Private equity funding tipped to play bigger role in M&A activity

PRIVATE equity funding is set to play an increasing role in merger and acquisition (M&A) activity in Ireland in 2018.

That’s according to the latest M&A report from professional services firm KPMG.

In 2018 it is expected that private equity will account for a quarter of M&A funding in Ireland, up from 16pc in 2017.

The increased demand for private funding will come from increased knowledge of private equity options among business owners. In addition, David O’Kelly, partner at KPMG Ireland, told the Irish Independent that private equity companies are becoming more competitive on price.

Last year saw the further emergence of private equity funding both in the context of international investment in Ireland, as well as the increasing role played by Irish private equity funds, including Carlyle Cardinal Ireland and Broadlake, both of which have enjoyed exits in recent months.

However, business debt will continue to be the main source of M&A funding for companies this year, accounting for an expected 52pc of total M&A funding, the KPMG report found.

Overall, just over half of those surveyed said that they expected 2018 deal volumes to be above previous year levels. If global indicators are anything to go by, this appears to be the case, with the value of global mergers announced so far this year totalling $152.5bn (€124.5bn) – the highest since the $374bn racked up in the same period during the tech deal frenzy in 2000, according to data compiled by Bloomberg.

The predicted growth in M&As in Ireland this year is being driven by strong investor confidence, availability of targets, easier access to finance, and accumulated cash reserves, the report found.

“The current environment continues to be favourable for deal-making,” Mark Collins, partner and head of transaction services at KPMG Ireland, said.

“This is underpinned by more robust corporate profits, access to capital and lower stock market volatility, all of which contribute to enhanced confidence levels.”

As per previous years, the sectors which are predicted to witness the most activity for M&As are the agribusiness and food sector, technology, as well as the healthcare and property sectors.

Meanwhile, the impact of Brexit on M&A activity in the medium to long-term remains uncertain, with respondents predicting a wide range of factors to potentially have an impact on trade. These include UK tax policy, potential border controls, cross-border tariffs and the regulatory environment in the UK.

However, the report found that there now appears to be an acceptance that business cannot remain static, with just over one in three respondents of the opinion that Brexit will increase M&A deal activity, while 30pc of respondents believe it will have a neutral impact on M&A activity.

“A high degree of uncertainty remains around Brexit, however concerns

amongst executives have lessened somewhat,” Mr O’Kelly said.

Last year the number of domestic deals in Ireland reached 210, up from 181 in 2016.

Irish corporations were also at the forefront of international M&As, with CRH, Kingspan, DCC and Kerry Group all active in the M&A market last year. CRH was especially active, engaging in over 27 acquisitions or investment transactions in 2017, including purchasing Ash Grove Cement for €2.9bn.