Mergermarket: Has there been an increase in M&A and Private Equity activity in the past 12 months in Ireland?

Anya Cummins: A combination of attractive Irish targets and a well-funded market underpinned a particularly strong M&A landscape in 2015 and a rise in overall deal values. M&A activity in H1 2016 was slightly softer, with less very large transactions, but the market overall remained strong with positive market sentiment across a range of business sectors.

The high proportion of outbound deals by Irish corporates acquiring businesses internationally as compared to our European peers is a defining feature of the Irish market and acquisitive Irish corporates continue to actively seek and acquire businesses across the globe.

Within the Irish domestic market, Irish and international trade buyers remain very active. Private equity activity has also been a strong and growing driver of deal activity and private equity deal values increased to €8.5bn in 2015. There is an active domestic private equity community within the Irish market, with a number of well-funded private equity houses across the varying equity cheque size ranges actively seeking investment opportunities in varying industry sectors. The UK private equity community is also becoming increasingly active in the Irish market, with funds like Synova Capital investing in Merit Software last year, ECI Partners and BC Partners both backing Cartrawler, Octopus Ventures’ investment in CurrencyFair, and Exponent’s investment in Fintrax to name but a few. US investors are one of the most active venture and private equity investors in Europe, although activity to date in the Irish market has primarily been focused on the technology sector.

The impact of Brexit on the Irish M&A landscape remains to be seen, but we consider that while there may be challenges for some transactions there will also be significant opportunities for the Irish market. Uncertainty often brings a slowdown in major investment decisions, but well capitalised Irish corporates remain highly acquisitive internationally and international buyers continue to see Ireland as an attractive investment hub.

Are local lenders supportive enough of the market?

The Irish lending market is dominated by AIB, BOI and Ulster Bank who operate in both the SME, Mid and Large Corporate lending market. This is further augmented by both Barclays Bank Ireland and HSBC who are tend to focus on the funding of larger corporates. Activity has been high with the banks creating specialist lending teams to focus on Hospitality, Pharmacy, Healthcare, IT and Motor sectors. Furthermore the Irish banks are now playing an active part in the funding of property acquirers and developers, albeit on a more restrictive basis than previous years.

The result of Brexit has yet to be fully recognised in the appetite of Bank lenders in Ireland. However, similar to the UK it is likely to mean in the short term more restrictive lending conditions from Bank lenders until there is more visibility on what ramifications the Brexit vote will have on Irish businesses particularly those with heavy exposure to UK buyers whether through exports or in the tourism/hospitality sectors.

For alternative lenders in Ireland, who have already locked in capital this could create further lending opportunities. This is likely to be the case for both Alternative Lenders who lend to trading businesses as well as Property Acquirers and developers.

Alternative lenders in Ireland consist of a wide range of non-bank institutions with different strategies including private debt, mezzanine, growth and distressed debt. Activity over the last year has been strong with transactions completed by the likes of BBF Capital Partners, Earlsfort Capital, Bain Capital, KKR, Origin Capital and the Ireland Strategic Investment Fund (“ISIF”).

Which sectors are most attractive for M&A and PE investment?

M&A activity and PE investment in Ireland tends to span a variety of sectors. TMT typically accounts for 20% plus of M&A volume in Ireland most years, and was higher at 29% in 2015. Ireland has a very vibrant and fast paced technology sector, and the boom in fintech, as well as number of successful transactions and IPOs in this space, have been key drivers of deal volume. The Irish TMT sector is one of the most active from an international private equity perspective, and is actively being targeted by US and UK private equity funds, as well as by the domestic investors.

Other active sectors include business services (13% of deal volume in Ireland in 2015), leisure (with a number of significant hotel transactions in particular) and life sciences. Food and beverage also continues to experience strong M&A trends, with a number of ambitious outbound Irish acquirers as well as indigenous businesses considering exit.

In 2016, we continue to see activity across all of these sectors. Even in a post Brexit environment, in July alone deal activity has continued at pace with a number of major success stories for Irish businesses; including most recently the sale of the FleetMatics Group Plc, a fleet management solutions business, to US based Verizon Communications Inc. Spanish acquirer Gas Natural Fenosa recently acquired Vayu Energy, the Ireland-based gas and electricity marketer, while Hasbro Inc acquired animination business Boulder Media. These transactions last month alone are reflective of the sectoral and scale mix of Irish transactions, and the international nature of the acquirers of Irish businesses.

In your opinion, will Brexit effect the M&A and PE activity in Ireland moving forward, and if so, how?

Economic uncertainty typically reduces the level of M&A activity in an economy. As corporates pause to assess the outcome of the UK Brexit vote, a slowdown in M&A for the rest of 2016 is the general market expectation.

One of the key risk areas is the impact of Brexit on the underlying earnings and therefore the valuations of Irish businesses that may be considering a sale. There were significant declines in public stocks and currencies immediately post the Brexit result, and while there has been some recovery it is reasonable to assume that the valuations of some privately held companies have also been impacted. Currency fluctuations are having a significant impact, particularly on UK export orientated businesses, and the extent to which underlying earnings are being impacted is really dependent on the hedging and pricing policy of any particular business and their ability to pass on price increases to their consumers, in particular where they compete against local UK suppliers. We anticipate that the level of UK exposure of Irish businesses considering sale will come under increased scrutiny and some sectors, for example the heavily export dependent food sector, are by definition more exposed in this regard. In contrast other sectors such as TMT and life sciences should be less impacted.

Acquisitive Irish corporates may also see opportunities in a post-Brexit environment, particularly where they have UK sales exposure and are seeking to acquire supply or manufacturing capability, or where they see a strategic rationale for investment in the UK market and consider that softening deal multiples and a perception of buyer appetite may create some opportunities for UK acquisitions in the immediate post Brexit environment. More widely, Irish corporates continue to be highly acquisitive outside of the UK and Ireland, and outbound M&A is anticipated to continue to be a major driver of deal activity.

With regards to private equity appetite for investment, within the domestic market there are a number of well-capitalised funds who are continuing to actively seek investment opportunities to support ambitious management teams and high growth businesses. The UK private equity community also continues to see Ireland as an attractive investment hub, and we anticipate increased international PE investment over the medium term. US investors are also actively targeting Irish businesses, in particular in the TMT sector. For the US PE community, demonstrating the capability to expand into the US is a key investment criteria. They also typically seek businesses of slightly larger scale than their Irish or UK counterpart investors.

We hope you enjoyed our interview. If you would like to hear more from Anya she will be speaking at the Deal Drivers Ireland Forum on 14 September in Dublin. Click here to find out more and how to book your place  

Views and data in this article are provided by Deloitte

Jennifer Ghoni Speakers Acuris

Jennifer is responsible for speakers and event programmes at Acuris. She leads content for Unquote's European private equity conferences and Mergermarket's M&A events in Eastern Europe, Nordics, Spain, UK, Ireland, Benelux and Switzerland.