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M&A activity in Ireland: the key sectors

IT, agri-food, health, pharma, property and aircraft leasing are leading M&A

Banana company Fyffes was taken over by Japanese firm Sumitomo for €751 million.

The technology, agri-food and healthcare/pharma sectors remain firmly in the top three in terms of mergers and acquisitions (M&A) activity in Ireland, but there were a number of interesting deals in property and aircraft leasing too.

On a global basis, M&A activity reached its second-highest level last year thanks to a final flurry of large takeovers during the last quarter. While the number of high-profile deals notified to the Competition and Consumer Protection Commission fell slightly amid concerns over Brexit, the volume of deals here also saw a bit of a spurt in the final few months of the year.

“We had a very mixed year in 2016, but it finished on a bit of a high in Ireland, and there were a number of really, really transformational, landmark-type deals which finished out the year, and some of them will be brought into 2017,” says Mark Collins, partner and head of transaction services at KMPG. “So the pipeline is pretty strong.

“You’ve got to really get behind the stats to understand the level of activity, because the figures for any one quarter or any one year can be skewed by a small number of very high-value transactions. In particular, in the last year, until the Obama administration brought in the legislation to limit inversions, [which scuppered Pfizer’s $160 million takeover of Dublin-based Allergan] you had a fairly distorted-looking perspective on deal activity.”


Volume of deals

Instead, looking the volume of deals, examining individual sectors and conducting surveys is part and parcel of any rigorous analysis of M&A activity.

“You have to get into the sectors to really appreciate what’s going on.”

Anya Cummins, partner in M&A advisory within Deloitte's corporate finance group, says: "We are certainly seeing TMT [technology media and telecommunications] continuing as the dominant sector within Irish M&A, and in particular the technology space within this.

“The trend of large corporates targeting Irish businesses as well as equity fundraising from Irish and international funds continues as a key theme.”

Other particularly active sectors in 2016 and again in 2017 include services, healthcare, real estate, and food and beverage, she adds.

Cummins agrees a small number of very large transactions can distort deal value metrics. “We see this in particular in technology and in life sciences, especially with large inbound transactions which can dominate the deal value metrics.”

Her team focuses on the mid-market and includes looking at deal volumes in outbound transactions by Irish corporates, inbound transactions in the mid-market and domestic consolidation, “all of which are continuing to demonstrate healthy levels of activity”.

Richard Duffy, a director in BDO’s corporate finance department and with particular experience in agri-food, says: “In terms of activity, I would say acquisitions were greater in terms of profile than number, and certainly on the agri-food side.”

In this sector, headlines were dominated by the takeover of banana company Fyffes by Japanese firm Sumitomo for a tasty €751 million, followed by Greencore's buyout of Peacock Foods in the US for $747.5 million, in a major expansion into that market. At home, ABP Group's controversial acquisition of Slaney Foods was one of the four deals that had to be approved by the European Commission.

Duffy says that there are certainly more deals in the pipeline, based on conversations with companies looking to develop their international scale.

“Those conversations are still happening, but they’ve probably slowed given the fallout of Brexit. What we’re finding with some of them is that they need to move away, to orient themselves away from the UK market. That was probably going to happen anyway.”

Raw materials

Michele Connolly, partner and head of corporate finance at KPMG, says there's been a recognition within Irish agri-food businesses of "the need to move up the value chain and that they're producing a higher-value product rather than export the raw materials, for want of a better way to describe it".

“There’s an increasing demand across the EU and other countries for a focus on healthy eating, a focus on the quality of the products on offer. Irish companies have really upped their game and they need to be able to highlight that they are the forefront of doing this.”

Firms in this sector are also more focused on making their manufacturing processes more efficient, improving traceability and quality assurance, and looking at generating value out of waste products or byproducts, rather than simply disposing of them.

In the healthcare sector, which incorporates pharma, one of the main drivers of M&A activity here is a high number of R&D companies which are trying to become global ones. To do that they need investment from funds that specialise in pharma, which are mostly to be found on the west coast of the USA. “That’s where the experience lies,” says Connolly.

Outside of the top three sectors, property probably ranks in fourth place. “Some of the investment funds and private equity concerns bought into property in Ireland over four or five years, they’re looking increasingly for an exit,” said Mark Collins of KPMG.

Aircraft leasing

He also points to Dublin aircraft leasing firm Avolon’s $10 billion acquisition of the leasing business of the CIT Group as a significant deal that copperfastens Ireland’s position as a centre of excellence for this small but fast-growing sector. The transaction will transform the Irish firm into the third-largest aircraft-leasing entity in the world with a fleet of 910 aircraft worth an estimated $43 billion.

"If you look at the stats coming out of the International Air Transport Association, they are predicting big growth in terms of aircraft traffic and particularly from Asia, and so inevitably that will attract investment that will drive M&A and drive consolidation in that market."

Duffy of BDO has noticed a renewed interest in the engineering and manufacturing sectors. "We've seen a new interest and a re-engagement in those sectors again that has some uniqueness or value-add around it."

Any engineering and manufacturing activity that is very focused or specialised and with an international element is likely to attract interest, he says. There’s also no doubt that, in most sectors, almost all M&A activity is cross-border in nature as firms look internationally for growth. “The only one we would say remains national in nature is tourism, hotels and leisure,” says Duffy.