Succeeding in M&A

As the largest global professional services firm, Deloitte supports businesses in Ireland through its global network of over 286,000 people in more than 150 countries.

In 2022, it’s M&A team was recognised as the leading financial advisor for M&A activity by deal volume in Ireland, ranked number one for the second year in a row, by Mergermarket’s Global and Regional M&A Report.

Despite unprecedented market volatility, the team advised on 36 M&A deals, which represented a value in excess of €1billion, for those with a disclosed value, illustrating a busy year advising on a number of landmark cross-border and private equity transactions.

The M&A outlook

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The outlook for 2023 continues to see strong demand from international investors, interested in Irish businesses. “Given the scale of the Irish economy, Irish businesses are forced to internationalise quite early in their lifecycle,” explains Jan Fitzell, a partner in M&A at Deloitte. “This has a positive impact from a buyer appetite and valuation perspective, because those businesses are typically more sophisticated and a little bit further along in their development than comparable businesses in other geographies.”

Fitzell sees a strong proposition on offer for private equity looking to invest, typically, in businesses that have achieved meaningful financial metrics. “What they’re looking for are strong management teams in businesses that have a growing profile in an attractive end market. And we’re lucky here in Ireland that we have a large number of businesses that tick those boxes.”

Anya Cummins, partner, M&A and head of Deloitte Private, concurs: “The mid-market, which is the backbone of the Irish market, remained incredibly buoyant last year, and we’ve seen a really busy start to 2023.” Cummins notes that there is a focus on resilient sectors where visibility over future earnings is more certain.

Fitzell also points to the strong presence of buy and build strategies coming to the fore in 2023. “For a private equity fund, it’s a relatively easy way for them to deploy capital through a management team and a company that they’re already familiar with. Those companies are going to go on and consolidate that market position and grow by acquisition.”

Driving strong valuations

Cummins compares deal valuations to the housing market; the more buyers that are interested will drive up the value. “If you go to a viewing, and it’s very busy, and it feels very competitive, the price is only going one direction. Selling businesses is a bit like that, if it feels competitive, if the business is well prepared, and if there’s pace in the transaction, we will typically see a corresponding impact on valuation.”

Other factors driving strong valuations include a diversified customer base, a strong management team, a focus on people development, good IT systems—all adding up to what Cummins describes as, “if the business feels well-invested and has an air of quality to it”.

“In a market like Ireland, where the domestic market is relatively small, an internationalisation strategy or a scalable platform that you can take into other markets has a direct valuation impact—that could be organic growth, a software system or a product that you could plug and play in another market, or acquisitions.”

Pace and momentum

“I always say time kills deals. Pace in a transaction keeps momentum moving,” Cummins notes. “Many moons ago, diligence was primarily focused on financial and tax. Now there are a huge, huge number of areas where a buyer needs to get comfortable, and you want to keep them going through that process relatively quickly. That means the business needs to be well prepared; it needs to feel like it’s a competitive process.” The net has widened out to encompass areas including, but not limited to, ESG, technology, and more.

“As deals have gotten more complicated in the current markets, being well prepared is fundamental. Having the breadth, capability and expertise across different specialist teams really adds value to us as a team successfully delivering on complex transactions.”

Integration and delivering on the deal

“A good integration plan isn’t going to solve for a bad deal, but a bad integration plan will scupper a good deal,” says Ian Whitefoot, an M&A Partner experienced in helping businesses with integration and post-deal priorities. “It’s where the tangible returns that a deal was premised on—why a deal has happened—are ultimately delivered.”

Good communication is crucial, from explaining the deal rationale to shareholders, and focusing on the people element in the integration stage. “Clarity over the future vision, the operating model, and most importantly, their role in it is really important for retaining the talent that ultimately the business is going to rely upon to take it to the next level.”

Cost and revenue synergies are in sharp focus for dealmakers in the current environment, due to the increasing cost of debt to fund acquisitions and the follow through impact on investment return. “In that context, a robust integration plan is absolutely key for driving and protecting value,” he notes.

Protecting value in the context of an integration

There is an increased focus on post-merger integration and value maximisation according to Fitzell, with a softening of valuations over the last year driven primarily by the cost of capital. “We’re seeing a bigger focus on businesses demonstrating the synergy capabilities, and we’re also seeing a bigger focus on private equity funds looking at operational improvements, trying to put in place plans and processes that are going to facilitate growth over the next three to five years.”

“There’s no one size fits all as it relates to integration,” Whitefoot notes. “But reflecting on some of the really successful programmes that we’ve seen, there are certainly three common imperatives: Be clear, be quick, and be focused.”

M&A isn’t necessarily a day-to-day or even a year-to-year activity for many businesses. To be successful in M&A, it requires a fine balance of finding the right deal, executing it seamlessly, paying or receiving the right price and then adjusting to the new reality very quickly. “In order to do that successfully, it requires a very wide breadth of capabilities, and we at Deloitte can offer that to our clients,” he says. “Our goal is to help our clients deliver on their M&A objectives by supporting them with insight and capability across the full breadth of that journey.”

To read more or to contact any of the team please visit Deloitte