Difficult backdrop ensures slow year for corporate deals

ANALYSIS:There were 134 deals totalling €3.4 billion involving Irish firms in 2009 – the lowest level of mergers and acquisitions in five years, writes JONATHAN SIMMONS

THE YEAR 2009 was without a doubt a difficult one for corporate deal activity with a backdrop of a difficult economic environment both internationally and locally.

This resulted in a challenging funding environment, falling asset values and, especially in the early months of 2009, companies and business owners facing uncertainty in their own markets with a lack of visibility on their immediate and short-term prospects and therefore deal activity not being to the forefront of their plans.

Our full-year MA Tracker Survey for 2009 recorded a total of 134 deals involving Irish companies with a total value of €3.4 billion. This compares with 192 deals with a total value of €5.8 billion in 2008, a reduction of 30 per cent and 42 per cent respectively. It is the lowest level of deal activity recorded in the five years 2005 to 2009 inclusive.

The increased levels of deal volume and activity and the high asset values that characterised the MA market during the earlier part of this period are very much apparent in comparison with the more recent years of 2008 and 2009.

The earlier years were characterised by a number of very large transactions, relative to the Irish market. These include Hypo Real Estate’s acquisition of Depfa Bank plc for €5.7 billion in 2007; Smurfit’s €2.6 billion acquisition/merger with Kappa in 2005; Babcock Brown’s acquisition of Eircom for €2 billion in 2006; Riverdeep’s acquisition of Houghton Mifflin for €4 billion that same year and the merged group’s later purchase of Reed Elsevier’s Harcourt business for €2.9 billion in 2007; Jurys Doyle Hotel Group was taken private in 2005 for €1.1 billion, while Quinlan Private acquired Jurys Inns for €1.2 billion in 2007; 2006 saw IIU’s disposal of London City Airport to AIG for €1.1 billion.

In each of these years there were a number of other transactions in excess of €1 billion and several in the €0.5 billion to €1 billion range.By contrast, 2008 included only one deal in excess of €1 billion, namely Scottish Southern Energy’s €1.1 billion acquisition of Airtricity’s European business. During 2009, no Irish company was party to a deal in excess of €1 billion.

Looking at 2009 in more detail the largest deal recorded in our survey was Johnson Johnson’s acquisition of an 18.4 per cent stake in Elan for €632 million, small in the context of the aforementioned deals.

The most active sectors during 2009 were food and food services, health pharmaceutical (due in the main to the Elan transaction) and industrial.

The food sector saw a number of sizable transactions including the €175 million acquisition of Pallas Foods by Sysco Corporation, Kerry Group’s acquisitions of Breeo Foods and Dera for €140 million and €98 million respectively and CC Group plc’s €205 million acquisition of Anheuser Bush InBev’s Scottish and Northern Irish assets. The industrial sector saw 23 deals during 2009 with the largest being Endesa’s acquisition of ESB generation assets for €450 million and the recent acquisition by Bord Gáis of SWS for circa €300 million.

There were 38 in-market transactions where the purchaser and vendor were Irish, 41 foreign acquisitions by Irish companies, 43 acquisitions of Irish companies by UK, US and other foreign buyers, nine buyouts and three disposals of foreign assets by Irish companies.

Irish plcs were certainly active abroad during 2009 and in addition to serial purchasers such as CRH and Kerry, DCC completed multiple deals in several countries; both Paddy Power and Kingspan acquired Australian assets; and others such as CC, Icon, Fyffes and Total Produce also acquired abroad.

The main acquisitions of Irish companies by foreign buyers included Pallas, Elan and Endesa transactions but also Aramark’s €51 million acquisition of Veris plc’s businesses, Hellman Friedman’s €228 million acquisition of Web Reservations International, MasterCard’s €71 million acquisition of Orbiscom and Western Union’s €123 million acquisition Fexco’s European money transfer business.

Buyouts during 2009 included LearnVantage plc’s €27 million acquisition of Thirdforce plc, the €32 million acquisition of Xtra-vision, and the MBOs of Worldspreads Ireland Limited and Sigmar Recruitment Consultants.

A number of businesses were acquired from bank-appointed receivers or bank-driven restructurings in 2009. These included the four acquisitions of Newcourt Group plc businesses, the acquisitions of Sweeney Oil and Buy Sell, UMPG’s acquisition of Beacon Hospital and the acquisition of the Setanta Ireland business. We expect this trend to continue into 2010.

The reality is that MA activity in 2009 was significantly off historic levels particularly as measured by deal values. In terms of quarterly values, as recorded by this survey, deal values began falling in the first quarter of 2008 and reached historically low levels in the second quarter of 2009.

In our quarter-three survey we suggested that the emergence of Japan, France and Germany from recession and talk of green shoots emerging in the US, along with the recent uptake in MA activity on the international front, would give some grounds for optimism.

The quarter-four 2009 survey supported this view with 39 deals being recorded during the period with a total value of €843 million as against 28 deals with a combined deal value of €993 million in quarter three.

Domestically confidence and sentiment are improving, if ever so gradual, and in the main the international environment continues to improve. This along with further restructuring transactions, deals currently being worked on and awaiting various approvals and an increase in the pace of consolidation in the Irish banking market should certainly underpin the current level of deal volumes and provide a more benign environment for deal activity in 2010, albeit from a difficult base in 2009.

Jonathan Simmons is director of NCB Corporate Finance, which publishes the quarterly NCB Corporate Finance M&A Tracker Survey