Brexit, the availability of low-cost capital and a changing investor appetite were all significant influences on the Irish M&A market during 2019, which saw significant activity in the energy, infrastructure, financial services, technology and healthcare sectors, among others.
There was particular demand for Irish energy and infrastructure assets, according to Shane Foyle, associate director at AIB Corporate Finance. "Over the last five years, deals in the Irish energy and infrastructure sector, particularly renewable assets, have consistently accounted for a significant proportion of the M&A activity in Ireland and that continued in 2019," he says.
"Notable deals include Greencoat Renewables' acquisitions of Gortahile, Killala and Beam Hill wind farms and Neon SA's acquisition of eight operational wind assets from the Irish Infrastructure Fund."
He says the two main drivers are Ireland’s renewable energy targets, which will require significant investment and, in a low-interest environment, the attractive yield that operating renewable energy assets provide for both retail and institutional investors.
We have also seen an inflow of institutional investments into Ireland on the back of Brexit
Accounting firm BDO’s corporate finance partner Katharine Byrne sees this activity increasing in the coming years. “When the new ReFIT (Renewable Energy Feed-in Tariff) deal comes in we will see an increase in activity in offshore and onshore wind farms as well as solar assets,” she says.
The deal flow is not just limited to energy assets, according to Foyle. "Cellnex Telecom acquired the Cignal telecom masts business formerly owned by Coillte for €210 million from InfraVia, a French infrastructure fund," he notes.
Financial services deals
And 2019 was another active year for financial services deals. “This was driven by the continuing consolidation in the insurance and funds sectors,” says Byrne. “We have also seen an inflow of institutional investments into Ireland on the back of Brexit. That Brexit-related activity will slow down in the next year, but we will see continued consolidation activity.”
Private equity is making its presence felt in the sector. "There is continued strong private equity interest in the Irish insurance sector, attracted by the market consolidation opportunity and high, free cash-flow generation," says Foyle. "Deals in 2019 included Madison Dearborn Partners and HPS Investment Partners' acquisition of Arachas Corporate Brokers, Goldman Sachs-owned Aston Lark's acquisition of Robertson Lowe and Wright Group, and Sheridan Insurances' MML-backed acquisition of Wexford Insurances."
The Irish tech sector has never been stronger. Along with the presence of the large tech firms, Ireland has become a hub for home-grown indigenous firms and start-ups
Consolidation is also occurring in the financial advisory and wealth management space, driven by increased regulatory burden and associated costs, he adds. "Notable deals included Brewin Dolphin's acquisition of Investec Wealth & Investment and Invesco's acquisitions of City Life and Acumen and Trust."
Ireland’s strong international reputation and its vibrant start-up scene are helping drive deal activity in the technology sector. “The Irish tech sector has never been stronger,” says Foyle. “Along with the presence of the large tech firms, Ireland has become a hub for home-grown indigenous firms and start-ups. Significant venture capital funding interest in the Irish market and this country being an open economy is helping Irish tech companies to scale at a fast rate. Ireland’s international reputation remains strong and quality Irish technology companies are continuing to attract attention from international investors and buyers.”
These factors saw a number of Irish technology companies being acquired by international buyers in 2019. “Examples include Broadway Technology’s acquisition of Barracuda FX and Cognizant’s acquisition of Merit Software and Zenith Technologies,” says Foyle. “This trend has continued in early 2020 with Google buying Pointy and Decawave being sold to Qorvo.”
Katharine Byrne describes the technology sector as a “stellar performer” during the year. Another strong performer was business services. “We have been seeing better valuations for business services companies both from strategic trade buyers and private equity firms with buy-and-build strategies,” she says. “Private equity interest is pushing up values and owners are realising that it’s a good time to take cash off the table or take in capital to fund growth.”
Relatively predictably, the top-performing sectors for M&A in 2019 continued to be technology, life sciences, pharma and agrifood
That interest from private equity is having an impact across all sectors, according to Byrne's colleague, BDO transaction services partner Rory O'Keeffe. "Last year, we saw both increased activity by US and UK private equity looking for profitable businesses which are scalable internationally."
There is also a change in appetite. “We are now seeing private equity deals coming in all sizes,” says Byrne. “Some of them used to be only interested in companies with greater than €5 million EBITDA (earnings before interest, tax, depreciation and amortisation). They are now looking at everything from €500,000 up. This offers a new option for business owners to take in capital or exit without having to sell to competitors.”
Healthcare and life sciences
Healthcare and life sciences was another strong performer. "2019 saw continued good activity in the nursing home sector which is classed as infrastructure as it offers investors long-term stable returns," says AIB's Foyle. "Deals involved Brindley Healthcare [BGF investment], Waterland's investment in Silver Stream Healthcare and TLC's sale to Orpea, a listed French group."
The mega-deals appear to be a thing of the past, for the moment at least. "There are still outliers like Allergan, " says Byrne. "But there are no inversions any more due to US tax changes. There is continued interest from the US for investment in early stage life sciences companies here."
David Widger, partner and head of law firm A&L Goodbody’s corporate department, sees these broad trends continuing during the coming year. “Relatively predictably, the top-performing sectors for M&A in 2019 continued to be technology, life sciences, pharma and agrifood,” he says. “Collectively, these accounted for approximately 60 per cent of M&A activity last year. Other significant sectors were financial services and energy. For a variety of reasons, we would expect this trend to broadly continue. There have been a number of fast-growing Irish tech companies which have been acquired by global tech companies. We anticipate more of these in 2020 given the positive disposition of ‘big tech’ to Irish entrepreneurial tech companies and entrepreneurs.”