The Irish market will be attractive for private equity investors this year but deals could take longer and be harder to get over the line, according to the head of corporate law firm Taylor Wessing Ireland.
There were more than 300 private equity deals completed in Ireland last year as the sector maintained the level it achieved in 2021 when it significantly outstripped the activity of the previous three years.
In recent weeks, Silver Lake acquired Utah-based software company Qualtrics for $12.5 billion (€11.4 billion) in what was the biggest private equity buyout of the year to date.
Qualtrics is a prominent presence in the Irish tech ecosystem and employs hundreds of people in its EMEA headquarters in Dublin.
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Adam Griffiths, M&A partner and head of Taylor Wessing Ireland, said the deal signified the “growing confidence” on the part of private equity investors in “pricing in” the negative macroeconomic factors that have characterised the last 12 to 18 months.
“It is an indication that the existing wall of capital is still looking to find a home, and that more transactions will be executed this year in Ireland, albeit deals might take longer and be harder to get over the line,” he said.
Traditionally, private equity investors look for majority ownership and all the control that comes with it, but Mr Griffiths said “a boon” for prospective sellers “might be the increasing flexibility of private equity funds”.
There has been a material shift in recent years, with minority and “partnership” options appearing. The larger fund managers are essentially designing different products for their investors and prospective management teams to select from, according to Mr Griffiths.
This emphasis on greater product diversification is set to continue in the months ahead, potentially making private equity investment more attractive to prospective sellers.
The lower mid-market, in respect of businesses with a valuation of €10 million to €250 million, should see the most pronounced levels of activity this year, Mr Griffiths added, with Ireland offering “many opportunities in that range for the shrewd investor”.
He said professional advisers are starting to the see an increasing number of “secondary” buyouts.
This practice is well-established in the US and the UK markets. It is when one private equity fund sells to another, with the management team typically reinvesting a material proportion of their stake and taking the balance off the table.
Another “clear trend” Mr Griffiths said to expect this year is a “flight to quality” as marginal deals are subjected to heavier due diligence than in recent years.
“This scenario does not favour smaller companies whose financial discipline sometimes doesn’t align with their entrepreneurial spirit,” he said.
Griffiths said technology will continue to be a major attraction for dealmakers eyeing opportunities in the Irish market this year and beyond, in spite of present challenges facing the sector.
“Last year some 30 per cent of all global private equity deals were in tech and, if management teams can come to terms with reduced valuations, tech companies remain well-placed to receive serious attention,” he said.
“However, despite the renewed market sentiment, in 2023, dealmakers might have to fight harder, for longer, to get the job done.”
