The medium to longer term outlook for M&A remains positive.
Almost half of Irish CEOs surveyed (48 percent) believe their organisations will significantly change their focus in the medium term. CEOs are focusing on improving their existing operations as well as embarking on new ventures.
Deal making, divestments and transforming back office operations will be an important part of their strategy. Unlike, for example, their UK counterparts, most of whom favour inorganic growth, 80 percent of Irish CEOs plan to drive shareholder value through collaborative growth using external partnerships or collaboration with other firms. In this respect, Irish CEOs are more in line with their global counterparts.
Strategic fit is the main consideration discussed in Irish boardrooms when identifying potential acquisitions says Mark Collins, Head of Transaction Services at KPMG. According to Collins: “CEOs continue to seek suitable targets in similar industries to maximise shareholder value and earnings growth through the addition of top line revenue and/or the achievement of cost synergies.
According to Mark Collins: “Previously a significant proportion of transactions involved the sale of assets or portfolios at discounted prices. CEOs increasingly believe that we are in a cycle where higher price multiples can be sustained. This is as a result of companies being able to point to a track record of underlying earnings, availability of funding and growth prospects fuelled by a more stable Irish economy. This enhanced confidence in available financial and commercial analysis allows for more informed valuations for both the vendor and acquirer.”
Michele Connolly, Head of Corporate Finance at KPMG says: “We noted earlier in the year that the health of the Irish economy continued to be a barometer for M&A activity. At that time we had seen increased confidence among Irish deal makers and continued healthy funding opportunities for existing and new sectors. However, confidence remains a fluid concept. The recent Brexit referendum has thrown up new risks but also new opportunities in the M&A landscape, the impact of which remains to be seen and will no doubt start to play out in the coming months.”
Irish companies are still very attracted to using debt finance to fund these expansion activities: “Our M&A survey showed that around 50 percent of businesses prefer debt funding ahead of cash reserves, private equity, IPO/equity markets and alternative investment sources. The preference towards debt funding is indicative of two key factors - debt is typically a lower cost form of finance when it is available and secondly, a common feature across a lot of Irish businesses is a preference not to have to dilute existing shareholders to fund expansion. Debt is available but we are increasingly seeing the rise of alternative debt capital providers (non-bank lenders) which will provide much needed additional capacity in this area.”
78 percent of Irish CEOs say they will be placing a stronger focus on core competencies in the next three years: