Private Equity Firms Open the Door to Egalite for French Workers

Benjamin Robertson, Bloomberg News

A French national flag flies outside an office for rent on Rue de Rennes in Paris, France, on Wednesday, Feb. 24, 2021. French President Emmanuel Macron’s approval rating was nearly steady in February as the country braces for announcements on new measures to curb the coronavirus pandemic. Photographer: Benjamin Girette/Bloomberg , Bloomberg

(Bloomberg) -- Profit sharing and private equity are not concepts that have traditionally gone together. But some French buyout groups have begun offering workers employed in their portfolio companies a slice of any profits from the sale of their businesses in a bid to improve productivity and the reputation of a sector that some European politicians have compared to rapacious animals.

The move has been triggered by a package of reforms introduced by President Emmanuel Macron to boost investment in France’s small and medium businesses.

The buyout shops are using a specifically designed tax structure to pay the pre-agreed bonuses. The tax change, part of wide ranging reforms in 2019 known as the Pacte Law, enabled profits to be shared without tax levied on either the employer or worker. Previously, had the portfolio company or private equity fund wanted to share profits with workers, both sides would have paid tax on those payments.

The money is paid into employee saving accounts called plan d’epargne enterprise where it can only be withdrawn after several years.

“The new rules allow PE firms to directly introduce a profit sharing mechanism with employees of portfolio companies,” said Alexis Dupont, managing director at France Invest, a private equity industry association. Potentially it could also lead to greater worker retention among middle and lower wage level employees and address worries in France that private equity firms are not sharing their profits with workers, Dupont added.

Apollo Global Management Inc., KKR & Co. and TPG Inc., are among the US buyout firms that have tried something similar as a way to gift ownership to lower paid workers in an initiative known as Ownership Works.

Switzerland-based Partners Group Holding AG has also started various bonus schemes for portfolio company workers with potential benefits including a share of any sale profits and coverage of health insurance and training costs, the firm said. David Layton, its Chief Executive Officer, said that some of that money has been carved out of bonuses that ordinarily would have gone to senior staff.

Ardian, FnB Private Equity, and Qualium Investissement are among the France-based managers to have in the past year started negotiating bonuses that could equate to upwards of several months salary upon sale of a business, the buyout firms said. Payouts are contingent on the buyout groups owning businesses for at least three years and realizing a sale price that generates a set minimum return to investors, said FnB partner Valerie Lutt.

“There are no conditions for staff to access the money other than be present in the company for a set period and the exit is favorable to everyone,” said Lutt, whose firm invests in food and beverage related businesses.

FnB has rolled out the bonuses to several businesses including charcuterie supplier Henri Raffin and fruits producer Valade Group, Lutt said. Even so, there haven’t yet been any sales that have resulted in payouts taking advantage of the new tax rules.

But not everybody is happy. French union CGT’s confederal secretary Fabrice Angei is concerned the added bonus will end up being bad for businesses as workers are incentivised to focus on boosting near-term numbers in preparation for the sale of the company. “In general, and more particularly today, we believe that value sharing goes through salaries” rather than potential bonuses, he said.

An upfront agreement with workers gives them a goal to work toward, Lutt said. “It is fair to give back part of that money. They come in and work there every day.”