M&A Market Resilient In Face Of Global Headwinds
As the volume and value of deals involving Irish companies is expected to be down this year, M&A transaction experts give Chris Sparks their assessment of the outlook
I‘There is a strong investor appetite for resilient business models’
n 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 megadeals in Ireland, with more than ten transactions with a value of 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 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.
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 mega-deals. In the main, Irish businesses continue to perform very well and attract both strategic and private equity buyers,” McEnroe adds.
Jan Fitzell, M&A partner in 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 (technology, media and telecommunications), 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.
The US was the number two acquirer 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.
“Most 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 also see Irish companies expanding into the UK 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