By John Cradden
Following a record-breaking year for takeovers involving Irish firms, the overwhelming consensus in the business community here is that 2016 is set to be another stellar year, thanks to high levels of confidence and improved access to funding.
Last year saw M&A activity here break records both in terms of value and volume. Data from Thomson Reuters showed that Irish firms were involved in takeover deals totalling nearly €77 billion, well ahead of the €63 billion done in 2014, while the number of deals filed to the Competition and Consumer Protection Commission (CPCC) rose to 78 – 90 per cent higher than 2014. However, measuring mergers and acquisitions activity tends to be an inexact science and can be skewed by a number of factors. For instance, the values of many deals are not dis- closed, while a lowering of reporting thresholds for deals notified to the CPCC in 2014 meant the number of deals recorded in 2015 was always going to be higher.
Michele Connolly, a partner with KPMG, acknowledges this and says her firm measures activity in this space simply by keeping eyes and ears to the ground and gauging the sentiment in the marketplace.
“What we see on the ground in 2015 is that activity levels were definitely higher than 2014 across the board. The sentiment and the positivity of different parties to doing a deal was much improved in 2015.”
Indeed, a strong indication of this positivity comes from a new KPMG survey of 100 senior business leaders regarding their M&A outlook, which shows that no less than 98 per cent expect activity to increase in 2016, and that nearly half expect their “valuation multiples” to increase in 2016.
Last year saw agri-business and technology emerge as the most active industry sectors, but this year it looks set to be the turn of healthcare, pharmaceutical and life sciences.
“Last year would have seen a small number of large inversion deals, but also fundraising activity for pharma start-ups who over the course of the year may be snapped up by strategic investors,” says Connolly.
In general, Connolly notes that until recently many businesses were looking at M&As as a way of “trading out of or leaving behind historical financial difficulties” but, in line with the rise in confidence and funding availability, there has been a return to using them as a legitimate tool to grow the business and find new strategic partners.
“Access to finance is improving; it still remains challenging and expensive but the banks are very much back in the marketplace lending again. So once you have market sentiment in place and the availability of money with which to do an acquisition, it then comes down to finding the right company to buy or to sell yourself too.”
The KPMG survey also reveals that 75 per cent of business leaders view a sale to a strategic buyer as their preferred exit strategy for businesses this year.
And in terms of the primary considerations for shareholders in considering a takeover, only 16 per cent say the possibility of securing an “opportunistic target” would figure strongly for them.
“The larger firms always saw M&A as a way of growing and diversifying whereas domestic Irish businesses were once in a more opportunistic space in terms of targeting a possible buy,” says Connolly.
The fact that the most commonly cited factors that business leaders felt would inhibit deal activity this year were “enhanced price expectations” (33 per cent) and “lack of suitable targets” (28 per cent) likely also reflects a shift towards using M&A to achieve strategic goals rather than as an opportunity to get one over on a rival.
“People are coming at the market in an improving Irish economy and therefore automatically their view of the value of their own business will have improved because market sentiment has improved,” says Connolly.
By Barry McCall
The environment for M&A activity in Ireland during 2015 was strongly favourable and this is reflected both in the sentiment revealed by KPMG’s M&A Outlook 2016 Survey and the level of transactions in sectors such as financial services, food, tech, pharma and healthcare.
“Our survey show that there is a very favourable environment for M&A at the moment,” says Mark Collins, head of transaction services at KPMG.
“The number of big funds in the market, the strong dollar, the very favourable tax regime, availability of debt, number of equity funds competing with each other for assets – all these things combine to make it a perfect storm for M&A . . .
“It was very favourable in 2015 and will be even more so in 2016. But it’s not at a point where it gets frothy. We would have to be concerned about pricing if it got to the point where it is no longer competitive.”
He points to a number of out- standing deals in 2015 involving Irish companies. “The Paddy Power-Betfair merger is a fantastic deal for lots of rea- sons,” he says. “They are bringing together two complementary businesses in the online and retail spaces with very talented people at the forefront of the industry. This will create huge synergies and a company which will lead the market and create value for shareholders.”
At the lower end of the scale he says One51 is an excellent story as well. “Here you have a very talented management team which has turned the company around over the past four to five years and has done a number of deals of late including plastics business IPL in Canada, which could be a spring- board for growth throughout North America. This is a very good Irish story. The food and agri sector also continues to be very strong, with Kerry, Glanbia, and Aryzta all very active.”
Some of this activity is fuelled by the availability of acquisition targets coming to market. “We are increasingly seeing PLCs willing to hive off non-core or non-performing assets,” Collins notes. “That used to be seen as a sign of failure but there is now a sense of realism and companies are much more pragmatic when it comes to this.”
Standout deals involving Irish companies being acquired by overseas buyers included Eirgen, a cancer drug manufacturer, bought by US drugs company Opko for $135 million; Realex bought by US company Global Payments in a €115 million deal; Avoca sold to Aramark for €60 million; Topaz acquired by Canadian listed Couche-Tard in a deal estimated at more than €450 million; and China’s Bohai Leasing taking over Avolon for €6.5 billion.
In pharma, the firm acted for Nexvet Biopharma in relation to the successful closing of its fully underwritten US$40 million initial public offering.
And the consensus belief is for 2016 to be as good if not stronger than 2015 for Irish M&A. “The prospects are very good”, says Mark Collins. “All the things that should be in place are there; demand and supply is there, indeed demand slightly exceeds supply; we have stable capital markets; the funding is there; and we have a stable economy . . . As long as the political environment remains positive here sentiment should remain positive.”
By Sandra O’Connell
Ireland hit the headlines last year when US drugs giant Pfizer merged with Irish-based Botox maker Allergan, changing its tax address and slashing its tax bill in the process.
The $160 billion (€146 billion) tax inversion reverberated through the US primaries with presidential candidate Hilary Clinton calling such moves unpatriotic and Donald Trump branding it “disgusting”.
Inversions constitute a tiny part of the international forces shaping the M&A landscape here however. For a start Irish businesses are themselves on the global acquisitions trail. Almost a third (31 per cent) of respondents to KPMG’s M&A Outlook 2016 survey identified the UK as the most likely location for overseas acquisitions this year followed by the rest of Europe, North America and emerging markets. Major Irish PLCs are seasoned overseas to travel to find deals of sufficient scale.
When overseas buyers run the slide rule over Irish targets, it’s more than our tax appeal that drives them. “There are fair winds in our favour,” says Mark Collins, head of transaction services at KPMG. “For a start, there is currency. If you have a dollar or sterling denominated business, currency swings alone have added 10-15 per cent to your buying power.” He sounds a cautionary note regarding the impact on investment decisions relating to recent macroeconomic events. These include concerns over a slowdown in China, volatility in global equity markets, depressed oil prices and the weakening of sterling.
“Upcoming elections in Ireland and the US as well as a probable vote on a British exit from the EU in 2016 could also influence M&A sentiment,” says Collins.
Interest from overseas is affecting the sales process here. “The type of investor you are talking to today has lots of different deal options passing across their desk every day, which can make it hard to get their attention,” says Michele Connolly of KPMG.
“They don’t want to be part of a traditional process where- by the seller has identified 10 possible buyers and wants to narrow it down to a shortlist. These buyers want a short, sharp process, so a scattergun sales approach doesn’t work.”
The following extracts are taken from The Irish Times’ ‘Mergers and Acquisitions’ supplement published on 22 January 2016 and are reproduced here with their kind permission.