This overview delves into the key trends and legal nuances that will shape the French business environment over the next year, providing valuable insights for companies and investors aiming to stay ahead in a competitive and rapidly changing market.

Mergers and Acquisitions (M&A)

The M&A landscape in France in 2023 was marked by instability, although signs of recovery began to emerge. Despite a significant downturn across Europe, including a 30% decrease in the number of transactions in France, sectors like health and energy showed slight growth. There are several key trends that were observed:

1. Delays between transaction rumours and their actual commencement have increased, reflecting greater prudence and tighter access to funds.
2. The importance of thorough due diligence has grown, resulting in more transactions failing to complete.
3. Environmental, social, and governance (ESG) criteria have gained prominence, with investors keen to minimize reputational risks.
4. The number of bidders per transaction has decreased, allowing buyers more time for detailed investigations.
5. Investment funds' participation in transactions dropped significantly due to rising interest rates, although this is expected to rebound as funds seek to generate returns.

Looking into the next half of 2024, the French M&A market is expected to offer increased opportunities despite a slow start to the year. GDP growth is forecasted at around 0.9% to 1%, encouraging companies to pursue external growth strategies. Private equity funds are anticipated to play a more significant role, driven by abundant liquidity and the need for returns. The first quarter of 2024 has already shown a substantial increase in transaction values, indicating a positive trend.

Regulatory developments, such as the approval of a bill aimed at enhancing business financing and investment attractiveness, should further fuel M&A activities. The simplification wind blowing on administrative processes, including on merger control or FDI rules, should hopefully make a significant contribution to the expected rebound. The practitioners have already anticipated these changes which should positively impact the French M&A market. Key sectors expected to see continued growth include technology, healthcare, industrial manufacturing, and financial services. 

Employment 

Navigating employment law in the context of a transaction in France requires a thorough HR analysis, focusing on various critical aspects. One of the key areas is workforce and headcount, where identifying potential risks such as the reclassification of temporary workers into permanent employees and the recognition of disguised redundancies due to significant decreases in headcount is paramount. This ensures that the company remains compliant with employment laws and avoids unexpected liabilities.

Key managers are also a very important component of the deal success so that we need to verify the content of their employment contract to identify first any unexpected charge incurred in the event of a termination of their employment such as a longer notice period or a golden parachute.

But we also need to get them motivated in the deal through management package schemes to align the interests. The new trend consists in embracing also mid-level managers and not only top-level managers through largest employee shareholding tools.

Individual employee status is another crucial element that can impact the PnL and the wage bill. A primary focus here is on the remuneration policy, ensuring compliance with minimum wages as per the applicable Collective Bargaining Agreement (CBA) and adhering to the “equal treatment for equal work” principle. In that matter, the trend is also to prevent any discrimination between the employees so that the companies need to have objective criteria to justify any non-equal treatment for equal work.

Profit-sharing schemes are mandatory for companies with more than 50 employees, and their proper implementation is essential. A particular attention needs to be paid when the transaction involves a French group with more than 50 employees in total, each one employing less than 50 employees. If such companies form a common economic and social unit, they should be considered as a sole company employing more than 50 employees and therefore subject to the mandatory profit-sharing.

Working conditions and the overall social climate within the company are indicators of potential risks. Occupational accidents, diseases, strikes, staff representatives' claims, and the number of terminations and litigations provide insight into the company's social environment, which can significantly affect a transaction. Litigation and social security reassessments by the URSSAF (social security recovery fund) also need careful analysis to ensure future compliance and adequate provisioning.

The last but not the least: Prior consultation with the works council is mandatory for companies with more than 50 employees. These councils, though lacking veto power, must be consulted before any binding decision, particularly in transactions involving changes in control. This consultation process can extend up to two months if an expert is appointed. Additionally, under the “Loi Hamon,” companies with less than 250 employees and specific financial thresholds must inform employees of any direct sale of over 50% of the shares or in case of a sale of a going concern, allowing them to submit an offer. Non-compliance with these regulations can result in significant fines. It was currently being discussed in French Parliament / Senate to potentially repeal the Loi Hamon (or at the very least reduce its duration).

Compliance

Since the entering into force of the Sapin II law in December 2016, companies in France with 500 or more employees, or those belonging to larger groups and whose sales or consolidated sales exceed one hundred million euros, must implement comprehensive compliance programs in order to fight against corruption.

In the context of M&A transactions, compliance is increasingly scrutinized. This is particularly relevant in settlement agreements with prosecutors (Deferred Prosecution Agreements, or DPAs) and internal investigations. Ensuring robust compliance programs can mitigate risks and enhance the overall value and integrity of a transaction.

Artificial Intelligence

Artificial Intelligence (AI) is rapidly reshaping the business landscape, introducing both opportunities and challenges. The European Parliament's adoption of the AI Act on 13 March 2024 marks a significant step in regulating AI systems, categorising them into four risk levels: unacceptable, high, limited, and minimal (or no) risk.