiatives or expansion plans that might trigger additional regulatory review.

Anti-Corruption and ESG Compliance

The French Anti-Corruption Agency (Agence Française Anticorruption, or AFA) continues to regulate M&A transactions to fight corruption under the law of 9 December 2016. The agency maintains its annual guidance on good conduct, with no major legislative changes in 2024–25.

Regarding ESG compliance, France continues to align with European developments. The role of audit committees in monitoring ESG standards has become increasingly important, with many funds now specialising in socially responsible investments as awareness of non-financial criteria continues to grow among French financial community players.

Key Regulatory Authorities for Private Equity Transactions

Private equity transactions in France are subject to review by the following authorities.

French Competition Authority (FCA)

France has a mandatory and suspensory merger control regime, which means that transactions that meet the relevant criteria need to be notified to the competition authority and cleared before they can be completed. It is also necessary to consider EU merger control rules.

The thresholds remain:

• the total global pre-tax turnover of all the companies, groups of legal persons or individuals who are parties to the merger is greater than EUR150 million;
• the total pre-tax turnover generated in France by at least two of the companies, groups of legal persons or individuals concerned is greater than EUR50 million; and
• the transaction is not within the EU’s jurisdiction (the above-mentioned thresholds being EUR5 billion and EUR250 million, respectively).

Minister of the Economy and Finance – enhanced foreign investment controls

France has amended its foreign direct investment rules, expanding the scope of covered investments and covered activities subject to controls. Notably, foreign-owned unincorporated businesses registered in France are now encompassed.

The 2024 amendments have permanently consolidated the temporary measures introduced during the COVID-19 pandemic, making the 10% threshold for listed companies a permanent feature of the French foreign investment control regime.

Sovereign Wealth Funds and Financial Investor Distinctions

French regulators do differentiate between different types of financial investors, with particular scrutiny applied to sovereign wealth funds and state-controlled entities. The foreign investment control regime considers not just the immediate investor but the entire chain of control, meaning that sovereign wealth fund participation at any level can trigger enhanced scrutiny.

The “chain of control” concept introduced in 2019 means that even indirect sovereign wealth fund participation through intermediate investment vehicles can subject transactions to foreign investment review, particularly in strategic sectors.

EU Foreign Subsidies Regulation (FSR) Impact

The EU FSR has become highly relevant for private equity transactions in France since its implementation. The FSR introduces a new merger review regime, separate from and in addition to existing merger control and foreign direct investment (FDI) controls. This creates an additional layer of regulatory complexity for private equity transactions, particularly those involving:

• funds with non-EU limited partners;
• portfolio companies that may have received government support; and
• transactions exceeding EUR500 million where parties received non-EU subsidies above EUR50 million.

The scope and depth of due diligence reviews continue to be determined on a case-by-case basis and vary from deal to deal. The level of legal due diligence depends on factors such as the scale of the intended transaction, the kind of business run by the target company, the estimated risk level, etc.

Emerging AI use cases, heightened cybersecurity risks, evolving ESG expectations, and the demand for operational resilience are reshaping how asset owners assess and manage risks.

Confidential documents continue to be exchanged through virtual data rooms and parties are typically required to sign confidentiality agreements.

Vendor due diligence has become increasingly prevalent in 2025, particularly in competitive auction processes, demonstrating its growing acceptance as standard practice.

In general, vendor due diligence reports are deemed to be reliable because they are elaborated by an independent third party and not by the seller itself. However, arranging further buy-side due diligence in order to confirm the results presented in the sell-side due diligence report is always good practice and is quite customary.

In France, most acquisitions by private equity funds are negotiated confidentially. If the negotiations between the seller and the buyer succeed, both parties may then enter into a share sale and purchase agreement (SPA), which is the most typical acquisition scheme in France.

The terms of the SPA may vary slightly, depending on whether the target is sold by means of an auction process or through one-on-one negotiations. In the first case, one can expect the SPA to be more seller-friendly, since in a competitive process the seller has greater negotiation power.

Private equity funds often invest through a special-purpose vehicle (SPV), which is an entity created for the purpose of carrying out a specific transaction.

Most SPVs are incorporated as a simplified joint stock company (société par actions simplifiée, or SAS). This corporate form is preferred by private equity investors for various reasons:

• an SAS can be formed with a single shareholder and the capital requirements are very low (an SAS can be incorporated with an initial share capital of EUR1);
• with no strict regulations, the SAS allows for great flexibility in terms of corporate governance, which is particularly appealing for private equity investors; and
• the shareholders’ liability is limited to the amount of their contributions.

In general, the acquisition documentation is signed by the SPV (which is a subsidiary of the private equity fund), rather than by the private equity fund itself.

Private equity deals are financed either with cash, debt or a combination of both. The large majority of deals negotiated during the first half of 2022 were at least partly financed with debt.

The structure of the debt can be particularly complex, although its purpose is almost always to finance the acquisition and refinance existing debt. In general, it may consist of:

• senior debt, often granted for a term of five to seven years, comprising several tranches with distinct maturities;
• junior debt, the repayment of which is subordinated to the repayment of the senior debt;
• mezzanine debt, often granted by specialised investment funds and structured in the form of securities giving access to the target’s capital; or
• unitranche debt, which consists of a hybrid loan structure that combines senior debt and mezzanine debt into one loan (this type of debt is increasingly used and provided by debt funds instead of financial institutions).

To contractually ensure the existence of funds from a privately funded buyer, an equity commitment letter and a debt commitment letter are often used.

Debt funding was tougher in 2024 compared to 2025 since interest rates have decreased.

Private equity investors usually take both minority and majority positions. However, there has been a real increase in transactions in which investment funds take minority positions. These transactions are no longer the exclusive privilege of small companies, but also concern large medium-sized companies. Similarly, some large investment funds are more willing to take minority positions in order to gain access to more satisfying opportunities, in the context of a managers’ buyout or the acquisition of a minority stake in a family business.

With the development of public investment funds, such as the European Investment Bank at the European level or the Public Investment Bank at the French level, it is essential to note that co-investment strategies are increasingly common.

The implementation of such strategies can be explained by the desire not to neglect any growth potential. For example, co-investment is often used to invest in start-ups or in developing companies. These co-investment strategies are implemented in particular with venture capital funds, in the context of projects that target innovation-oriented companies in the science, information and communication technology, infrastructure and renewable energy sectors.

Family offices often invest alongside private equity or venture capital firms on smaller deals, as some of the family members of such family offices are also sometimes limited partners of the private equity fund. Some family offices tend to be bigger and are now able to do deals on their own, even in large cap transactions.

Locked-box and completion accounts are by far the most common forms of consideration structure in France.

The earn-out clause is also quite popular in the French jurisdiction. Although this clause is inserted in a minority of all private equity transactions, this clause appears in a good proportion of deals overall.

Earn-out and completion accounts mechanisms continue to be used in transactions, as buyers wish to share the risks related to their acquisition with the sellers. The sellers may also see it as an opportunity to reap the benefits of developments or support that will continue after the deal.

Nonetheless, it is evident that the earn-out clause is more prevalent in transactions under EUR100 million. Above these amounts, the parties involved tend to prefer a price that is definitively fixed at the time of closing (usually, by using a locked-box mechanism) without any subsequent contingencies.

When a locked-box mechanism is used, there is typically no interest on the leakage and the adjustment is made on a euro basis. However, when the market is pro-seller, there may be a discussion about including an interest on the equity price, which is often refused by the buyer.

Both the locked-box mechanism and the completion accounts mechanism can lead to an adjustment of the purchase price post-closing, in the event of leakage (in the first case) or if the target’s assets and liabilities have changed (in the second case). But litigations are far more common with the use of the completion accounts mechanism.

In the event of persistent disagreement between the buyer and the seller concerning the purchase price adjustment, it is standard practice to include an expert determination clause in the share purchase agreement, as a resolution mechanism. Pursuant to this, either the buyer or the seller may request the commercial courts to appoint an independent expert.

Following the expert’s appointment by the judge, the expert will determine the amount of the price adjustment, which will be binding on both parties (except where a serious error has been committed).

Conditions Precedent Commonly Used

Most private equity deals are conditional upon the fulfilment or waiver of certain conditions precedent. Such conditions precedent generally include:

• obtainment of regulatory approvals (in particular, foreign investment and antitrust approvals);
• obtainment of funding (if any);
• obtainment of third-party consents (if key contracts containing change-of-control provisions were identified during the due diligence process); and
• the absence of any material adverse change (MAC) between signing and closing (if the share purchase agreement contains a MAC clause).

If the use of MAC clauses was important during and after the COVID-19 pandemic, they are however not a predominant feature in French private equity deals and their use has declined in the past years except in smaller transactions not intermediated by a investment banker.

“Hamon” Law

In addition, the so-called “Hamon” law has imposed several other conditions that must be met before the takeover of any company employing employees can be carried out. Indeed, the company’s employees have to be informed before the transaction is carried out so that they are able to make an offer to the seller prior to the third party making an offer. Similarly, the target’s working council has to be consulted sufficiently in advance of the transaction.

In so far as this information and consultation must be carried out before the sale takes place, it is not strictly speaking a condition precedent. The most commonly used formula is the signing of a put option, allowing the seller to exercise the option once the information/consultation obligations have been fulfilled.

This type of clause concerns, in principle, transactions of considerable size. The acceptance by the purchaser of such a clause clearly depends on the negotiating power of each party, but especially on the applicable regulatory provision concerned.

When the regulatory provision relates to competition law, and particularly to antitrust provisions, this clause is difficult to accept for the purchaser. Agreeing to it is dangerous as the remedies can be harsh and costly.

On the other hand, in the case of a provision pursuant to foreign investments in France, the negotiation of this type of clause seems to be easier. Indeed, prohibitions are very rare and remedies are easier to implement in this context. “Hell or high water” clauses are therefore less difficult to take on in this context.

In any case, this is a matter of bargaining power and the specific situation of the purchaser. If it is a private equity firm with no competing companies in the portfolio nor in the context of a build-up, a “hell or high water” clause is more likely to be accepted.

Although not specifically prohibited by French law, break fees in favour of the buyer or the seller are not commonly used in France.

If stipulated, break fees will become due if either party decides to terminate a pending deal for a reason not attributable to the other party. That being said, it is important to bear in mind that there are no punitive or exemplary damages under French law. Therefore, if the amount of the break fees exceeds the value of the damage actually suffered by the claimant party, the amount of such termination fees can be reduced by a court decision.

Acquisition agreements in France usually contain a right to terminate the transaction if the conditions precedent are not fulfilled or are waived before the contractually agreed long-stop date. Moreover, if a MAC clause is set forth in the acquisition agreement, the buyer is entitled to cancel the deal if the target’s business and operations suffer a material adverse change during the interim period (ie, between signing and closing). The duration of the long-stop date depends on the nature and number of conditions precedent involved but is usually between three and six months.

The allocation of risk generally depends on the negotiation leverage of the parties involved in the transaction and therefore may vary from deal to deal. From a legal standpoint, the risk related to the acquired target company is supported by the purchaser unless provided otherwise in the sale and purchase agreement.

Usually, the sale and purchase agreement provides a representations and warranties mechanism pursuant to which the seller can indemnify the purchaser if the target suffers a liability as a result of events prior to closing. There is usually a limitation on the amount of the liability of the seller, such as:

• a cap (stated between 10% and 30% of the purchase price);
• a threshold or a franchise; and
• a de minimis.

In private equity deals, more risks are taken by the purchaser since the representations and warranties are usually more limited (and sometimes there are almost none, except for the fundamental ones – eg, capacity, and titles to share).

When selling off their stakes, private equity funds are generally reluctant to make representations and guarantees other than warranties of title and capacity.

In contrast, the representations and warranties given by the management team usually cover a broad range of topics. Such warranties may, for instance, include:

• warranties regarding the target’s financial situation and financial statements;
• warranties regarding the conduct of business;
• operational warranties; and
• warranties regarding compliance with all the applicable laws and regulations.

As mentioned in 6.8 Allocation of Risk, representations and warranties are usually limited by a cap, a franchise/threshold, and a de minimis.

The liability of the seller can also be limited by the duration of the warranties, which is usually from 12 to 36 months.

Finally, it is worth noting that full disclosure of the data room is typically allowed against the warranties in open bid.

The other protections included in acquisition documentation mainly consist of an escrow agreement set between 25% and 50% of the cap. The purchaser also often asks the seller to find a guarantor who may have to commit personal funds. Also, in the biggest deals, the stakeholders may contract representation and warranty insurance.

In the French jurisdiction, the provisions that are most likely to lead to a dispute relating to private equity transactions are those that provide for completion accounts and earn-out mechanisms. They are a breeding ground for litigation, despite their good drafting. Nevertheless, and despite the adjustment discussed above, the private equity market remains a pro-seller market and locked-box mechanisms are becoming more common.

Similarly, warranties indemnification may give rise to litigation when implemented.

Public-to-private deals are uncommon in France.

In France, shareholders acting either alone or in concert with others are required to disclose their stakes in publicly traded companies when exceeding or falling below one of the following thresholds (whether in capital or voting rights): 5%, 10%, 15%, 20%, 25%, 30%, 33.33%, 50%, 75%, 90% and 95%.

The French Commercial Code also requires the shareholder, when crossing certain thresholds of shareholding (10%, 15%, 20% and 25% of the capital and voting rights) in a publicly listed company, to declare the objectives they plan to pursue during the next six months.

If one of the aforesaid thresholds has been reached, the relevant investor must file a report with the French Financial Markets Authority (Autorité des Marchés Financiers, or AMF) – with a copy to the issuer – within four trading days. Failure to comply with this disclosure requirement may lead to a suspension of the voting rights attached to the shares exceeding the threshold that should have been disclosed, for a period of up to two years.

Under French law, there are two situations in which the obligation to make a mandatory offer for 100% of the shares of a publicly listed company can arise:

• when a person or entity, acting alone or in concert with any other party, exceeds 30% of the voting rights or the share capital of the target company; or
• if a shareholder who already holds between 30% and 50% of the target’s share capital or voting rights increases its stake by 1% or more within 12 consecutive months.

In either case, the mandatory offer price must be at least equal to the highest price paid by the bidder for securities of the target during the 12 months preceding the obligation to file such mandatory offer.

It should be noted that exemptions and dispensations from the obligation to file a mandatory offer may be granted by the AMF in certain limited circumstances, including the following:

• subscription to a capital increase of a company in financial difficulty, subject to the approval of the shareholders’ general meeting;
• merger or asset contribution subject to the approval of the shareholders’ general meeting; and
• the holding of the majority of the company’s voting rights by the requesting party or by a third party, acting alone or in concert, etc.

If the required mandatory offer is not filed, voting rights exceeding the 30% threshold will be suspended.

In France, cash (rather than stock) is by far the most common consideration for financing an M&A transaction. Indeed, offering cash instead of shares enables the buyer to avoid dilution of its own shareholders. Thus, controlling stakes at the level of the buying company remain unchanged.

Takeover bids may be subject to certain conditions precedent. In general, the conditions precedent accepted by the AMF are the following:

• the obtainment of antitrust approvals;
• if the offer includes stock as consideration, authorisation of the issuance of new shares of the offeror by its shareholders’ meeting;
• reaching a certain threshold of target shareholder participation (in capital ownership or voting rights); and
• the success of two tender offers conditional upon each other.

However, conditions precedent relating to the obtainment of financing by the bidder are not accepted. 

Squeeze-Out Mechanisms

A squeeze-out procedure can be launched every time a given shareholder, acting alone or in concert with others, reaches no less than 90% of the target’s voting rights. If the 90% threshold is reached following the closing of a tender offer, the squeeze-out procedure can be implemented immediately, provided that the offer prospectus expressly mentions the bidder’s intention to proceed with a squeeze-out.

Commitments to tender shares from actual shareholders depend on the way the takeover is structured. Takeovers involving the participation of the shareholders of the target (and especially friendly takeovers) are usually structured in two different ways:

• a block of shares sold by the shareholders of the target to the bidder with an immediate transfer of ownership and then the launch of a tender offer by the bidder; or
• a tender commitment – in this case, the bidder undertakes to launch a public offer for the target at a price agreed on with one or more shareholders, who will then tender their shares at such price.

The choice is important in the bidding process, and is made on a case-by-case basis.

In the case of a simple sale of a significant block, the risk of a competing bid by another candidate will be reduced or even eliminated if the bidder has acquired the majority of the capital. On the other hand, the purchaser will have to obtain any necessary antitrust clearances prior to the acquisition of the block, which may delay the public offer process.

Moreover, in the case of a minority block acquisition, the acquirer will run the risk of holding a non-controlling interest if few shares are tendered to the public offer. In the event of an acquisition giving the shareholder a stake of more than 30% of the capital or voting rights, the bidder will be in a mandatory public offer situation, with price control by the AMF.

In the case of a commitment to tender, the bidder only acquires ownership of the reference shareholders’ shares at the time of settlement of the takeover bid. Thus, the bidder acquires these shares at the same time as the shares tendered by the other shareholders. If the bidder does not reach the 50% condition threshold set by French law or the condition threshold freely set by the bidder, the bidder will not acquire any shares and will not find itself a minority shareholder of the target.

On the other hand, the AMF requires that the undertakings to tender be revocable in the event of a competing bid. Thus, the bidder must accept the risk that the shareholders who have given the commitment to tender may sell their shares to a competitor in the event of a better bid.

Private equity funds often give key managers the opportunity to take part in a transaction by investing alongside them in the target.

To this end, an SPV gathering all key managers (ManCo) is often created. The stake of ManCo in the target company usually ranges from 5% to 15%, depending on the characteristics of the deal. In an MBO (management buyout) situation, the management obviously has the majority of the capital.

The indirect participation of managers in the target is generally preferred over direct participation, mainly because the former scheme is more practical in terms of corporate governance.

In general, management participation in private equity transactions is structured through a management package, which may take the form of ordinary shares, preferred shares, sweet equity and/or fixed-rate instruments. The idea is to align the interests of the management with those of private equity investors. To this end, managing shareholders benefit from higher returns on their investment.

Tax Implications

The French Finance Law for 2025, dated 14 February 2025, provides clarification regarding management incentive plans following the uncertainty created by the 2021 Administrative Supreme Court decisions. The new legislation introduces a significant change in how capital gains from management incentive plans are taxed.

• Three-times performance ratio test – Gains exceeding three times the financial performance ratio of the company are taxed as employment income, while gains below this threshold benefit from capital gains treatment.
• Dual tax regime – For gains up to three times the company’s financial performance ratio, the standard capital gains regime applies (30% flat tax (composed of 12.8% income tax + 17.2% social contributions) + 4% CEHR (additional tax for fiscal revenue higher than EUR250,000 for a single person and EUR500,000 for a couple being specified that such tax is 3% for revenue below EUR500,000 for a single person and for revenue below EUR1 million for a couple)) = maximum 34% effective rate). For gains exceeding this threshold, employment income rates apply (up to 45% income tax + 4% CEHR + 10% employee contribution = maximum 59% effective rate).
• Effective date – These measures apply to transfers, sales and leases conducted from 15 February 2025, including securities acquired, subscribed or granted prior to that date.
• Temporary provisions – The 10% employee contribution applicable to the portion of the gain exceeding three times the ratio is currently temporary and will apply to transactions carried out no later than 31 December 2027.

This new framework aims to provide greater certainty for structuring management incentive schemes while maintaining favourable treatment for gains that align with genuine company performance. Nevertheless, the law is still unclear on many aspects, and advisers are waiting for the tax administration’s comments on this new law.

In private equity transactions involving management participation, good and bad leaver provisions are usually set out in the shareholders’ agreement.

In general, a manager is deemed to be a “good leaver” if they leave the company for one of the following reasons:

• death;
• physical or mental incapacity; or
• departure approved by the investors.

In this case their shares will be transferred back to the portfolio company or the private equity investors, as the case may be, at fair market value.

On the contrary, if the relevant manager is deemed to be a “bad leaver”, their shares will be transferred at a price lower than the fair market value. In general, a manager is considered to be a “bad leaver” if they leave the company:

• for any reason other than death, physical or mental incapacity, or upon authorisation by private equity investors; or
• in the case of gross negligence, wilful misconduct, breach of the shareholders’ agreement or, in certain cases, under-performance.

In both cases, managers are required to sell their shares back to the company or the private equity investors. To this end, each manager must grant a call option to the private equity fund.

Since 2021, market practice tends to abandon the good and bad leaver distinction since it may increase the risk of requalification of the capital gain into salary. The French Finance Law for 2025 provides clarification regarding the nature of capital gains derived from management incentive plans (MIPs) (see 8.2 Management Participation), and we may see a return to the good and bad leaver distinction.

Manager shareholders often play a dual role, as they are both shareholders and employees or service providers of the portfolio company. Given this situation, manager shareholders are subject to certain obligations deriving directly from their status. Such obligations usually include non-solicitation, non-competition and confidentiality obligations, which are set out in both the shareholders’ agreement and the employment contract (or service agreement) signed by the relevant manager.

Under French law, the non-competition undertaking must be proportionate to the legitimate interests involved. To this end, these commitments are limited in time and space and to strictly defined activities. Moreover, if the manager who undertakes such a commitment is an employee, the non-competition undertaking must be stipulated in the employment contract and must be remunerated.

In the case of a majority LBO, the manager shareholders of a company do not have specific rights that would allow them to influence certain decisions that would commit the company or the structure of the company itself. Nor, for the majority of deals, do they have specific rights to influence the capital ownership or the exit of the investor. Indeed, the main purpose of managers taking a stake in a company is to give employees an interest in the company’s results. Moreover, certain important decisions need to be approved by the investors.

As an exception to the above, however, some managers may be offered certain rights as a party to an investment agreement. The content of these rights depends mainly on the negotiating capacity and the final weight that the management team is expected to carry in the company following the investment. This can go as far as veto rights on certain issues involving the company, anti-dilution protection or influence on the exit of the private equity fund.

Corporate Governance

In order to monitor the performance of a portfolio company, private equity investors usually negotiate the following corporate governance arrangements, which are generally set out in the shareholders’ agreement:

• appointment of representatives in the supervisory committee;
• veto rights on strategic decisions; and
• information and audit rights.

Nomination of supervisory committee members

Most private equity investors are granted the right to appoint a certain number of members of the supervisory committee. Such members represent the interests of the private equity fund at the level of the committee, the main role of which is to monitor business performance and vote in strategic decisions.

Veto rights on strategic decisions

Besides the right to appoint members of the supervisory committee, private equity investors are usually granted veto rights over extraordinary management decisions affecting the organisation, structure or performance of the portfolio company, which may include:

• amending the company’s by-laws;
• issuing additional shares or transferring shares;
• adopting financial budgets;
• incurring new debt above a certain threshold;
• hiring or dismissing directors and key employees;
• investing above a certain amount;
• setting up new subsidiaries or entering into a new line of business; and
• pursuing a merger, an acquisition or a carve-out, etc.

The list of strategic decisions is usually set out in the shareholders’ agreement and is sometimes reiterated in the company’s by-laws.

Information and audit rights

Information and audit rights are also commonly requested by private equity investors. Consequently, the management of the portfolio company has a reporting obligation towards investors and must provide financial reports to the private equity fund every month or at the end of every quarter. 

Furthermore, as part of their audit rights, private equity investors are entitled to conduct on-site investigations and can therefore audit the company’s books and records, either alone or assisted by legal advisers.

In general, private equity investors do not wish to interfere with the daily management of the portfolio company, in order to limit their liability in this regard. Hence, private equity investors prefer to perform a supervisory role.

However, under certain conditions, private equity funds, in their capacity as shareholders, may be held liable in the context of their activity, and the principle of limited liability may be put aside. Thus, when shareholders are found to have committed a personal error that cannot be linked to the management of the company and which has caused damage to others, it is established case law that the personal liability of the shareholder will be engaged.

Above all, shareholders will be personally liable if they are qualified as de facto managers. Thus, when a shareholder interferes in the management of the partnership in a manner that leads to a loss for the company, this interference will engage the personal liability of the shareholder. This is why counsels of private equity funds have to draft the shareholders’ agreement so carefully. Indeed, the rights that are granted to the fund have to remain information, reporting or veto rights on strategic issues. If the rights granted to the fund go further and grant it decision-making power, the fund may be held liable as a de facto manager.

Most private equity funds expect to sell their investment and therefore exit the target company four to seven years after the deal’s completion date, since the senior debt is granted for such a duration.

In the French jurisdiction, the most common forms of private equity exit include secondary buyouts and trade sales. In some cases, the exit of the LBO can intervene by merging the holding company and the operating company before the launch of the IPO. In 2024 and early 2025, the volume of IPO has decreased.

The so-called “drag-along clause” is often used in private equity transactions. It is possibly even one of the most fundamental clauses. Sometimes, the drag right is in the hands of the sole majority shareholder. Sometimes the threshold varies if there are several majority shareholders. It mainly depends on the negotiating power of each majority shareholder.

The so-called “tag-along clause” is also frequently included in private equity transactions. It can be drafted in two different ways:

• first, it can be a full tag-along right, allowing shareholders to transfer all of their shares to the purchaser for control of the company; or
• second, it may be a proportional tag-along right, the purpose of which is to allow the beneficiaries to transfer, together with a transferring shareholder, a proportional share of their holding.

This clause can typically be applied to institutional investors or to managers.

The lock-up agreement is a period during which the shareholders of a company undertake to hold the company’s shares for a given period following an IPO. This period is usually quite short and rarely exceeds nine months, although some clauses make the lock-up last for a year. IPOs are typically subject to a lock-up arrangement of 180 calendar days. This commitment is often made to reassure investors.

Shareholders’ agreements can also be concluded after the IPO, in particular, for the management or to give a priority right in the event of a share transfer.