Traditional Irish Businesses In Demand With Foreign Buyers
Overseas firms are likely to continue to take advantage of Ireland’s strong economic growth by making strategic acquisitions, writes
In recent years, listed technology companies have seen their share prices outperform most other segments of the market. The pandemic acted as a windfall for many of these companies, as it forced many businesses to adapt by digitising how they operate. Over the past year this sentiment has shifted, with tech valuations re-rating to more normalised levels along with sizeable layoffs in the sector.
However, there are a large number of businesses outside of the tech space that provide essential products and services and have a strong track record of delivering consistent growth in the long-run.
In many cases, what we’ve seen is that when these fast-growth traditional SMEs reach a certain level of scale, they are acquired by foreign buyers operating in similar or adjacent sectors. This can be due to myriad reasons, such as access to Ireland’s skilled workforce, access to the Irish market which is seen as a gateway to Europe, as well as access to new technologies and capabilities.
What makes these SMEs attractive to foreign acquirers? Obviously, there are specific circumstances that dictate the attractiveness of each acquisition, but when you dig deeper into a number of these acquisitions some broad recurring themes emerge.
FRAGMENTED MARKET
Many of these traditional businesses operate in markets that are fragmented, and the products and services they provide tend to be geared toward servicing local market demand. This market structure facilitates buy-andbuild or roll-up strategies by larger operators. Buy-and-build plays are attractive because they give acquirers the opportunity to create value through
potential cost synergies as well as multiple arbitrage.
UK-based Phenna Group is an interesting player in the testing, inspection, certification and compliance services (TICC) sector, and looks to be executing a buy-and-build strategy in this sector. Phenna has been an active acquirer of Irish companies such as Building Envelop Technologies (2019), ASM Group (2020), Corporate Access Legal Services Group (2020), Complete Laboratory Solutions and Maurice Johnson & Partners (2022). These buys have helped Phenna Group grow its annual turnover to over £300m.
IRISH ECONOMY
Ireland’s GDP growth outpaces many of our European neighbours, and acquiring a company that is operating in a robust economic geography is an obvious positive for international acquirers. In addition, there are structural tailwinds playing out in certain segments of the Irish market that make it an attractive market to operate within.
UK-based Wolseley’s April 2022 acquisition of Heat Merchants, Tubs & Tiles and Hevac is an example of an international acquirer that could be looking to take advantage of the undersupply in the Irish housing market. The Irish businesses acquired are active in plumbing, heating services, tiles, and bathroom materials, and Wolseley’s aim is to benefit from a structural tailwind.
MULTINATIONAL PRESENCE
It’s no secret that Ireland punches above its weight when it comes to the number of MNCs in the country. Irish companies providing products and services to these MNCs may
provide an attractive point of entry for foreign acquirers looking to access high-value customers.
As part of servicing these MNCs, many Irish businesses have also developed specialist capabilities that are valuable at a global level. In particular, Ireland has a strong domestic medical device and pharma sector and has an excellent track record of attracting foreign investments from this sector.
Label Craft’s acquisition by Belgium’s Asteria Group in November 2022 is an example. Label Craft was established in 1984 and manufactures self-adhesive labels, leaflets, packaging and cartons in Dublin. Many of Label Craft’s end customers are in the pharma and medical device spaces, a very attractive end market for packaging operators. Asteria has a presence across Europe and the Label Craft purchase provided it with a base in the Irish market and a foothold with new MNC customers.
INTERNATIONAL POTENTIAL
Ireland has a number of wellrecognised market leading brands with strong potential to scale globally. Foreign acquirers with knowledge of local markets, as well as the resources and capabilities to ramp up in the target geographies, can make attractive homes for Irish brands.
Fulfil Nutrition is a good example of a market-leading Irish brand that has taken on foreign investment and gone on to scale internationally. Fulfil was founded in 2016 as a producer and distributor of protein bars. In 2019,
Hershey made a minority investment in the company and in 2022 Fulfil was acquired by Italian multinational chocolate manufacturer Ferrero.
Fulfil grew revenue from €11m in 2016 to €38m in 2021 and, as important for Ferrero, has customers in Ireland, Britain, Netherlands, Belgium, Australia, the Middle East and North America.
CONCLUSION
Overseas companies acquiring more traditional businesses in Ireland is a trend that is likely to continue as international businesses seek to take advantage of Ireland’s favourable business environment and strong economic growth.