Company deals increased in value by 28% in the last year

The value of deals involving Irish companies rose by 28 per cent to €10 billion in 2004, up from €7.8 billion in 2003, although the actual number of deals was down from 252 in 2003 to 191 in 2004, a fall of 25 per cent.

The average deal increased from €31 million to €50 million in 2004 and the fourth quarter was the most active period of the year. The most active sectors in 2004 were leisure and travel (16 per cent), food and food service (11 per cent), financial (18 per cent) and industrial (15 per cent) which recorded significant increases over 2003

The trend of Irish individuals and corporates being major net buyers of assets continues, further demonstrating Ireland's increasing wealth. Macroeconomic conditions during 2004 were broadly similar to those in the second half of 2003 and increasing confidence based on strong corporate results, persistently low interest rates and an abundance of private equity continued to fuel acquisitions by multinationals, indigenous companies and financial buyers.

The 10 largest deals accounted for more than two-thirds of the total. These were:

Danske Bank's recent acquisition of NAB's Irish operations;

Quinlan Private's acquisition of the Savoy Group in London;

Smurfit's sale just before Christmas of its Munksjo business in Scandinavia;

Kerry's purchase of Quest from ICI;

Barchester Healthcare's acquisition of Westminster Healthcare;

CRH's acquisition of Secil;

Grafton's deal with Heiton;

the sale of All Clad by Waterford Wedgwood;

the secondary buyout of Clondalkin;

Tullow's acquisition of Energy Africa.

As in 2003, the strategic rationale for deals varied from continuing growth strategies and large bolt-on deals in the cases of Kerry and CRH to defensive deals (the Grafton/Heiton takeover), to disposal of non-core assets (the sale of All-Clad by Waterford Wedgwood) to financial and secondary buyouts (the Quinlan and Clondalkin deals). These drivers are expected to continue into 2005.

One transaction was largely responsible for the high proportion of leisure-related deals - Quinlan Private's acquisition of the Savoy Group. In addition, the Precinct acquisition vehicle was the eventual buyer of the Gresham Hotel Group and the Quinn Group continued to pursue foreign acquisitions with its purchase of the Hilton Hotel in Prague for an undisclosed sum. Total deal values for this sector were €1.5 billion.

The financial sector was dominated by the other billion euro-plus deal - Danske Bank's acquisition of National Australia Bank's assets - National Irish Bank in the Republic and Northern Bank in Northern Ireland - for €1.4 billion.

There was a slowdown in activity in the health and pharmaceuticals sector and the main contributor to this slowdown was Elan reaching the end of its sizeable disposals programme. At the time of writing, however, the buyout of Warner Chilcott was pending and this billion-euro deal, if completed, would have dramatically changed the figures for the sector. Fewer transactions took place during 2004 in the IT and telecoms area.

The trade sales of Eontec and Spectel alone accounted for nearly two-thirds of the activity during the year. In the preceding year, the take-private of Conduit, Alphyra and Riverdeep transactions dominated the sector. The lack of take-private deals generally across the sectors was one of the distinguishing trends in 2004.

Ireland continues to be a major buyer of assets in the food and construction industries. CRH and Kerry Group maintained their acquisition strategies and, combined, spent more than €1.3 billion on acquisitions. Expect to see more of the same when acquisition activity by both companies for the second half of 2004 are released in early January.

There was steady consolidation in various sectors of the construction industry, and strong prices were evident in the UK Group Wolseley's acquisition of Brooks for €183 million and Grafton's purchase of Heiton for €353 million. Activity in the industrial sector enjoyed a strong upturn and Tullow Oil once again demonstrated its ability to expand internationally by spending more than €765 million on selected African and North Sea targets. Waterford Wedgwood's sale of All-Clad disposal to SEB represented one of the very few sizeable sales of Irish assets abroad.

Given the positive trading conditions in Ireland, we expect the trends established in 2004 to continue into 2005. The Irish corporate landscape will continue to be characterised by a relatively small number of flagship deals, and anecdotal evidence suggests that valuations have by no means hit any sort of ceiling.

The exuberance surrounding recent AIM flotations is a good indication of current confidence and selective investments will continue to generate good returns for shrewd investors keen to seek out value.

We expect the generally favourable outlook to stimulate further merger and acquisition activity and Irish small and mid-cap companies will become increasingly active. The consolidation in the services sector that has previously been predicted by Ion Equity appears to be gaining momentum and across industry as a whole, Ireland's solid economic foundation will mean that companies supplying goods and services linked to GDP growth are set to become prime beneficiaries of the economic buoyancy.

As was predicted last year, the climate is still opportune for good management teams to take advantage of good asset valuations, cheap debt and an abundance of private equity to buy out their companies. We also expect groups such as Kerry, Grafton and CRH to continue to acquire businesses in 2005.

In terms of major sales of Irish assets, the financial services sector will continue to attract the attention of aggressive UK and European buyers, following the lead of Danske Bank with its acquisition of the NAB banks.

The weak dollar, high oil prices and some slowdown in China are all very major worries but, overall, we believe that Ireland remains relatively well-positioned to continue the trend of wealth creation and the trend of being a net acquirer of assets across many sectors in an active corporate market.

Joe Devine is a director and corporate finance specialist with Ion Equity