Expert view: after a record 2021, what’s in store for 2022?

Katharine Byrne is head of corporate financing for BDO and her role is to advise owner manager, high growth, and ambitious Irish companies.

“That includes all manner of advice including buying a company, selling a company, fundraising and even succession planning,” she says. Byrne has been working in M&A for 20 years and really enjoys it.

“The biggest trends we are witnessing with the evolution of the Irish M&A system is the internationalisation of this sector. International capital has been flowing into Ireland and that in turn has driven a lot of confidence and allowed Irish companies to scale and expand.

“Previously Irish companies might have grown to a certain size and then they would have sold out. Whereas now, ambitious management teams and owners are looking beyond the limits of Irish borders into the UK, Europe and further afield.

“In simple terms, M&A activity is underpinned by confidence.”

Byrne notes that this confidence definitely took a hit, first by Brexit and then Covid, but the speed of the recovery impressed her. In 2019, BDO did 1,500 transactions and in 2020 that was up to 2020.

While tech is still the busiest sector, Byrne and BDO also saw growth in healthcare, notably nursing homes, while renewables attracted a lot of institutional capital, and finance was also busy, with consolidation in this sector, mostly focused on insurance.

Richard Grey, head of M&A at A&L Goodbody, also had the same experience with Covid.

“From an overall perspective, Covid did not have a significant dampening effect on M&A activity and particularly in the context of 2021 which was one of the busiest years ever from an M&A activity perspective. By June 2020 however M&A activity had rapidly returned as acquirers returned to the market, and the 18-month period from June 2020 to December 2021 saw an unprecedented level of activity from an M&A perspective,” he says.

Going forward, Grey expects an increased focus on sustainability and environmental, social and governance (ESG) regulation and compliance to drive increased M&A activity in targets which have attractive sustainability credentials, in particular in the area of renewable energy.

“From an Irish perspective, we expect to see an increasing level of US private equity activity in Ireland in the coming years. This activity will be driven by large US private equity sponsors who historically have been active in the market, but also by increased focus on and activity in Ireland by mid-market US private equity sponsors and growth equity providers.

“Another trend which we see emerging, both in Ireland and more broadly, is the increase of a number of private equity funds who are prepared to take minority stakes in businesses. While traditionally private equity funds have focused on acquiring controlling stakes in targets, in recent years a number of UK and US private equity funds have introduced minority funds which allow them to take minority stakes in acquisition targets.

“This has made the private equity option more attractive from a vendor’s perspective in that it can now offer both a minority and a majority investment option. We see this flexibility as a trend which is likely to continue and increase in the coming years,” says Grey.

Partner and head of M&A business for Deloitte Anya Cummins echoes these views.

“We have seen a big focus on resilience and quality of earnings. Most of the activity has been directed towards sectors where businesses have proven to be resilient to the impact of the pandemic or have even managed to grow.

“There is an abundance of transactional activity in areas such as technology, and in particular in disruptive technologies in health tech, financial services, fintech, private health care and renewable energies.

“Another emerging trend is towards raising growth capital as opposed to pure sales. We did 34 deals last year with investors coming into the Irish market looking for value. The acceleration of globalisation has made more capital available here, also there is capital raised by private equity funds which has not been spent – this is a real use it or lose it burning holes in their pockets.”

Overall, she views the combination of active investors seeking opportunities and ambitious management teams looking to grow as creating a heightened and transactional environment.

Andreas McConnell and Bernard McEvoy, partners with law firm Philip Lee, note that their sector is facing a dearth of good quality lawyers with experience in the M&A sector. They both expect consolidation will be an important factor in the M&A market in 2022, as larger companies look to make strategic acquisitions with a consequential exit for owners of smaller businesses.

“In M&A transactions this is largely done through a comprehensive legal and financial due diligence exercise. If it doesn’t stack up, then don’t do it,” says McEvoy.

Alan Kelly, director and head of M&A with Focus Capital, is facing similar talent acquisition challenges as Philip Lee.

“The biggest challenge is hiring good quality people into corporate finance,” says Kelly. “But the overall market is very positive; there is still significant capital in the market. We are witnessing more deal flexibility which is in vendors’ favour.”

Another reason for the flow of capital into the Irish M&A market is value. As Byrne notes: “The reality is that Irish firms are discounted in value terms compared to the UK. But increasingly perceived territorial boundaries are not relevant. A good project here can potentially scale anywhere in the world. That allows larger institutional funders to look at mid-tier companies which is great news for great companies in Ireland.”