Française des Jeux, coming out of state ownership, was one of the largest and most successful IPOs in Europe over the last 5 years, raising $2bn for the French state and helping revive retail interest in IPOs. With Claire Vernet-Garnier, who was Head of the Finance Division at the French Government Shareholding Agency (APE) at the time, we go through the important choices around this successful IPO, and the characteristics of the government as a long-term shareholder in public markets.

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Disclaimer: this discussion is not financial advice, nor an investment recommendation, nor a solicitation to buy or sell any financial instruments, or an offer for financial services or any other transaction. The information contained in the recording have no contractual value and are destined for an informational purpose only. Amundsen Investment Management and the participants on this podcast may have holdings in the companies being discussed.


Per Einar Ellefsen: Today, we’ll talk with Claire Vernet-Garnier, who until recently was responsible for equity capital markets at the French Government shareholding agency, the APE. Claire comes from a background as an ECM investment banker, and was from 2018 to 2022 responsible for the agency’s interaction with the equity markets, such as privatizations through IPOs or block offerings or capital raises for companies in the agency’s portfolio.

In particular, Claire was responsible for the privatization of Francaise des Jeux, the French gambling monopoly, in 2019, which was one of the largest and most successful IPOs in Europe that year. Claire will discuss the role of the government shareholding agency, the choices around the structure of the Francaise des Jeux IPO, the retail offering, and the role of institutional investors in the process.

Before we start, we’d like to remind our listeners that the discussion is not an investment accommodation, and the Amundsen Investment Management and the participants in this podcast may have holdings in the companies being discussed.

Claire, thank you very much for joining us today. It would be great if you could just give us an introduction about yourself and how you came to work with equity capital markets.

Claire Vernet-Garnier: Thank you, Per. Thank you for inviting me on the IPO Stories podcast today. I’m Claire Vernet-Garnier. I’m 39 years old, a happy mom of two little men, three and five years old now. I’m French, born and raised near Paris, by French parents, so very French. I spent, as you mentioned, almost eight years in investment banking, starting my career in the equity capital markets team of a French bank, Société Générale in Paris. Then I joined a US bank in London for three years and then went back to Paris at Société Générale, always keeping on working in the equity capital markets.

After that, I joined Euronext. That was back in 2015, where I’ve created and launched a new business within this Pan-European stock exchange, which consisted in advising, again, corporate, mostly small- to medium-sized companies, actually at the time, willing to IPO on Euronext market. The business expanded to what is called today Euronext Corporate Services with quite of a nice success. That’s really up to the time when I joined the APE back in 2018.

Per Einar Ellefsen: Your role at the government shareholding agency, the French Agence des Participations de l’État, it’s quite interesting because it’s something that exists in quite a lot of European countries, but maybe not so much in the US. Can you tell us a bit more about the role of the Government Shareholding Agency in France?

Claire Vernet-Garnier: Agence des participations de l’État, or APE, the French state shareholding agency, is the agency that assumes the role of the French government as a shareholder in a French publicly-owned companies and which sits under the authority of the Minister for the Economic and Finance. When I joined the APE in 2018, I was in charge of what we call the finance and capital market division there, which role was to work on and execute all types of transactions where the share capital for your company was affected in one way or another.

Per Einar Ellefsen: If you look at, especially the US example, where this is not common at all, why do you think there’s such a different approach to government ownership of companies across different countries?

Claire Vernet-Garnier: Well, I think it’s due to a different approach of the role of the state in the overall economic system. I’d say clearly across history, where in the US you have more of a liberalized economy, where the state doesn’t have at all the same weight in the share capital of companies. Stock markets are a much more developed ways of raising capital. You have a very strong institutional investor base, which we also have in Europe, but in the States, it’s a way of funding companies that is per se the approach from existing shareholders prior to being listed and to management team to grow the company over time.

In that sense, in France in particular, but in Europe overall, the system is different. One of the reasons as well for that in terms of the institutional investor base that is so big and play an important role in the US is the presence of pension funds, which is something we, unfortunately, I would say for this kind of objective we don’t have in France or in some other countries of Europe, and most of them actually. This is for me one of the main explanations of that difference is.

Per Einar Ellefsen: You could actually say that government ownership is necessary because there is not the same pension system to hold equities over the long term in a sense.

Per Einar Ellefsen: Exactly. You have another way of having a long-term stable shareholder, and it’s the state. It’s not only the APE, by the way, you have the CDC, the Caisse des dépôts et consignations Bpifrance, BPI, which also plays a very important role in financing the economic system of enterprises more on to the small- to medium-sized enterprise in the country. All of that, I’d say, the word is not right, but compensate for not having the pension funds.

Per Einar Ellefsen: This brings us to the privatization of Francaise des Jeux, which we’re going to spend a bit more time on in November 2019. Can you tell us a bit on the specific considerations around the Francaise des Jeux privatization?

Claire Vernet-Garnier: Yes. As part of this privatization program, during which we had a number of debates in the French Parliament, almost over the course of more than a year actually, between 2018 and 2019, there was the willingness to privatize FDJ. In detail, we talked about it in terms of the reason why we wanted to do that. There was also consideration around privatizing Aéroports de Paris.

Then the discussion that we had was, what kind of privatization would that be? How would we reduce the stake into the company? In parallel of the legislative process to get approval for privatizing the assets, we started thinking and reflecting on how such operation would be held in terms of the infrastructure itself, the size of the transaction, how much of the company would the state sell, what would be the targeted proceeds, the remaining holding of the state in the company, what would be the preferred track to optimize valuation? Would it be an IPO or trade sale, a sale to a strategic partner to private equity? All those questions would be talked about in the APE .

Per Einar Ellefsen: I wanted to talk a bit about the process around the IPO, because you were responsible for the transaction from the state side. Of course, you were involved in the entire process from, as you said, the preparation, the legislative side, the selection of advisors and the preparing of the company from being almost a government entity to being an independent public company. Of course, you worked with some investment banks on the way who, as usual in IPOs. Coming from that side as well, I’m sure you were able to select them quite it well. When you saw the pitches from the investment bankers, what ended up driving the selection of the advisors you worked with?

Claire Vernet-Garnier: What was important to us for the selection of the bank. The main criteria that we had were obviously the understanding of APJ’s business model and potential for growth, the equity story and the way the bank were able to thoroughly understand it, position it as well, valuation, each bank’s placement capabilities towards institutional investors, not only in France, but all around the globe, was very important. Also, the entire capabilities for some of them, mostly the French banks, obviously, their capabilities to address French retail demand through retail networks, as we knew we wanted a large retail offering.

Some of the important criteria were precedent transactions each bank worked on and so forth. There were a number of things we considered and we ranked all candidates based on each of the criteria that I’ve just mentioned so we could make a, I’d say, disciplined selection and really structure the right set up, considering the nature of the transactions and the way we wanted to have this IPO happen with both institutional tranche but also a retail tranche.

Per Einar Ellefsen: It was definitely a very large transaction. Even for today, I don’t think in this environment right now it would be possible to execute a €1.8 billion transaction. It’s very interesting that 75% of the institutional demand actually came from non-French investors. It was still very important to get the story out on the road, even though it was a very well-known company in France, right?

Claire Vernet-Garnier: Yes, we were surprised on the upside, to be honest. We were thinking French state, French company, and French stakeholders. Most of the thinking was that it would be mostly a French institutional placement. It was not the case because, again, we had this ability to set up a banking syndicate where each one of them would add to this international reach of the investors. The story, which is unique in the gaming and gambling sector, was very attractive to the market. Again, not going to sell it today, but resilient business model, regulatory environment that was actually set up, reinforced as part of the privatization process by the state, clear to the market, securing growth prospects of FDJ but of the overall sector in France.

Potential for M&A consolidation, the willingness, and the management team did a great job into convincing that they would be able to expand internationally FDJ, which is what they did write in the IPO, were all criteria that were so attractive to investors that were not only French and be exposed to the French market. At the time of these transactions, what was also something that was very positive for the global equity market, where France was well-positioned in terms of economical dynamism, and this wave of privatization was part of the demonstration of that.

It was more FDJ, of course, quality of the asset, quality of the management team, so an overall economic regulatory environment that was very supportive for the international market to get into the deal.

Per Einar Ellefsen: As part of the roadshow, of course, you interacted and the company interacted with most of the top institutional investors in Europe, some outside Europe. Did you feel that these investor touchpoints helped you in the process, especially in terms of the pricing? Who was the most useful, in a sense? Was it local investors, The global sector specialists? How do you see the institutional investor interaction there?

Claire Vernet-Garnier: Ahead of the formal launch of the FDJ transaction, i.e. well ahead of the registration documents being approved by the French AMF, at the APE, we did do a roadshow. It was in 2019, which was also the opportunity to introduce the agency to national but also international investors who did not know us very well to explain the aim of the French government’s privatization program, to present the assets that we were contemplating to sell at the time, the potential timing of the transactions, the way we would sell them, and so on.

It was a very interesting exercise whereby we gathered direct but very preliminary, at the time, feedback from investors who had not really started studying the asset itself. For instance, many of them told us that the IPO route was a good one to privatize FDJ and that they would like to be involved into the process when it’s already launched. Then we discussed with, again, many investors during the formal process. Most importantly to me, we did it in close coordination with the management team. It was up to FDJ’s senior management team to have as many interactions as possible with investors and explain to them the company strategy, the detail, to share the financial guidance, explain how the group ESG roadmap, etc.

As far as APE is concerned, the main questions I had from investors were obviously, as you mentioned, on valuation expectations. There were many questions also on the new regulatory environment which we set up and its stability over time. Investors wanted to know if the state could remain a strategic core shareholder in the long term with our views on the government. What would it mean in terms of the board structure and composition?

There were all these questions where the main ones, and it was for us, as a selling shareholder, very useful because it allowed us to be provided with feedback along the way, making sure that we would not do something that the market would have rejected in some way or another. Honestly, yes, quality of the interaction with and feedback gathered from investors varies a lot from one to another. All buckets of demand are important. We talked about it earlier. It’s not about what kind of investors would be much more important to have a successful transaction, but some of them are more helpful than others. Allowing stakeholders to fine-tune the story, the structure of the transaction, to set the valuation range.

Per Einar Ellefsen: One particularity of the Francaise des Jeux IPO was the very strong retail interest. Of course, it was a well-known brand, but also 40% of the transaction was actually allocated to French retail investors. With a specific structure, you had an additional discount on price and some bonus shares for longer holding periods. I haven’t actually seen this in any other transactions, so I’m interested in hearing how you came up with this setup.

Claire Vernet-Garnier: Yes. As I said, 40% of the 1.9 million transactions was allocated to retail investors, which is well above the standard 10% retail tranche that you have in French IPO. This was due to the specificities of this deal. The privatization first, not just an IPO of an iconic company, well-known to, again, I said it earlier, but we wanted to attract retail investors and attract them genuinely [chuckles]. You have to demonstrate that the size of the transaction that would be allocated to them would be to be sizable and it was not this theoretical willingness to have them in.

We reserved a large part of this deal to retail demand and allocation. The way we thought about it, and in order to enhance this retail demand to drive attention to retail investors, we did several things. We actually did three things together with the company . The first one was to have a very strong communication plan on the transaction involving also the, I said it earlier, but the French bank’s retail networks. It’s not about placing the shares, they can’t do that anymore. Making the client aware, be able to respond to that question around this offering.

We, at the state level, also engaged into a very strong communication plan around the privatization program overall, but the FDJ’s transactions itself. We did mobilize the Minister of Finance, the government overall, of course, the head of the APE, at the time, the whole team, and the company management itself was more than engaged into that plan and the did a really good job building French citizens’ awareness around this deal. Then, second lever that we had to drive attention was to offer a discount on the IPO price set by institutional demand and dedicated to retail investors.

We offered a 2% discount on the final IPO price for institutional, which was €19.90. The price for retail investors was €19.50 per share. That was to say, if you come into the deal, then it will be more attractive to you as a retail investor than it is for the market, i.e. potentially more educated players into this kind of transaction. The third thing that we did, again, here to attract demand, was to commit into remitting an additional share for each tranche of 10 shares acquired by a retail shareholder at the time of the IPO, provided that the shares would be held for at least 18 months from the pricing of actually settlement and delivery of the offering.

Per Einar Ellefsen: As you said, the offering was very large for a European IPO, especially of a midcap company. The government sold down 52% of the company in the transaction, which again is quite a large free float compared to the usual for that size of a company. How did you end up pricing the IPO, because of course, you as a seller, you were quite price sensitive? You wanted to get the right price, but at the same time, you wanted the IPO to work out well. How did you end up doing that?

Claire Vernet-Garnier: Not going to repeat how important was the interactions and feedback from investors that we gathered along the way. We analyzed more than, it was a bit crazy, more than 1,500 pieces of feedback during the pre-marketing on this transaction. In the various discussion, we had our advisors, FDJ’s management team, to set up the valuation round and then the price of the deal.

We wanted the stake, obviously, to be fully and highly valued at IPO while, should the company deliver on its plan, keeping upside for share price appreciation in the medium to hopefully the long term. I think this is where we did a very good job with all parties involved. Again, investors’ feedback was critical out of it to really have the right balance in valuing fully the state’s stake, but also making sure there was potential for growth in terms of the share price performance, again, provided the company would deliver on all the guidance, not only the financial guidance, but all the post prospects that they explained they would do to the market. At the end of the day, the price of an IPO is, as I said earlier, the match in between demand and supply of shares. We were many times over-subscribed in these transactions. As you know, the institutional tranche was more than eight times, almost nine times of the subscribed. More than two times of the subscribed for the retail tranche. There was no discussion when we priced the deal that they put price at the higher end of the evaluation range that we set, and it was an impressive of a subscription rate in a very positive capital markets environment when we price the deal. We’re not thinking, “Oh, this level of subscriptions, it reveals that maybe the price is not high enough.”

We consider that we were not in that spirit at all, because we knew circumstances were quite positive. We knew the institutional tranche was squeezed a little bit by the size of the retail offer. We knew all those parameters, so we thought that at the end of the day, I think this deal, the price we did at the high end of the regulation range would be what we thought would be the most efficient, the right word, but balanced pricing for us as a selling shareholder, but for the company as well to manage and to be able to manage the company as a listed company in the long term, not in the short term.

Per Einar Ellefsen: Yes, because as you say, it’s a beginning, right? You want to make sure that the company’s investors stick around for a long time and that’s what you ended up doing because, of course, there was a 14% pop, as you say, on day one, but in reality at the end of the year, you were plus 20% from the IPO price. Now, three years later it’s plus 100%, so anybody who actually bought during the months after the IPO did very well over the long term.

Claire Vernet-Garnier: Yes, and with a good share price performance on day one, but not fairly good given the level of subscription we had, some people wanted to buy more shares in the market and that’s fair. That’s actually very good. Then the share price appreciation came over time, over the life of the company. The communication on the way they delivered the plan. COVID-19 showed and revealed and confirmed the market that this company was so resilient that it didn’t prevent the share price from keeping its positive evolution. Of course, it’s been impacted, but nothing to do with other listed companies in other much more affected sectors at that time. With very sound share price performance over the past three years, it’s one of the things myself, but I think everyone that were involved in the transaction, is very proud of.

Per Einar Ellefsen: Thanks. I just want to step back a bit and talk about the IPO product in general. We see a lot of defiance versus the IPO product with the challenge in getting IPOs executed. On the one hand, you have the sellers who say that the institutional investor landscape is not good enough. Then the investors we talk to, a lot of them are quite concerned about IPOs because they say, “Well, there’s not enough information. I don’t really have enough time to analyze the company.” They’re always a bit worried that the price is not necessarily in their favor. Francaise des Jeux worked out very well, but there’s some others that have not worked out well. How do you think we can bring more institutional capital to enable the success of IPOs in Europe? Is there anything that should change or evolve?

Claire Vernet-Garnier: It’s a good question. You would be able to add to that question yourself as an institutional investor, and Euronext and the French treasury and all parties involved into having a deeper, more efficient capital markets in France, in Europe overall would be keen to discuss that. My view is the IPO process as it is today is allow for intense engagement in between companies, shareholders that want to IPO and assets and a management team of a company and potential investors, institutional investors well ahead actually of the IPO process itself.

The arguments of investors saying, “I don’t have the time to make myself fully aware of everything around the company,” I don’t buy this one very much, especially by the largest ones and the ones that are expected in advance. It can engage very early on to knowing as much as you need around the company, and the IPO process overall make it possible to assess the valuation levels of the company.

Now, as I said before, you have the sellers expectations around pricing that needs to be managed, I guess, during the time of the preparation of the transaction. Bankers, they play the banks, they play an important role in that, right, because they are sometimes pushing for the highest possible price in the short term, but this is not what we necessarily want to have to, again, allow for some share price appreciation over time once the company is listed.

I think every stakeholder play an important role in having some efficient deeper equity capital markets for IPOs in Europe that would work well, i.e., again setting shareholders, advisors and the banks but also institutional investors who should also give more information as possible to the selling shareholders so that we can see really what are the expectations of the market regarding pricing. I think one of the important parameter when you have this kind of offering, i.e., selling shareholders, the assessment of this most of the time strategic shareholder willing to remain a shareholder, an important size in the long run because obviously it’s not the same having a transaction where you have the selling shareholders that is not there anymore.

Price maximization at the IPO would clearly be there, and transaction where the selling shareholders remain so for the long run, even though, of course, it would not be as sizeable as it for the IPO. All those discussions are important to allow for this transactions to go well. Then you have the questions of the investor base. We talked a little bit about it earlier. We don’t have pension funds. It’s not the same on capital markets environment in Europe versus the West in that sense that it’s not the same way companies with finance themselves thinking straight away of capital markets.

That I think should evolve, and it’s up to the authorities, governments, European action to develop capital markets. They’re working on it obviously [laughs] and it has some evolution, which I think is happening, right? The French tech, everything in the space is impressive to bring very innovative growing companies reaching the size which be able to IPO in the most positive conditions. Now, it’s up to management teams to take the risks, and that’s kind of a mindset evolution too that needs to, I’d say, be spurred

Per Einar Ellefsen: To finish off, were any fun facts from the IPO process Francaise des Jeux you wanted to share with us?

Claire Vernet-Garnier: Oh, I have so many anecdotes and I would need a disclosure agreement from details management team to share a lot of them. If I recall the roadshow we did on the APE side in London back in spring 2019, you know, when you’re working for the French state, when you are the French state going to a foreign country, you think everyone knows you, obviously. The APE, by taking into account listed, but also non-listed companies of the portfolio, we have more than €200 billion portfolio values, so you know we are proud of it and so on and so forth.

We had our meeting with institutional investors and one of them was funny, I remember that. When I started the conversation, it was with the head of the APE, at the time myself and a couple of other colleagues. He was clearly asking, “Who are you?” [laughs] We were saying, “Oh, the head of the APE, that we have a large portfolio, a public portfolio manager for the French government, blah, blah, blah.” Then he said, “Oh, yes, that’s interesting. I’m actually myself dealing with more than €1 trillion and €500 billion assets under management. I think you are a very nice institution, I’m very happy to meet you.” That was very funny because it clearly put things into perspective. It was actually helpful for us to understand that we needed promote this privatization of the APE itself.

Per Einar Ellefsen: Thank you very much, Claire, for this discussion. It was very interesting. Thanks for taking the time.

Claire Vernet-Garnier: Thank you again, Per, for inviting me. It was very, very interesting.