FRANCE: An Introduction to Corporate/M&A: High-end Capability

The French M&A market has been impacted by uncertainties linked to inflation and interest rates, creating difficulties in aligning the expectations of sellers with the intentions of buyers. Following from 2023, the beginning of 2024 has shown a small slowdown of jumbo transactions, while small and mid-cap transactions remain fairly active.

Foreign Investment Control 

France has strengthened its regulation concerning the control of foreign investments (IEF) through a decree and an order dated 28 December 2023, with these measures entering into force on 1 January 2024.

First, the list of transactions falling within the scope of the regulation has been expanded to include the acquisition of branches established in France of foreign companies. Thus, the acquisition of control, by a foreign investor, of a foreign entity with a branch in France exercising a sensitive activity is subject to the IEF regime. 

Second, the decree has made permanent the control of extra-European investors crossing the 10% threshold of voting rights in French listed companies that are active in a sensitive sector. This was initially introduced as a temporary measure in the context of the COVID-19 crisis.

Third, the sectors covered by IEF regulation have been expanded to include activities related to

• extraction;

• transformation and recycling of critical raw materials;

• research in photonics and low-carbon technologies; and

• activities essential to the security of penitentiary establishments.

Fourth, exemptions for intra-group reorganisations have been simplified.

Finally, the filing of IEF requests has been made easier following the creation of the “IEF Platform” in October 2023, which allows for the digital filing of authorisation and prior examination requests.

CSRD 

Transposed into France and published in the Official Journal on 7 December 2023 – and effective from 1 January 2024 – the Corporate Sustainability Reporting Directive (CSRD) requires European companies to publish clear and comprehensive information on their environmental and societal impacts. Replacing the Non-Financial Reporting Directive (NFRD), the CSRD aims to enhance the quality, comparability and consistency of non-financial information published by companies, broadening the scope of targeted companies and introducing mandatory sustainability reporting requirements.

The Directive imposes new transparency requirements regarding companies’ commitments to sustainable development and corporate social responsibility (CSR), aiming to end greenwashing and compel large companies to better communicate their environmental and social impacts.

Companies targeted by the CSRD include large companies, whether listed or not, meeting certain thresholds in terms of employees, turnover and total balance sheet. Additionally, SMEs listed on European regulated markets are also targeted by these new obligations if they meet certain criteria.

The implementation schedule of the CSRD provides for a gradual implementation of the new reporting obligations, with different deadlines for each category of company (extending until 2029 for some). 

The CSRD aims to improve the reliability and assessment of non-financial information by introducing the principle of “double materiality”, which considers both the impacts of a company’s activities on sustainable development issues and the repercussions of these issues on the company itself.

To comply with the CSRD, companies are recommended to take proactive measures, such as:

• evaluating performance on ESG indicators;

• conducting a risk and impact analysis on ESG criteria; and

• engaging in open dialogue with stakeholders.

Anti-corruption Provisions of the “Sapin II” law

A regulation known as the Sapin II law was enacted in 2019, and aims to enhance the prevention and fight against corruption in France. It addresses previous shortcomings that led to foreign investigations into French companies, notably due to extraterritorial anti-corruption laws.

Sapin II introduces binding measures for large corporations, requiring the establishment of a corruption-prevention and detection system.

This system includes numerous key elements, such as:

• implementing a code of conduct;

• an internal alert system;

• risk mapping;

• third-party evaluation procedures;

• accounting controls;

• training programmes;

• a disciplinary regime; and

• an internal evaluation system.

The French Anti-Corruption Agency (AFA) plays a central role in monitoring the implementation of these measures and in sanctioning companies for non-compliance. Sanctions may include fines of up to EUR1 million for companies and EUR200,000 for their representatives.

Despite the progress made by the Sapin II law, France remains ranked 21st in Transparency International’s 2022 Global Corruption Perception Index. Recent recommendations aim to strengthen existing mechanisms, particularly by enhancing the role of the AFA and improving transparency in public procurement.

Further, the Minister of Economy, Bruno Le Maire, has expressed his commitment to intensifying the fight against corruption, suggesting new measures to enhance AFA controls in certain sectors deemed sensitive.

These evolutions mean that, in the context of due diligence, increased focused is being placed on the assessment of compliance with applicable regulation. Also, in the context of the negotiation of M&A agreements, emphasis in often placed on negotiating specific provisions dealing with allocation of responsibility in the event of non-compliance with these rules.