Recent Trends

Following a strong recovery in the second half of 2025, French M&A and private equity activity has shown more mixed momentum in early 2026. Across the eurozone lower mid-market, M&A and leveraged buyout (LBO) volumes increased by approximately 30% in H2 2025 compared with H1 2025, while M&A activity was up 8% year-on-year, supported by improving financing conditions, lower valuation expectations and stronger market sentiment. By contrast, activity in France slowed in Q1 2026, with transaction volumes declining by 20.4% year-on-year and aggregate deal value falling by 38.3% year-on-year, reflecting fiscal uncertainty and greater caution among financial sponsors. Nevertheless, sponsor activity in the eurozone lower mid-market remained resilient, with LBO volumes approximately 30% above Q1 2025 levels and acquisition multiples paid by financial sponsors increasing to 10.0x EBITDA, suggesting a gradual recovery in sponsor-led transactions.

Global trends affecting the French market

French deal activity has continued to reflect broader European and global market dynamics. Across the eurozone lower mid-market, the recovery in M&A activity during H2 2025 was supported by moderating inflation, improving economic conditions and the easing of finance markets, although it remained less pronounced than the rebound that was observed globally, particularly in large-cap transactions. However, the global market environment remained affected by persistent geopolitical and macro-economic uncertainty. Ongoing international conflicts, including those in the Middle East, uncertainty surrounding US trade policy and higher long-term interest rates continued to weigh on investor confidence, financing conditions and valuation expectations, contributing to a more cautious approach to dealmaking in early 2026.

Sector-specific trends

Sector activity remained uneven during the past year. Deals in the consumer and construction sectors recorded the strongest growth in aggregate value, supported by several significant acquisitions. By contrast, activity in the technology, media and telecommunications (TMT) sector moderated following exceptionally strong levels in previous years, reflecting greater valuation discipline and a more selective investment approach. Continuation fund transactions also continued to gain prominence in the French private equity market, providing sponsors with additional liquidity solutions and supporting fundraising, investment and exit activity in a more challenging market environment.

2026 Outlook

The outlook for 2026 remains cautiously optimistic. The rebound in valuation multiples and renewed sponsor activity in the European market suggest that the market is gradually normalising, supported by improved financing conditions and sellers’ more realistic valuation expectations. However, the sustainability of the recovery will depend on continued private equity capital deployment and improvements in the macro-economic and geopolitical environment, as uncertainty surrounding interest rates, geopolitical tensions and French fiscal policy continues to affect dealmaking.

Most Active Sectors

The consumer, construction and infrastructure sectors have been among the most active areas of the French M&A market over the past year, driven by several large-scale acquisitions and continuation fund transactions. Growth has also been supported by continuation funds across the private equity market, particularly in capital transmission (buyouts), while growth capital recorded strong increases in both investment value and transaction volumes. By contrast, the TMT, business services and industrial sectors experienced weaker deal activity during the same period.

Impact of Macro-Economic Factors

French private equity activity has continued to be shaped by a complex macro-economic and geopolitical environment. Rising long-term interest rates, concerns over sovereign debt, geopolitical tensions (including the conflict in Iran), volatility linked to US tariff policy and France’s domestic political uncertainty have weighed on investor confidence, financing conditions and valuations. Nevertheless, easing inflation, resilient economic fundamentals, the improved availability of financing and sellers’ gradual adjustment to lower valuation expectations supported the recovery in mid-market M&A and private equity activity from the second half of 2025 onward, but the economic context is still difficult and transactions take longer to close.

Consolidation and Expansion of Foreign Investment Controls

The expanded foreign investment control regime (see 3.1 Primary Regulators and Regulatory Issues) has significantly increased the complexity of due diligence processes for private equity transactions. Investment funds with foreign investors in their ownership or control chain must 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.

In France, the foreign investment regime was also subject to a procedural amendment in 2026. Decree No. 2026-718 of 30 July 2026 amended the rules applicable in particular to foreign investments by non-EU investors in French companies whose shares are admitted to trading on certain foreign regulated markets. The decree entered into application on 17 August 2026.

At EU level, this trend has also been reinforced by Regulation (EU) 2026/1386 on the screening of foreign investments in the Union, adopted on 17 June 2026, which repeals the previous EU framework and strengthens the co-operation and minimum screening framework applicable to EU member states (“Member States”). The new regime requires Member States to establish screening mechanisms meeting common minimum requirements and provides for enhanced co-operation between Member States and the European Commission. However, a number of the new obligations will only become applicable following the implementation timetable set out in the Regulation. The incorporation of this new Regulation into French regulation is not, however, expected to result in any significant changes to French regulation.

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.

The European Commission is also reviewing its Horizontal and Non-Horizontal Merger Guidelines. Draft revised guidelines were published on 30 April 2026. The review is intended to update the assessment framework in light of developments including digitalisation, decarbonisation, dynamic competition and new market realities.

Practical Implications for Private Equity Investors

Transaction timing and structure

The consolidation of foreign investment controls as permanent features of the French and European 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 2024–2025.

Regarding ESG compliance, France continues to align with European developments. ESG compliance has become increasingly relevant for private equity investors through EU-level regulations, particularly requirements in relation to the Sustainable Finance Disclosure Regulation and Corporate Sustainability Reporting Directive, which influence fundraising, investment processes, portfolio monitoring and exit preparation.

On 3 July 2026, the European Commission adopted revised European Sustainability Reporting Standards (ESRS), reducing the number of mandatory datapoints by more than 60% and the total number of datapoints by more than 70%. At the date of this memorandum, however, the revised ESRS remain subject to scrutiny by the European Parliament and the Council and are therefore not yet fully applicable.

Key Regulatory Authorities for Private Equity Transactions

Private equity transactions in France may be subject to review by the French Competition Authority (FCA), the European Commission and the Minister of the Economy and Finance.

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 FCA and cleared before they can be completed. Law No. 2026-403 on the simplification of economic life increased the merger control thresholds applicable in mainland France. As from 1 September 2026, the thresholds for notification to the FCA are now the following:

• the total global pre-tax turnover of all the companies, groups of legal persons or individuals who are parties to the merger must be greater than EUR250 million (up from EUR150 million); and
• the total pre-tax turnover generated in France by at least two of the companies, groups of legal persons or individuals concerned must be greater than EUR80 million (up from EUR50 million).

The specific merger control thresholds for the retail sector are also increased as from 1 September 2026. The thresholds for notification to the FCA are now the following:

• the total global pre-tax turnover of all the companies, groups of legal persons or individuals who are parties to the merger must be greater than EUR100 million (up from EUR75 million); and
• the total pre-tax turnover generated in France by at least two of the companies, groups of legal persons or individuals concerned must be greater than EUR20 million (up from EUR15 million).

The specific thresholds applicable to overseas French territories where the FCA has jurisdiction remain unchanged.

In parallel, the FCA is considering introducing a “call-in” power, which would allow it to review and potentially control mergers that do not meet the notification thresholds but may nevertheless raise significant competition concerns. The exact framework for this power has not yet been determined and would require legislative approval.

European Commission

Similarly, the thresholds that must be crossed to bring a transaction within the EU’s jurisdiction include, under the first alternative, a global turnover of all the parties to the transaction of greater than EUR5 billion and a turnover in the EU of at least two parties of greater than EUR250 million. An alternative set of thresholds applies where the parties have aggregate worldwide turnover exceeding EUR2.5 billion and meet specified turnover thresholds in at least three Member States.

The European Commission is currently reviewing its Merger Guidelines, with draft revised guidelines published on 30 April 2026. The review is intended to reflect changes in the economy, including digitalisation, globalisation and decarbonisation, as well as developments in the Commission’s enforcement practice and EU case law.

Minister of the Economy and Finance

In 2024, France amended its foreign direct investment (FDI) rules, expanding the scope of the investments that are covered and the activities that are subject to controls. Notably, foreign-owned unincorporated businesses registered in France are now encompassed.

The 2024 amendments have permanently solidified 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.

In 2026, France further amended the procedure applicable to certain foreign investments in French companies whose shares are admitted to trading on a foreign regulated market by non-EU investors. The amendments concern the procedural framework and the identification of relevant regulated markets and entered into force on 17 August 2026.

At EU level, Regulation (EU) 2026/1386, adopted on 17 June 2026, establishes a strengthened framework for screening foreign investments in the Union and repeals Regulation (EU) 2019/452. The Regulation provides for common minimum requirements, enhanced co-operation between Member States and the European Commission and, for specified sensitive activities, prior authorisation requirements. Member States have until 17 January 2028 to notify the Commission of their national screening measures adopted pursuant to the Regulation.

Sovereign Wealth Funds and Financial Investor Distinctions

French regulators 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.

Impact of Foreign Subsidies Regulation

The EU Foreign Subsidies Regulation (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 FDI controls. This creates an additional layer of regulatory complexity for private equity transactions, particularly:

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

In January 2026, the European Commission adopted guidelines under the FSR clarifying, among other matters, the assessment of distortions, the balancing test and the Commission’s call-in mechanism. These guidelines provide additional predictability for companies and should facilitate the assessment of FSR issues in transaction planning and due diligence.

The scope and depth of legal due diligence reviews continue to be determined on a case-by-case basis. The level of 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.

The increasing practical application of the EU AI Act is also becoming relevant to technology and data-related due diligence. From 2 August 2026, enforcement powers concerning certain provisions of the AI Act started to apply, including rules relating to prohibited AI practices and transparency requirements. The high-risk AI rules will apply on later dates. Accordingly, AI-related due diligence may need to address the target’s use and development of AI systems.

ESG due diligence is also affected by the evolving European sustainability reporting framework. The revised ESRS adopted by the European Commission in July 2026 substantially reduce the number of mandatory reporting datapoints, although they remain subject to scrutiny before becoming applicable. This should be taken into account when assessing the target’s current and anticipated reporting obligations and the information required for future financing or exit processes.

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 2026, 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 produced 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 customary.

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

If the target is instead being sold by means of an auction process, 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);
• benefiting from a flexible statutory framework, the SAS gives its shareholders broad discretion to tailor its corporate governance arrangements through the articles of association, which is particularly appealing for private equity investors; and
• the shareholders’ liability is limited to the amounts 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 2026 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; and
• unitranche debt, which consists in a hybrid loan structure that combines senior debt and mezzanine debt into a single facility, with the different components sharing the same contractual maturity and repayment structure.

To provide contractual assurance as to the availability of the equity financing required to complete the acquisition, a privately funded buyer will often provide an equity commitment letter.

Private equity investors regularly take both minority and majority positions. However, growth capital investments in which investment funds take minority positions have become increasingly significant. These transactions are no longer the exclusive privilege of small companies, but also concern medium-sized and large companies. Similarly, some large investment funds are more willing to take minority positions in order to gain access to other, more attractive opportunities, in the context of a management 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 and the Public Investment Bank (Banque publique d'investissement, or Bpifrance) 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 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.

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

Earn-out clauses are also quite popular in France. Although such a clause is inserted into a minority of all private equity transactions, it 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 such a mechanism as an opportunity to reap the benefits of developments or support that will continue after the deal.

Nonetheless, it is evident that earn-out clauses are more prevalent in transactions under EUR100 million. Above this amount, 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-for-euro basis.

However, when the market is pro-seller, there may be a discussion about including 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). However, litigation is far more common with the use of the completion accounts mechanism.

In case 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:

• obtaining regulatory approvals (in particular, foreign investment and antitrust approvals);
• obtaining funding (if any);
• obtaining 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).

The use of MAC clauses gained increased attention during and in the immediate aftermath of the COVID-19 pandemic. However, they remain an uncommon feature in French private equity deals, and their use has declined in the succeeding years.

“Hamon Law”

The so-called “Hamon law” imposed several other conditions that must be met before the takeover of any company employing employees can be carried out. Law No. 2026-403 on the simplification of economic life significantly amends the employee information requirements introduced by the so-called “Hamon law”, which requires employees to be informed of a proposed sale of a business or a controlling interest in a company and given the opportunity to submit a purchase offer.

For transactions signed on or after 27 July 2026, employees of companies with fewer than 50 employees must continue to be informed individually of the proposed sale. However, the period for informing employees is reduced from two months to one month before the sale. The maximum civil fine for non-compliance is also reduced from 2% to 0.5% of the transaction value.

For companies with 50 or more employees and a works council (CSE) with extended consultation powers, the requirement to directly inform employees individually is abolished. Going forward, only the CSE information and consultation process will apply. This removes the previous overlap between the CSE consultation process and the individual notification of employees.

By contrast, for companies with 50 or more employees without a CSE with extended consultation powers, individual employee notification remains mandatory. This represents a significant change, as the previous legislation applied the requirement to a narrower category of SMEs. Under the new rules, large companies that do not have a relevant CSE may also be subject to individual employee notification. The reform could therefore increase, rather than reduce, the administrative burden associated with transactions involving certain large companies, contrary to its stated objective of simplification.

In so far as this information must be provided 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 a put option, which the seller is allowed to exercise once the information/consultation obligations have been fulfilled.

“Hell or high water” clauses concern, in principle, transactions of considerable size. The acceptance by the purchaser of such a clause clearly depends on the negotiating power of each party and, importantly, on the nature of the regulatory approval required and the potential remedies that may be imposed.

Where the relevant regulatory approval concerns competition law, particularly merger control or antitrust rules, such a clause is difficult for the purchaser to accept. Agreeing to one is dangerous as the remedies can be harsh and costly.

On the other hand, where the relevant approval relates to foreign investment screening 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. Where the purchaser is a private equity firm whose portfolio does not contain competing businesses and which is not pursuing a build-up strategy that could give rise to additional competition concerns, 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 break 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 MAC between signing and closing. The long-stop date depends on the nature and number of conditions precedent involved but is usually between three and six months after signing.

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 taken on by the purchaser unless provided otherwise in the SPA.

Usually, the SPA 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.

The seller’s liability is usually subject to several contractual limitations, including: 

• 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 on by the purchaser since the representations and warranties are usually more limited (and sometimes the seller may provide little more than fundamental warranties, eg, capacity, title, etc).       

When selling their stakes, private equity funds are generally reluctant to make representations and warranties 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 usually ranges from 12 to 36 months.

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

Among the other protections included in acquisition documentation, the main one consists 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, for the biggest deals, the parties may purchase representations and warranties insurance.

In France, 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, even when they are well drafted. Nevertheless, 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 those stakes cross one of the following thresholds (whether in capital or voting rights): 5%, 10%, 15%, 20%, 25%, 30%, 33.33%, 50%, 66.67%, 90% and 95%.

The French Commercial Code also requires shareholders, when they cross 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 crossed, the relevant investor must file a report with the 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
• when a shareholder that 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’ equity. 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:

• obtaining 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 obtaining of financing by the bidder are not accepted. 

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 share capital and 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 one of two 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 with one or more shareholders, who will then tender their shares at such price.

The choice between the above 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 prospective purchaser may 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 acquirer 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 that 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 a 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 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 (12.8% income tax + 4% CEHR (a high-income surtax) + 18.6% social contributions = maximum 35.4% 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 concluded from 15 February 2025, including securities acquired, subscribed or granted prior to that date.

This new framework, further clarified by the French Finance Law for 2026, aims to provide greater certainty for structuring management incentive plans while maintaining favourable treatment for gains that align with genuine company performance.

In private equity transactions involving management participation, “good leaver” 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 these cases, 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 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, underperformance.

In both of these 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.

The French Finance Law for 2025 provides clarification regarding the nature of capital gains derived from management incentive plans (see 8.2 Management Participation), which had been a matter of uncertainty following the decisions taken by the French Administrative Supreme Court on 13 July 2021. With the introduction of the new three-times performance ratio test, market practice is now evolving:

• Return of leaver provisions: The new legislation provides greater certainty by establishing clear tax rules based on company performance rather than solely on the employment relationship. This may allow market participants to reintroduce good/bad leaver provisions with more confidence, as the tax treatment is now primarily determined by the performance-based formula.
• Focus on performance metrics: The emphasis has shifted to ensuring that the company’s financial performance calculation is robust and defensible, as this directly impacts the tax treatment of gains under the new regime.
• Strategic structuring: Management incentive plans can now be structured with leaver provisions while managing tax risk through the performance-based framework, provided the three-times performance ratio test is carefully considered in the design.

The 2025 Finance Law effectively provides a safe harbour for properly structured management incentive plans, potentially allowing for more traditional leaver provision structures while maintaining favourable tax treatment for performance-aligned gains.

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. 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.

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.

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 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 company in a manner that leads to a loss for the company, this interference may engage the personal liability of the shareholder.

This is why counsel to private equity funds must carefully draft the shareholders’ agreement. Indeed, the rights that are granted to the fund should generally be limited to 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 France, the most common forms of private equity exit are secondary buyouts and trade sales. In some cases, a private equity investor may exit through a merger of the holding company with the operating company, followed by an IPO of the combined entity. In 2025 and beginning of 2026, the number of IPOs has remained low in France.

So-called “drag-along clauses” are often used in private equity transactions. This is possibly even one of the most fundamental types of clause.

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.

So-called “tag-along clauses” are also frequently included in private equity transactions. Such clauses may provide for either or both of the following mechanisms:

• a full tag-along right, allowing shareholders to transfer all of their shares to the purchaser acquiring control of the company; and/or

• 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.

A lock-up agreement is an undertaking by the shareholders of a company 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.