New Momentum for the French Share Buybacks Market

Interview

Since the end of lockdown, the French share buybacks market has grown exponentially. After already reaching an all-time high in August 2021, marked by 23 transactions for a record amount of 1.6 billion euros, September saw an even greater increase and was the peak month of the last five years with a buyback volume of 2.75 billion euros, by 35 issuers of the SPF120.

How can we account for this market craze?

Cédric Richard, Head of Corporate Broking Syndication within the Strategic Equity Capital Markets division of Natixis, explains the reasons for this success.

Has Covid had an impact on the share buyback industry?The pandemic caused the share buyback market to completely close for 6 months, from March 2020 until September 2020. The French state very quickly conditioned the PGE grants, and the reduced working hours measures on the complete cessation of share buybacks and dividend transfers by companies.
The ECB and the ACPR (French Prudential Supervision and Resolution Authority) also encouraged banking and insurance firms to ‘exercise caution’ regarding their distribution policy: after cancelling the distribution of 2019 dividends payable in 2020, the banks did not regain partial distribution until 2021, with certain conditions attached.

How do you explain the current rebound?

It is mostly explained by the good financial health of the issuers- some have come out of the pandemic unscathed, others have benefited from a huge rebound in activity following the end of lockdown, and from the advantageous financing conditions of the markets.
As well as this, companies wish to resume substantial employee shareholding programs to increase their employees’ interest in their good results and redistribute the amounts which weren’t distributed to shareholders in 2020.
The M&A activity has also favored share buybacks: some asset sales, such as SIKA by Saint-Gobain, ArcelorMittal USA by ArcelorMittal in 2020 or even UMG by Vivendi have also led issuers to decide on exceptional buyback programs.
Some indicators that this rebound is not yet over: as stated in the latest announcements from Total ($1.5bn), Axa (2.2bn€) and BNP Paribas (900m€), there were 4.4 billion euros worth of share buy-backs- meaning more than a third of the yearly volume in 2019- announced in the space of a week by these 3 issuers alone, in the latest quarterly publications.

How is buying back shares a beneficial strategy for the company?

Share buybacks are one of the tools, along with ordinary or exceptional dividends, of a company's shareholder returns policy. In contrast to ordinary dividends, from which the market expects great regularity and, of course, growth, the repurchase of shares followed by a cancellation is adaptive over time: it is decided and initiated in accordance with the health of the company and the seasonality of its cash flows. It can be cancelled in the case of a fundamental change in in the market situation (such as a pandemic) or if a more profitable opportunity to re-use funds - M&A, acquisition of assets - arises.
Likewise, unlike exceptional dividends, for which distribution is sporadic, the buying back of shares has a positive long-term effect on the stock market price: the repurchased and cancelled shares imply an increased value per share- resulting in a higher share price. According to Patrick Artus, economic advisor at Natixis, 80% of the outperformance of the American markets on the European markets is linked to the active practice of share buybacks, and to the proportion of returns allocated to the shareholders in question.
How can this practice incorporate the ESG goals?The environmental, social and governance (ESG) dimension is part of our origination team’s road map, directed by Loïc Chenevier for the France and Benelux area. Thanks to their expertise in structured buyback solutions- which beat market prices-, the new programs under discussion allow issuers who launch a program to devote up to 100% of this outperformance to the financing of projects with an ESG impact. These large sums often come in addition to the amounts already allocated by companies to finance such projects. This approach reconciles the repurchase of shares, often seen as a financial tool which only benefits shareholders, with the broader missions of the company. In France, two companies have already completed their first ‘ESG impact” share buyback transactions.

Zoom in on Natixis’ strengths

  • Leader for 7 years running in advising and executing share buybacks on French issuers of the CAC40 and the SBF120
  • Complete expertise, in cash and in derivatives, on buyback solutions within the same team, from the initiation to the successful completion of the execution
  • An in-depth analysis of the client's needs, in order to advise them on the best execution and communication strategies, at the best times.

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