Different sectors in M&A market have had very different pandemics

Richard Duffy, Director, BDO Corporate Finance, featured in The Irish Times special report on Mergers and Acquisitions. Read Richard's extract below. 

Remarkably resilient

Richard Duffy, director in Corporate Finance with BDO, says 2020 was a “stop-start year” for M&A due to the virus, “but proved in the end to be remarkably resilient for deal-making considering all the uncertainty”. As expected, there was greater activity within those sectors least impacted by the virus; technology, healthcare, biotechnology and life sciences, as well as financial services which were the cornerstone sectors for deal activity in the mid-market space.

“For example, despite Covid-19, we saw the continued consolidation of the nursing and care home sector with French group Emera acquiring a 70 per cent stake in Irish nursing homes operator Virtue, Spanish care home operator DomusVi purchasing the trading business of Trinity Healthcare and Cardinal Capital buying Mowlam Healthcare,” Richard notes.

Other sectors impacted by the lockdown restrictions and particularly where discretionary spend is involved were most negatively impacted, such as hospitality/leisure, tourism and travel, and the motor industry, says Richard. He suggests there will likely be some “forced” M&A transactions in these sectors as companies who will not be able to recover from the crisis start to look for buyers. “This will probably occur towards the second half of the year when Government supports are reduced and pressure comes from funders for loans to be serviced and/or repaid.”

Generally, Duffy sees a similar outlook for 2021, with the strongest sectors likely to have the most deal activity and continuing to attract strong interest from international buyers in both trade and private equity. Overall, technology will remain one of the most active M&A sectors, as buyers look to secure technologies to support their growth plans and/or help protect themselves from disruption ongoing in the market, he says.

“Covid has proven companies need advanced digital capabilities that they cannot replicate in-house in order to remain competitive or indeed deliver growth. The ongoing fallout of Covid-19 has accelerated the requirements for digitalisation by revolutionising the way companies operate, forcing them to completely rethink the way they work and service customers.”

Richard also expects to see an increase in activity in M&A within the agri/food sector for 2021. Although activity was somewhat muted in this sector during 2020, already there are some potentially high-profile deals in play: Kerry Group Plc is reportedly considering strategic options for its consumer food division and Capvest is thought to be considering the sale of Valeo foods. “Both will attract strong international interest from trade and private equity buyers,” he says.

Supply chain problems

Some M&A activity will be driven by companies looking to remedy supply chain problems and Richard says there is every chance we will see cash-rich retailer/food groups moving into the supply chain via acquisition, in order to procure certainty of supply for some food products. Companies looking to diversify and develop an international footprint, as they seek out new customers and markets, will also be ripe for activity.

“Irish companies will also look to the UK market for opportunities – 33 per cent of our food/drink exports go to the UK. Acquisition is the quickest way to secure new customers and products and ensure market entry etc. Similarly, UK and international players will continue to look to high quality Irish food and drink companies, who can provide EU market access to its 380 million population.”

But the virus has had a profound effect on consumer purchasing, and food and drink businesses will be trying to understand if these changes are permanent and if they need to adjust their businesses accordingly in a post-Covid-19 world, he adds.

Content adapted The Irish Times, special report, 'Different sectors in M&A market have had very different pandemics'

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