Brexit vote expected to reduce Irish M&A deals in second half

Deals with aggregate value of €1.283 billion finalised in second quarter, says survey

The most significant business during the first quarter of this year was the purchase of a 10 per cent stake in Ion Trading by Carlyle Partners for about €359 million.

The most significant business during the first quarter of this year was the purchase of a 10 per cent stake in Ion Trading by Carlyle Partners for about €359 million.

 

The Brexit vote is expected to reduce activity in mergers and acquisitions involving Irish companies over the second half of the year.

Weaker sterling will reduce the ability of British businesses to acquire Irish targets while Irish companies that conduct much of their business in the UK will be less attractive, according to Investec corporate finance director Jonathan Simmons.

“However, on the plus side, for any Irish companies planning to acquire in the UK, the fall in sterling means these targets will now be cheaper,” he said.

M&A activity analysis

Mr Simmons was speaking as Investec published an analysis of M&A activity in the second quarter of the year involving Irish companies.

Deals with a aggregate value of €1.283 billion were finalised in the second quarter of the year. That was down 15.4 per cent on the first three months of 2016 and almost two-thirds shy of the same period last year.

However, the 2015 period was skewed by the €2.5 billion acquisition of Dragon Oil by Enoc. Stripping that out, deal value is roughly the same year-on-year.

The 53 transactions listed in the M&A tracker is higher than last year, when 45 deals were done in the second three months, but lower than the 60 purchases involving Irish business in the first quarter of this year.

Ion Trading

The most significant business during the period was the purchase of a 10 per cent stake in Ion Trading by Carlyle Partners for about €359 million. Stakebuilding by Singaporean sovereign wealth fund GIC in Eir for about €230 million was the second-largest reported transaction.

Other significant M&A business was the buying by Element Power of the Cordal wind farm project for about €160 million, Carlyle Cardinal’s acquisition of AA Ireland in a €157 million deal and the purchase of Highline Produce by fruit distributor Fyffes for €97.7 million.

That Fyffes deals was just one of two during the three months in the food sector, making it exceptionally quiet by comparison with recent years.

Among the more active sectors was IT and telecoms – which recorded the largest number of deals – industrial, health and pharmaceutical, and financial services .

Foreign acquisitions

In line with recent experience, Irish companies buying foreign businesses accounted for the single largest number of deals at 17. In nine cases, Irish companies were sold to US groups, which buyouts and investments in businesses were more prevalent than usual. Ten of the M&A deals in the three months involved companies on both side of the transaction that were Irish.

Mr Simmons said that, given the Brexit poll only took place on June 23rd, there was little evidence of it impacting on the second quarter figures.

“The latter half of 2016 will be interesting to see, particularly in terms of deal volume, as the impact of Brexit will be reflected in these numbers,” he said. “Already, it is known in the market that a number of transactions have been put on hold and others no longer proceeding.

He said the troubled deals were likely those with a cost base mainly in euro but where a significant amount of sales were in sterling.