Five key aspects of the current market

Five key aspects of the current market

1. Private equity funding

Private equity continues to play a significant role in M&A activity both here in Ireland an internationally. “The Irish equity investment community is thriving, with a number of very active Irish funds or equity providers such as Cardinal Carlyle Ireland, MML and Broadlake continuing to actively invest,” says Anya Cummins, M&A partner with Deloitte. “We’re also seeing very strong appetite from the international private equity community in Irish assets - particularly those with a technology angle, businesses looking for equity partners to help support acquisition plans and Irish businesses with strong international growth prospects.”

2. Brexit

The imminent departure of the UK from the European Union will have profound implications for mergers and acquisition activity between the two islands, not least as a result of the falling value of sterling. “We’ve had quite a few clients asking us to search across the UK for potential targets because of falls in assets due to sterling,” says KPMG head of transaction services Mark Collins. “That’s an interesting dynamic.”

Eamonn Hayes, managing director of Capnua, sees opportunities in the opposite direction. “Brexit may actually be positive for M&A,” he says. “Some smaller firms in Ireland may be more attractive targets for UK buyers due to Ireland’s continuing membership of the EU. Companies in regulated sectors here may also become attractive for similar reasons. Also, businesses which were too small up until now will come onto the radar for UK firms looking to establish a presence within the EU.”

3. Price stability

After a period of volatility it appears that prices paid are beginning to stabilise as the market factors in the numerous uncertainties which have arisen of late. “Valuations are starting to stabilise as buyers and sellers acknowledge the uncertainty and look to be innovative and more flexible in structuring transactions in an effort to bridge the gap and complete the deals,” says BDO corporate finance partner Katharine Byrne.

4. Big data comes into play

It is being used to effectively augment due diligence with far greater insights into company performance and underlying trading trends being offered. “We are now seeing data analytics being used to look at trends and operational performance,” says Luke Charleton, head of transaction advisory services with EY Ireland. “Financial analysis tends to be outcome focused while this offers a deeper performance analysis. It means you are looking at the whole business and it is now very much an emerging feature of the landscape. It offers much greater visibility on operational performance and the synergies which might be available from the transaction. There is a lot of work involved but people are prepared to do it.”

Data analytics is seen as particularly useful in fast growing businesses where an investment is required after the transaction involved. “Buyers want to see how quickly that investment will start to be turned into revenue,” says Charleton. “It makes deals possible which might not have been possible in the past.”

5. The end of the inversions

A major feature of the M&A landscape in recent years has been so-called “inversions”. These deals, which usually involved major pharmaceutical and other IP-rich companies, saw much larger US based entities reverse themselves into a much smaller target company located in Ireland or another relatively low tax jurisdiction. These deals resulted in a switch of headquarters and tax residency for the corporations involved but nothing more of substance really happened other than the skewing of national GDP statistics. These quite artificial deals have largely disappeared thanks to action by the American authorities and the market has returned to some kind of normality.

“The most active sectors for M&A deals during 2016 were commercial property, hotels, services and technology, while pharma deals virtually disappeared as the US regulators look to block inversion deals,” says Katharine Byrne.

Originally published by the Irish Times.

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