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The US factor driving valuations to record levels in Irish M&A market

US presence has grown over the years as their financial firepower makes impact

A feature of the Irish M&A market in recent years has been the growing influence of US private equity investors whose financial firepower has helped drive valuations to record levels in some sectors.

Mergers & Acquisitions special report looks at the top deals of the year, how companies can avoid problems after a merger, US activity in the Irish market and what 2022 holds in terms of deals.

In the last year alone, we have seen Reagecon acquired by Calibre Scientific, a company backed by US private equity firm Stone Calibre, Anam Technologies acquired by Infobip, a company backed by New York-based private equity house One Equity Partners, Lead Edge Capital investing in payroll solutions provider Immedis, and of course the €3.4 billion acquisition of UDG Healthcare by Clayton, Dubilier & Rice.

The year 2021 also saw the completion of the take private of Applegreen backed by Blackstone Infrastructure Partners.

Ireland is obvious because of the quality of targets here. I don't see that changing. There is no reason to for them not to continue investing in Ireland

“US private equity investors have always historically been a feature of the Irish M&A market, particularly at the upper end of the valuation chain,” says Brian McCloskey, a partner with Matheson’s Corporate M&A Group.

“What has become particularly evident in recent years, however, is the variety of US private equity funds, or portfolio companies financed by US private equity funds, which are now active in the market has increased significantly – be it large buyout funds, specialist technology or healthcare investors or dedicated distressed funds.”

The US presence has grown over the years, according to DLA Piper partner Eanna Mellett. “US private equity houses were not that common in Ireland 10 years ago, but they have increased their presence over that period, and we see a lot of activity now.”

A&L Goodbody partner and head of M&A Richard Grey has seen a similar pattern. "Over the last 10 years we have seen the large US private equity players such as Apollo, Blackstone, Cerberus, Goldman Sachs, CarVal, all active in the Irish market.

“More recently we have seen new entrants to the Irish markets such as Crosspoint, Further Global, Luminate, Lovell Minnick and many more, particularly in the growth equity space and through their existing US portfolio companies.”

Mellett says private equity investment in Ireland started with UK houses with the US following later. “The US houses tend to be interested in bigger deals,” he notes.

"For example, we acted for Valeo Foods which was acquired by Bain Capital last year in a deal worth over €1.7 billion. There is a lot of activity out of the US and private equity generally. There is a whole stack of money there and they need to go out and spend it."

Mellett’s fellow partner Matthew Cole believes it was always inevitable that US private equity would come to Ireland. “There is a slew of high-quality companies based here. The saturated nature of the US market means they will inevitably look at other countries. Ireland is obvious because of the quality of targets here. I don’t see that changing. There is no reason to for them not to continue investing in Ireland.”

In some cases, it's a case of Irish companies actively seeking US investors as their preferred choice of funding partner. "We see a pull factor there as well," says Deloitte corporate finance partner Anya Cummins. "A lot of Irish entrepreneurs are keen to attract US private equity investment. They see it as a strong enabler for growth in the US. US funds can add value to a scaling business."

In other words, they bring more than just money to the table. They also bring market expertise.

While these players tend to play at the larger end of the deal spectrum, they are also interested in high growth investments, particular in the technology sector, says Davy corporate finance director Michael Hussey.

He points to transactions such as Colombia Capital's investment in Nearform, the developer behind Ireland's Covid-19 monitoring app, to support its international expansion.

"Compliance & Risks, a Cork based regtech firm was acquired by Luminate Capital, " he adds. "This is a very high-growth company in a niche technology space. Marlin Equity Partners acquired a controlling stake in Learning Pool. This is the same growth angle in the edtech space."

The US has always looked on Ireland as an attractive investment destination. There are strong cultural links and Brexit has made access to Europe even more important

He also points to private equity involvement in other deals which may not be immediately visible. "Anord Mardix of Dundalk makes switchgear for datacentres. They were acquired by Bertram Capital back in 2008 and were taken over by US manufacturer Flex last year. When you look into the detail there is a lot of US private equity involvement in transactions."

They are not exclusively interested in technology companies, of course. "We have seen US funds like Carlyle and Blackstone coming in and buying large commercial properties," says Jan Fitzell, a partner with Deloitte's M&A advisory team. "There is also strong interest in financial services firms with big loan books."

They are also interested in fast-growing innovative companies. “They are trying to find the right niche and the right fit,” he adds. “The universe is really wide. You also get private equity behind companies being acquired and US trade buyers backed by private equity looking for a European platform. Ireland is an attractive location as a gateway into Europe.”

Michael Hussey agrees: “The US has always looked on Ireland as an attractive investment destination. There are strong cultural links and Brexit has made access to Europe even more important. There is also a very compatible corporate culture and straightforward labour laws.

“They are interested in Irish companies with really good Irish management teams who are outward looking in nature. Ireland is too small an economy to get excited about, but US firms tend to find Irish management teams pretty ambitious and clued in about wanting to scale internationally.”

Richard Grey believes that interest will continue. “We believe that US mid-market private and growth equity interest will continue to grow as buyers and investors become increasingly familiar with the Irish market. Ireland offers a number of attractive acquisition and investment targets, particularly in the technology and financial services sectors where Ireland has particular strengths and talents.”