The value of corporate deals is set to increase, with figures for the first half of 2005 well ahead of the same period last year, writes Joe Devine

Irish merger and acquisitions (M&A) activity continues to be strong. Transaction values in the second quarter of 2005 were €1.7 billion and exceeded €5.7 billion during the first six months of the year.

This represents an increase of 13 per cent on the first half of 2004, which was then a record period. Deal sizes are up, although the number of smaller deals fell. We expect this trend to continue for the rest of 2005.

The prior year comparatives had shown a remarkably strong performance in terms of M&A activity.

There has been an almost four-fold increase in Irish trade sales to Irish, British and US buyers. Irish trade sales accounted for 84 per cent of all disclosed transactions in the period. Some of the biggest deals included:

Warner Chilcott (€2.3 billion)

Superquinn (€420 million)

NTL Ireland (€325 million)

Sx3 (€227 million)

The deal values were, to a certain extent, dominated by Waren's acquisition of Warner Chilcott - the largest Irish transaction of its kind in recent times.

Deal volumes in the IT, telecoms and support services sectors were very active. Overall, deal volumes nearly halved (from 115 to 65).

The volume decrease is partly attributable to acquisitive companies like Kerry Group, which have not yet released mid-year announcements (its acquisitions have therefore not been included). Kerry announced deals worth up to €600 million in the comparative 2004 period.

Looking back at the first half of 2004, it is worth pointing out that it also featured a transaction with a particularly heavy weighting - the Quinlan Private/Savoy transaction (€1 billion).

Other large corporate transactions in the comparable 2004 period included CRH (€700 million), and Tullow Oil (€470 million).

The only large deal in the first half of 2004 involving the sale of Irish assets was the acquisition of Clondalkin Group by private equity firm Warburg Pincus for €630 million.

Within 2005, activity was weighted towards the beginning of the year with the Warner Chilcott deal. Interestingly, active buyers like CRH have commented that they are witnessing a slowdown in deal flow, partly as a result of vendors' increasing price expectations. This is inevitable as asset sell-offs become more and more competitive.

Even the most cautious of commentators now agrees that short/medium-term interest rates are unlikely to rise in Europe.

With the exception of currency fluctuations and rising property prices across Europe, virtually all other macroeconomic factors have remained relatively static and have not warranted an increase in interest rates.

Investor sentiment may continue to be tested, particularly in light of recent international terrorist attacks.

In the context of Ireland, we expect M&A activity to remain strong. The second quarter quite possibly represents a return to more typical corporate activity statistics in the absence of the one or two "mega" transactions that have dominated recent Ion Equity quarterly surveys.

Irish economic activity continues to head EU growth tables and this position will no doubt benefit from the recent strengthening of the dollar against the euro.

Announced mergers and acquisitions in Europe surged by 41 per cent in the first half of 2005 to $446 billion (€368 billion), with private equity accounting for one-third of 2005 growth.

Deal flow from corporates was strong as a result of strong free cashflow generation. The hunt for excess returns is challenging.

It appears likely that the outturn for 2005 mergers activity and the trend compared to 2004 (when $10 billion of value was transacted) will be influenced by whether there will be a number of mega deals.

Clearly, the prospects of a successful Jurys bid is a significant factor influencing the numbers. The second half of 2004 was impacted by the NIB sale for €1.4 billion. We are of the view that when the billion euro plus deals are excluded, the trend in activity is upwards in value terms. Average deal values are increasing as Irish targets become attractive to buyers. Along with other indicators of economic health, Ireland looks set to record yet another impressive set of corporate activity statistics which are the envy of our European neighbours.

Joe Devine is a director of Ion Equity