Financial services, food and food services, and IT and telecoms saw the most activity
FOLLOWING A strong recovery in 2010 deal volumes from the historic lows experienced in 2009, merger and acquisition (MA) activity in 2011 commenced in a similar vein.
In particular, the first quarter of the year saw a number of sizable transactions. This included BAE Systems’ €180 million takeover of Norkom, Glanbia’s €107 million acquisition of Bio-Engineered Supplements & Nutrition, and Northern Trust’s €60 million acquisition of Bank of Ireland’s Securities Services business, all occurring in the first two months.
The total number of deals recorded during 2011 was 187 with a total reported deal value of €7.38 billion. Notable deals during the year included Alkermes’s €669 million acquisition of Elan Drug Technologies, Greencore’s €128.5 million acquisition of UK food group Uniq and the sale of Irish software company, Curam, for a reported €155 million to IBM.
Combined with a number of bank restructuring transactions, the trend of non-core asset disposals by AIB and Bank of Ireland, which began in 2010 and continued strongly throughout 2011, resulted in high levels of deal activity in the financial services sector. These included the Government’s €2.3 billion investment in Irish Life Permanent, the €1.1 billion investment by a group of institutional investors and fund managers, led by Fairfax Financial Holdings, for a stake of around 35 per cent in Bank of Ireland and the €200 million disposal of Quinn Direct Insurance to Liberty Mutual/IBRC.
Other active sectors during the year were food and food services, IT and telecoms, and building, construction and property (the last primarily on account of CRH-related transactions).
Food and food services recorded 24 deals and €558 million of disclosed deal value. Highlights included Kerry Group’s €171.8 million acquisition of Cargill Flavor Systems and Valeo Food’s acquisition of Jacob Fruitfield in the continued consolidation of the food distribution space as operators look to achieve scale and operating cost synergies in the absence of top-line revenue growth.
This rationale was also evident in the dairy industry and, in particular, liquid milk, with a number of deals including Glanbia’s acquisition of Dawn Dairies’ Limerick business and Connacht Gold’s acquisition of the liquid milk business of Donegal Creameries.
The IT and telecoms sector saw 27 deals during the year and a total disclosed deal value of €633.9 million. Marquee deals included the aforementioned acquisition of Norkom Group, TelecityGroup’s €100.6 million acquisition of Data Electronics and IBM’s reported €150 million acquisition of Cúram Software.
As other sectors have suffered declining activity levels, IT and telecom’s has increased in relative importance over the past number of years and sustained deal volume level consistent with that witnessed in 2006 and 2007 (28 deals in each year). During the year we noted strong inbound interest in Irish technology companies particularly from US buyers.
As regards category or type of deal, as in previous years, Irish listed companies remained acquisitive abroad, with a total of 74 deals recorded during the year (up on the 66 in 2010) and a reported €1.4 billion of deal value (2010: €5.2 billion). CRH as usual was the most acquisitive but Kerry Group, Glanbia, Greencore, CC and DCC all made important foreign acquisitions during the year.
In-market Irish deals, where both buyer and seller were Irish companies, accounted for 35 transactions (down from 50 in 2010), including Musgrave’s acquisition of Superquinn, Boyne Valley’s €41 million acquisition of the Premier Foods’ Irish business and PCH International’s €21 million acquisition of TNS Distribution.
Buyouts, not surprisingly, were thin on the ground with our quarterly surveys recording just nine such deals in 2011 (2010: 19) and a total disclosed deal value of €30 million (2010: €410 million).
As in 2010, a number of deals took place on foot of bank-driven restructurings and, not surprisingly, quite a few were in the retail sector, including Hilco’s acquisition of A-Wear and JD Sport’s acquisition of Champion Sports.
Overall, 2011 was a reasonably good year. For the second year in a row the Irish M&A market remained ahead of the lows experienced in 2009, where the average quarterly deal volume stood at 36 deals versus the current level of 45 for 2011. In terms of volumes, 2011 did lag 2010, with the total deal count of 187 representing a small reduction of 5.1 per cent on the 197 recorded in 2010.
Deal values recorded in 2011 stood at €7.38 billion compared to €10.3 billion in 2010. But 2010 saw a number of large transactions, including the €3.1 billion disposal of AIB’s Polish operations, Ardagh’s €1.7 billion acquisition of Impress and ESB’s €1.4 billion acquisition of NIE’s networks business. In contrast, 2011 had only one deal with a disclosed value over €1 billion, the above mentioned Government’s investment in Irish Life & Permanent.
Excluding these €1 billion-plus transactions gives a more positive picture for 2011, with total reported values of €1.27 billion as against €1.02 billion in 2010, an increase of 24.4 per cent.
Looking ahead to 2012, Irish M&A activity will be impacted by the challenges the Irish economy faces, coupled with EU/euro zone uncertainty. The market will no doubt be characterised by continued caution among buyers of Irish assets, a continuing challenging outlook for funding and an ongoing prevalence of trade buyers in more conventional deal situations. A high proportion of deals will continue to be bilateral, as opposed to process driven, in nature, and we are likely to see an increase in deals driven by bank lenders, with financial players as opposed to trade being the more likely buyers in these situations.
We believe those sectors which have seen most activity in the past two years – financial services, food and food services, and IT and telecoms will continue to see most activity in the year ahead.
Jonathan Simmons is a director of NCB Corporate Finance, which publishes the
NCB Corporate Finance M&A Tracker Survey
