FRANCE Trends and Developments Contributed by: Nicolas Karmin and Pauline Le Faou, Sullivan & Cromwell LLP
General Overview France, historically the second largest private equi - ty (PE) market in Europe after the UK, has not been spared from the challenges faced by the global and European PE markets over the recent past period. After a promising start to 2025 marked by a third con - secutive quarter of high deal flow in France, French PE transactions saw a sharp decline in Q2 2025. In terms of PE transactions’ value in France, Q1 2025 was indeed the strongest quarter since 2021, allow - ing room to be cautiously optimistic for the rest of the year. However, the announcement of US tariffs at the outset of Q2 2025 largely contributed to a significant slowdown in deal activity, both in France and across the rest of Europe, where a wait-and-see approach has taken hold, rendering the subsequent decline in transaction volume largely anticipated. This develop - ment came on top of the challenges currently faced by the French economy, including ongoing political instability, sluggish GDP growth and a persistently high budget deficit. However, the PE sector in France shows signs of resilience: France boasts a large number of leading international and domestic private equity firms, a bal - anced fundraising environment and French private equity investments have annually outperformed all other main investment classes (CAC40, real estate, hedge funds) over a ten-year spread. Macroeconomic and Political Uncertainty Affecting the PE Market In addition to lingering misalignment between buy - ers and sellers regarding assets’ valuation, interest rates remain high compared to the pre-2022 period and political uncertainty in France, combined with a slowing growth, a high public deficit and the threat of the US tariffs have contributed to lower deal activity. Political uncertainty The political situation in France remains fragile follow - ing the June 2024 snap elections, which resulted in a fragmented parliament, with no stable parliamentary majority able to pass critical economic legislation. In addition, since the collapse of the previous govern - ment in December 2024, Prime Minister François Bay - rou has led a minority government.
While the government has so far managed to stay in power, it faces mounting pressure from the opposi - tion ahead of key budget negotiations scheduled for autumn 2025 (see below). This ongoing instability continues to weigh on inves - tor confidence and adds a layer of uncertainty to the French business and deal-making environment. Slowing economic growth and upcoming austerity measures France has so far avoided a recession (unlike some of its neighbours) and posted a modest 1.1% growth in GDP for 2024, down from 1.6% in 2023. In June 2025, the Bank of France projected that French GDP would grow by only 0.6% in 2025. However, these forecasts may be revised upwards in light of prelimi - nary estimates showing a 0.3% increase in GDP in the second quarter of 2025, following a 0.1% increase in the first quarter. The country’s significant public debt remains a key concern, having reached circa 113% of GDP at the end of 2024. This rising debt level continues to raise concerns about the sustainability of France’s public finances. In response, the French government, led by Prime Minister François Bayrou, has announced in July 2025 an austerity plan aimed at generating EUR43.8 bil - lion in savings in 2026, through measures such as the removal of two public holidays and a freeze on public spending. The objective is to bring the deficit down to 3% of GDP by 2029. However, the plan has already faced strong criticism from opposition political parties, who argue that it is either insufficient or poorly targeted. As parliamen - tary discussions unfold in the coming weeks, intense negotiations are expected. Some opposition leaders have even suggested the possibility of seeking the dissolution of the National Assembly; an option that, if pursued, would probably further increase market uncertainty. EU–US trade tariffs situation The private equity market in France has recently con - tracted due to a combination of domestic factors, as
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