As the volume and value of deals involving Irish companies is expected to be down this year, M&A market and transaction experts give Chris Sparks their assessment of the outlook.

In 2021, Ireland saw the highest number of M&A transactions recorded for over 15 years, up 30% in volume terms to 240, for a total aggregate value of nearly €25bn.

Brian McCloskey, Partner, Corporate M&A at law firm Matheson, also notes that 2021 saw a record number of mega-deals in Ireland, with more than ten transactions with a value of over more than €500m, three times as many as the previous year.

Through 2022, macro-economic events such as the global energy crisis, record levels of inflation and higher interest rates have had a dampening effect on M&A volumes globally, including in Ireland.

According to McCloskey: “Two key trends we have seen in the market year are year are transactions taking longer to execute as buyers spend more time on due diligence testing valuations, and more expensive borrowing costs making transactions with a high degree of leverage more difficult to execute, which has resulted in a lower number of ‘mega-deals’.“

Nevertheless, McCloskey describes the M&A market in Ireland as remarkably resilient. “Although we expect the volume and value of deals in 2022 to be down when compared to 2021, when set against 2019 and recent historical averages we expect transactions to be up both in volume and value terms,” he adds. 

In Association with

For PwC, the M&A market was better in 2022 than in 2021, says Mark McEnroe, partner in PwC Corporate Finance.

“As we focus on the small to mid-market mostly domestically owned businesses, we were not impacted by the slowdown in the mega-deals. In the main, Irish businesses have continued to perform very well and attract both strategic and private equity buyers,” McEnroe adds.

Jan Fitzell, M&A partner in Deloitte, says the firm has seen the continued growth of private equity as acquirers of businesses in Ireland, together with international trade acquirers who have come through the Covid-19 period with strong balance sheets and a desire to grow into new markets.

“While the market has cooled somewhat as compared with 2021, we are still seeing very strong levels of deal activity, and appetite from buyers and investors remains very strong,” Fitzell adds.

“The second half of 2022 has seen a few more uncertainties as interest rates started to increase and inflation impacted on costs. However, we are still seeing the quality businesses being competed for strongly, with financial services, TMT, energy and life sciences all particularly active sectors.”

At EY, Head of Corporate Finance Fergal McAleavey notes that deal values remain in line with the pre-pandemic numbers and transaction interest continues, with specific areas of focus on high growth, resilient businesses leading in their sectors.  

Private Equity investment

The US was the number two acquiror of Irish companies in 2022 by deal volume, behind the UK in first place. In terms of target sectors for US players, technology, life sciences and energy continue as the focus. “We would expect the attractiveness of Irish businesses to US parties to continue given the current US currency advantage against the euro and sterling,” he says.

McAleavey points out that private equity (PE) investment continues to underpin the M&A market, increasing from c.30% of deal value to c.55% over the last five years.

Similar to overall M&A activity though, PE appetite was weaker in Q2 and Q3 of 2022, with large cap PE houses effecting increased levels of due diligence.

“There is increased importance within investment criteria surrounding the target’s ESG strategy. Investors want to ensure the companies they are investing in are engaging in sustainable and ethical business practices, from a company’s carbon footprint to supply chains and governance transparency,” McAleavey explains.

Anya Cummins, M&A partner in Deloitte, observes that PE activity continued at very strong levels in 2022, with activity from all of the local funds and strong interest from the mid-market private equity community in the UK.

“We are also seeing PE portfolio companies pop up as regular acquirers of Irish businesses, and this has been particularly relevant in the insurance broking sector, where activity has continued apace in 2022,” she says. “We anticipate that this trend will continue as PE funds seek to push more capital out to market through their existing platforms.

“The majority of the larger sell-side deals on which we have advised have had PE or their portfolio companies in the process as an interested party. We continue to see strong US interest particularly in the technology, healthcare, and financial services sectors. We’re also seeing Irish companies expanding into the UK market which is then raising their profile with would-be acquirers from the UK.”

Cummins’ colleague Jan Fitzell notes that particularly active sub-sectors with resilience and the mission criticality of products and services as key themes that attract investors.

“For example, software, IT managed services, and cyber security are particularly hot sectors given the wider macro trends which are positively impacting on these areas,” Fitzell adds.

“In business services more widely, any services that are seen as vitally important and therefore less likely to be negatively impacted by a recession are particularly hot – including for example data services, professional services and compliance services.

"In general, there is a strong investor appetite for robust and resilient business models, particularly in the face of lower economic growth. We are  also seeing much greater focus on companies that are generating profits and cash as opposed to companies that are targeting exceptional revenue growth. This is particularly evident in the software space when it comes to fundraising and growth capital.”

At PwC, corporate finance partner David Tynan notes that in certain sectors strategic interest from UK acquirers remains strong. “UK companies that are performing well see the Irish economy as a good place to invest given the relative growth here compared to their domestic economy,” says Tynan.

Over the past year the firm has advised on the sale of Innovu to Gallagher, the sale of Quote Devil to Red Rock, and the sale of Sheridan Colohane to PIB. PwC also advised on the sale of Alltrans, Carna Transport and Asystec.

Brian McCloskey at Matheson notes that as has been the case for a number of years, the most active sectors in the Irish M&A market are financial services and TMT (technology, media and telecommunications).

“The global push towards decarbonisation and investment in renewables has resulted in significant activity in the energy sector, something we expect to see accelerate further over the coming years,” he adds.

“Likewise, the continued digitalisation of the economy will drive transactional activity in the technology sector, albeit there is a clear re-setting of valuation expectations between buyers and sellers in line with lower GDP growth across many developed economies.”

For 2023, McCloskey expects that rising interest rates will likely have a dampening effect on valuations for certain larger transactions as the cost of borrowing rises for buyers. 

Inflationary pressures

Similarly, inflationary pressures may mean that certain businesses which are consumer facing and selling goods or services which are largely discretionary in nature may face short-term headwinds, leading to reduced M&A activity in those areas.

“Overall though, the fundamentals of the Irish economy remain strong with continued GDP growth, albeit more slowly than in recent years, and very low levels of unemployment.  We expect to see continued interest from US and other international buyers in Irish assets, with financial services, TMT and energy continuing to drive much of the deal activity,” says McCloskey.

This view is shared by James McMenamin, partner in PwC Corporate Finance, who expects M&A activity in 2023 to be at least in line with 2022, with medium and large-scale Irish private businesses continuing to attract significant international interest.

“Irish and UK private equity continue to have significant funds available to invest, though the cost of debt may temper valuations somewhat. Trade buyers will welcome the opportunity to be more active in M&A at more modest valuations, while mega-deal activity will continue to be subdued,” he predicts.

“As a small nation our business leaders tend to have a global outlook. Sectors that can demonstrate long term growth prospects will be most attractive, including opportunities in the green and circular economy where debt is cheaper and many private equity investors are focused,” McMenamin adds.

“Specific sectors where we expect to see activity include business support services, technology, logistics, aircraft related businesses and financial services.”

Anya Cummins says that while Deloitte is optimistic on the M&A outlook in 2023, there will be increased focus on preparing plans well in advance of talking to potential acquirers.

“We anticipate deal activity to be quite sector and business specific,” says Cummins. “We expect to see some valuation expectation gaps between buyers and sellers for certain businesses and sectors, but this can often be resolved via deal structuring.“

Fergal McAleavey’s view is that Irish private companies remain extremely attractive and at the core of M&A strategy for global businesses. “In Ireland we have strategic clusters of leading global companies in life-sciences, TMT and consumer brands making it an important investment destination,” he adds.

“Private businesses have built up strong talent pools, are ideally positioned for trading between many key countries, and have invested significantly in research and development.”