"We are seeing increasing international interest from a wide spectrum of investor types, from international private equity firms looking for new investment opportunities or bolt-on investments to their existing portfolio companies, to public and private corporates seeking acquisitive growth opportunities to grow revenue and transform business operations," says Rory O'Keeffe BDO partner of the transaction services team at professional services firm BDO.
The pandemic hasn’t dampened such activity at all, if anything, it may have accelerated it. It’s not just here either. Global M&A activity in 2021 was at its highest levels over the last decade, says O’Keeffe.
BDO has been involved in transactions involving international parties across a wide range of sectors, from healthcare and technology, to manufacturing and renewables.
Regardless of sector, investors are seeking opportunities to access new products, services, technologies – and talent. “Interestingly we see a significant level of consolidation M&A activity happening across fragmented sectors in the Irish market, including nursing homes, veterinary practices, insurance brokers,” he adds.
Ireland's historical low rate of corporation tax has also been a major factor in encouraging many multinationals to locate their EU headquarters to Ireland
Global deal valuations soared during 2021, and valuations in Ireland were no different. “Competition for high-quality Irish assets has intensified given the amount of dry powder in PE firms and interest from well-capitalised strategic corporates. Both investor types are seeking growth opportunities – not value – and there are many strong indigenous Irish business that meet their criteria,” he explains.
While there has been no one “standout Brexit impact” on transaction activity, BDO has seen a greater effort in transaction due diligence reviews to understand a business’s customer base and supply chain and the implications of Brexit on them. “Investors need to clearly understand the implication on the business from Brexit in accessing the European or UK market,” he says.
Ireland’s historical low rate of corporation tax has also been a major factor in encouraging many multinationals to locate their EU headquarters to Ireland, says Bernard McEvoy, a a senior partner with law firm Philip Lee. “Additionally we have a well-educated workforce, are English speaking and our legal system is based on common law, which is the legal system in the UK, USA, Canada, Australia, New Zealand and India,” he points out.
They also come for three little words beloved of the sector – opportunity, value and stability, says his colleague Andreas McConnell.
“Since Brexit, Ireland in essence has no longer had to compete with the UK when investors look at acquisitions to scale into Europe or indeed from Europe internationally. As a result, we are seeing far higher private equity interest and activity in Ireland than pre-Brexit,” explains McConnell, who is a partner in Philip Lee’s corporate department.
“Private equity has been involved in significant consolidation plays in the brokerage, pharmaceutical, property and healthcare sectors by way of example – they are seeing value and opportunity here.”
In terms of stability, access to the EU remains a very considerable factor but while there has been widespread reporting of financial institutions moving certain operations to Ireland from the UK, he believes that perhaps the increasing trend of UK originated pharma projects relocating core parts of such projects into Irish entities is more interesting in the longer term.
“This is driven in part by the level of talent within the sector in Ireland, but also by regulatory stability within the EU and assured access to EU research grants,” he adds.
The general search for return in a period of (for now at least) low interest rates is clearly at play, but a possibly overlooked factor right now may also be the calibre of Irish management teams.
Irish businesses tend, by virtue of our small, island population, to internationalise early, points out Michael Hussey, director Davy Corporate Finance, which recently advised on the sale of EDPAC, a maker of data centre cooling equipment and air handling systems, to Swedish listed air treatment company Munters.
Irish companies have established a strong reputation across Europe and the Nordics for their expertise in data centre construction. “Most Irish businesses are outward looking. They have to be, because Ireland is too small to sell to internally. International investors see Irish management teams as more advanced in their global ambitions,” says Hussey
Ireland’s emphasis on technology helps too. “Software by its nature is a product that can be easily scaled. With a smart piece of software, your market is global immediately,” he says.
He points to Irish food ordering solution Flipdish, which recently achieved “unicorn” status, as a case in point. “It’s a good example of a product that solves a problem in every economy. That is, wherever local restaurants find it too expensive to pay Just Eat. So it’s universally needed. It just happens to be a bunch of Irish software engineers who came up with it,” he says.
International buyers here are currently on the lookout for businesses that have proven their international credentials. But private equity is looking not just for management teams, but for growth, ideally an ability to triple or quadruple a business either organically or through M&A.
Brexit prompted many private equity firms to move to Dublin. “What they discovered was a landscape of potential investment opportunity – and a realisation that they should have been there anyway,” he says.
