Despite some recovery last year, continued uncertainty over the economy and the State in general will affect M&A activity in 2011, writes Jonathan Simmons
THE IRISH mergers and acquisitions (M&A) market recovered some ground last year, with 197 deals worth €10.3 billion involving Irish companies. This compares with 134 deals and a total value of just €3.4 billion in 2009.
A number of one-off transactions worth a total of €7.1 billion significantly enhanced deal values during the year. The largest of these transactions were both completed in the third quarter of the year – namely AIB’s disposal of its 70 per cent stake in Bank Zachodni WBK for €3.1 billion and Ardagh Glass’s acquisition of Impress Holdings for €1.7 billion.
The other transactions were the ESB’s acquisition of Northern Ireland’s electricity networks from Viridian for €1.4 billion and Aryzta’s acquisition of two US companies in the second quarter of the year – Fresh Start Bakeries and Great Kitchens – for a combined deal value of €902 million.
Excluding these large deals, underlying deal values in 2010 were of €505 million, €787 million, €1.067 billion and €1.067 billion in quarters one to four respectively. When compared with the €993 million and €988 million of deal value in quarter three and quarter four 2009, this shows a consistent level of improvement since the record low of €271 million recorded in the second three months of 2009.
Since that point, there has been a level of consistency in deal value, with an average quarterly deal value of €903 million over the six quarters when excluding the aforementioned transactions.
Both our full-year figure of 197 deals and the quarterly figures for 2010 demonstrate the improvement in the quarterly deal volume since the mid-2009 lows. On average, there were 50 deals a quarter in contrast to the 2009 average of 36 deals a quarter.
As in previous years, CRH was a serial purchaser of overseas assets, completing 28 transactions (as measured by our survey). When these acquisitions are excluded from the analysis for the year, the deal volume for the quarters one to four were 36, 42, 44 and 49 respectively compared with 33, 27, 28 and 38 for the corresponding quarters in 2009.
The most active sectors during 2010 were information technology and telecoms; building; construction and property, and industrial, with 32 transactions each.
Notable transactions in these sectors included STT’s €47.6 million acquisition of Eircom, Spectrum Equity Investors’ €64.7 million acquisition of Trintech, CRH’s acquisition of a 48 per cent stake in Bauking for €126 million, Kingspan’s acquisition of CRH’s European insulation business for €120 million and Biffa Waste Management’s acquisition of Greenstar UK for €162 million.
The food and food services sector recorded 24 deals during the year.
In addition to Aryzta’s acquisitions, noteworthy transactions include Axereal’s acquisition of the Greencore malt businesses for €116 million and the Capvest-led establishment of Valeo Foods through the merger of Batchelors and Origin Foods. The latter transaction demonstrates that, although private equity activity is still significantly lower than it was three years ago, certain players are still active and looking for attractive assets.
Other active sectors during the year were health and pharmaceutical and financial services, with 16 recorded transactions each, including Permira’s €158 million acquisition of a majority stake in Creganna-Tactx Medical.
The market saw significant M&A activity around distressed businesses and assets in 2010. A few high-profile transactions included Énergie Group’s acquisition of Jackie Skelly Fitness Clubs, UPC acquiring Broadworks Communications and Thrifty Car Rentals acquiring Irish Car Rentals.
Another key feature of the 2010 M&A landscape was foreign acquisitions by Irish companies. As in previous years, and as touched on above, CRH led the way with 28 transactions, while Kerry Group completed four acquisitions, including that of Key Essentials in the US for an undisclosed sum and Croissant King Pty from General Mills for a combined total of €18.3 million.
Continued uncertainty over the economy and the State in general will affect MA activity in 2011 as it did last year. Buyers will continue to be cautious, funding will remain a challenge and domestically focused businesses will continue to experience a difficult operating environment.
Still, provided the economy can continue to grow (as displayed with the most recent GDP-GNP results released by the Central Statistics Office) and the wider global economy continues to strengthen, confidence will continue to hold and hopefully improve sufficiently to allow an MA market in 2011 similar to that of 2010 at a minimum.
We believe there will be further transactions in the active sectors of financial services, food and food services and IT and telecoms, as well as a prevalence of trade buyers over financial buyers and further distressed transactions.
Jonathan Simmons is a director of NCB Corporate Finance, which publishes the NCB Corporate Finance MA Tracker Survey
