Master Class Talking Head interview with Lionel Lesur, regarding Greenfield investments.

23 Mar 06:00 by Laurent Pompanon


Lionel Lesur is a partner in the Corporate/M&A and Private Equity departments and Head of the Antitrust department of the French independent law firm Franklin.   Qualified in France and Italy, Lionel has more than 15 years of experience with leading international law firms before joining Franklin in September 2020.

He has substantial experience negotiating corporate transactions, including M&As, PE transactions, joint-ventures, minority investments, and strategic alliances. He has experience in advising foreign companies seeking to establish and strategically expand their presence in France.  As Head of the Antitrust department, he has significant experience in French and EU antitrust and competition law, and routinely advises on French, EU, and multi-jurisdictional merger control filings, as well as cartel and abuse of dominance investigations.

Laurent Pompanon, Principal Consultant at Laurence Simons Search, catches up with Lionel to discuss career and challenges, and to gain an insight into one of his specific expertise, the very strategic Greenfield investments.

Laurent Pompanon (LP):  Good morning Lionel. Please can you introduce yourself briefly to our readers and tell us a bit more about your recent move from McDermott Will & Emery to Franklin?

Lionel Lesur (LL): Good morning Laurent.  After I graduated in law, I then studied and graduated in business management from HEC Paris, which provided me with a concrete and strong two-fold academic base. I adopted, early on, a very pragmatic and business approach to law. I am also a great believer in the entrepreneurial traits lawyers must develop more and more to succeed.  

As a lawyer at the Paris and Rome bar, I practiced law for more than 15 years in leading international law firms (including 8 years as a partner) before deciding to join a fully independent French law firm. I was lucky enough to meet very inspiring lawyers (such as Jacques Buhart without whom I would not be the lawyer I am today) who allowed me to develop in both M&A and antitrust, which are both very challenging and demanding.

Spending fifteen years in a highly exacting, yet very structured, UK or US driven environment slowly made me realise that I was ready to take up more challenges. It made me eager for more flexibility and independence to get more freedom as regards the way I was building my business, especially abroad.

I decided, a while ago, it was time for a career change and to fully embrace the entrepreneurial spirit. You know, all things being equal, I contributed to set up McDermott Will & Emery in France years ago. It was a revealing adventure for me and the taste of freedom it gave me never really left me.

I have always thought lawyers should constantly reinvent themselves, go beyond what clients expect from them in terms of flexibility and agility, to adjust and respond to all their needs in the most tailored way.  The idea to join a French fully independent, high-end, and full-service law firm, came to me quite naturally in the light of these reflections, and seems even more fitting in the crisis we are currently experiencing.

As I thought about the kind of greater independence and agility I was looking for, I guess Franklin really stood out. It was the right decision, and it is as exciting as challenging for me as Franklin has initiated a few months ago a super growing phase and we are already using this momentum to strengthen and develop further on our brand.

LP: You have years of experience in international M&A and corporate issues. Today we are specifically discussing Greenfield investments, can you explain to our readers what it is, and when this form of investment should be considered?

LL: I am usually working on mergers and acquisitions, implementing joint-ventures or strategic alliances. However, maybe because of my international background, I always had a certain interest for Greenfield investments, and I have developed a certain expertise in this area, first for Italian clients, where I practiced law a couple of years ago. This then expanded to companies located in other countries, both in and outside the EU, active in various industries, and ranging from successful start-ups to multinational corporations.

To keep it simple, there are two main things that define the concept of “Greenfield investment”:

Firstly, in an international context, there are a certain number of limitations or restrictions while entering any foreign markets. In this context, Greenfield investments might be the appropriate tool to overcome such entry barriers and regulations, and gain access to the potential foreign markets, it being specified that it really depends on the sector the sponsoring entity is doing business in. For instance, in highly regulated sectors (where a license or specific permit is necessary to operate), classic mergers and acquisitions might prove easier and less cumbersome in terms of implementation. 

Secondly, the term “Greenfield investment” derives from when a company (which is often a multinational company) starts to operate in another country, creating an entity from the ground up.

This type of investments is known, in France, as foreign direct investments (FDI). They are known to provide a high degree of control over the activities developed by the sponsoring company, because you start from scratch.  As such, they should not be confused with classic mergers and acquisitions, from which they differentiate in many legal, but also strategical, operational, and financial aspects, providing the purchasing or merging companies with much less control over the developed activities (from quality control, sales to training) than in the context of a Greenfield investment.

In a classic M&A transaction, the acquisition of, or investment in an existing company or business generally takes place, whilst in a Greenfield investment, a completely new business is set up.

Over the longer term, a classic M&A transaction may reveal complex for the sponsoring company, including in terms of synergies achievements and integration. Statistics regularly show that, in a classic M&A transaction, there is often a struggle, for the purchasing or merging companies to integrate or merge with the target.

To illustrate my point, let us assume that an American tourism company which developed specific services conducts research to identify the potential demand for its services in a strategic country, let us say France for the purpose of this case, being an EU country, which market is wide and strategic enough to be worth the investment for a sponsoring company. Further to this research, a significant demand is identified. It means that this company may rely on a solid customer base to develop an attractive business case.

Based on these elements, the management of our American company may decide to strategically expand their business by directly implementing a business in France, creating a subsidiary or a branch and starting to operate there from the ground up, freely deciding whether to build production facilities, establish adequate distribution systems and offices.

To sum it up, the sponsoring company will be fully flexible and have full control over the way it chooses to develop in the chosen country, as it will be completely tailored to respond to its identified needs.

Greenfield investments are not just about investing money, contrary to the foreign portfolio investment (FPI) in which the investors only extend monetary investments and are not allowed to, nor really interested in interfering in day-to-day operating activities, or even in important decisions, focusing mostly on the ROI of their investment.

I like to put it this way: in the context of a simple investment, our American entity would only have one leg in France and be left unable to walk on its own. In a Greenfield investment context, our American company will walk using both legs in France and be fully operational.

It is, however, essential to bear in mind, in this big picture, that Greenfield investments may entail, for the sponsoring company, a greater risk as it generally reveals expensive and need to be more prepared and organized with great care, from a legal, strategical, operational, and financial perspective than in a classic M&A transaction. As Greenfield investors commit both their time and their financial and human capital and resources, they are generally in for the long haul and will focus on the growth of the company, along with its profitability.

LP: Thank you Lionel.  So how can it be beneficial for a company?

LL: When investors contemplate to invest in France, several pros, and cons, in relation to Greenfield investments should be considered.

As for the pros, I believe that:

  • It helps the investors to gain maximum quality control and management of the brand image, based on the complete control they have over the venture. This control is also strengthened by the fact that there is no intermediary, which provides independence for the investors.
  • In terms of corporate culture, it considerably smoothes things over with newly hired employees as the sponsoring company implements its own corporate culture, which is radically different in a takeover deal, which usually implies, for at least a significant period, the coexistence of two – sometimes very different – corporate cultures.
  • It provides potential customers and clients with an impression that the sponsoring company is committed to its business and is a true specialist, which differs from a simple investment.
  • The company entering a new market through a Greenfield investment may obtain full dominance over the products and services manufactured or sold.

In addition, it could also be noted that it is part of national strategies to attract prospective foreign companies with offers of tax breaks, subsidies, or other incentives to facilitate the Greenfield investment. These incentives may result in lower corporate tax revenues for the foreign community in the short run. However, over the long term, the economic benefits and the enhancement of local human capital can result in positive returns for the host country.

On the cons side, I would say that:

  • Greenfield investments basically imply higher risks and associated costs (including high fixed costs). Typically, companies which are contemplating Greenfield investments know that they will have to invest large sums of money (including only to determine the feasibility and cost-effectiveness of such investment). It requires significant amounts of capital expenditure.
  • These investments also generally involve a significant entry cost to install a venture with land, buildings, factories, employees, etc. Should the project be unsuccessful, it may incur, for the company, a significant amount of loss.
  • Investors would usually have to stay longer than in a classic M&A transaction to get return on investment.
  • As a long-term commitment, one of the highest risks is the relationship developed with the host country (in particular, when it is politically instable or in a sensitive sector). Any circumstances or events requiring the company to pull out of an investment at any time may result particularly catastrophic, or even fatal, for the business.

In a nutshell, Greenfield investments are not for novices. It must be carefully prepared and planned from all standpoints. However, once the investment is developed on firm and lasting foundations and fits into the investors’ long-term strategy, it can be very profitable for them.

LP: Are there any specific industries, types of companies or situations for which Greenfield investments are particularly well tailored?

LL: What I find interesting and challenging about Greenfield investments is that there are no definitive boundaries as to specific industries tailored for Greenfield investments.  I have found that Greenfield investment often comes to mind to investors when a company is unable to find any appropriate prospective targets and does not operate in a highly regulated sector requiring the owning of a specific permit or license to operate.

I often work for companies operating in the life sciences field, including with biotech, but I also work for international construction companies, publishing companies or service companies operating in the tech or tourism industries, to assist them to set up their business in France.

Therefore, I just cannot, and based on my sole experience, come up with a conclusion. It is more a question, I think, of right time and maturity of a company and/or business in its initial market rather than types or sectors of companies.

LP: Is it rewarding for you to work on a Greenfield investment?

LS: It is extremely rewarding for a business lawyer to be involved in a Greenfield investment.

First, you are at the exact crossroads of law, corporate finance, and strategy. This may lead you to interact with the top management of the sponsoring company (including, in addition to the General Counsel, the Chief Strategy Officer, the Chief Financial Officer and, more generally, the Board of Directors), and all its counsels (including in public affairs).  You play a significant part in elaborating the strategy of a company, which is really challenging and exciting, and fits well with my own entrepreneurship and international spirit!

It allows you to constantly grow and learn as a lawyer. Understanding your client’s business and needs is essential, in this era of transformation, we all need to convert into agile (and passionate!) learners.

Secondly, because, contrary to “basic” mergers and acquisitions which might lead to potential destruction of value, you only create value. You create jobs, buildings, businesses, etc.  Lastly, because you are one of the main contacts of the foreign company contemplating to make a Greenfield investment, it puts you in an extremely privileged position with the investing company and allows you to create a very strong and trustful business partnership.  It is one of the many reasons why I chose to join Franklin. I truly believe that we are well suited to assist foreign companies, both from and outside the EU, which are eager to develop tailored businesses in France, as we are full-service and have the right mindset and experience to help these companies in a very flexible way.

LP: Finally, what do you believe is the future of Greenfield investments in France/Europe? Would you say the current economic climate and a potential trend to reindustrialise the country/continent will play in their favour?

LL: Crisis usually leads to opportunities. This one, although of a different nature or at least origin, should not be different. There will obviously be opportunities to seize depending on your activities and maturity. Let us see what the future holds! We are, in any event, here and willing to help our clients and foreign companies seize whatever opportunities they can!

LP: Thanks so much for this discussion and your insights, Lionel. It has been a pleasure speaking to you and to know more about Greenfield investments.