If Irish merger and acquisition (M&A) activity during 2023 could be summed up by a single adjective it would be “resilient”. The word comes up time and again in assessments of the past year. Estimates vary but there is a consensus that deal volume dropped by between 7 per cent and 10 per cent during the year but this was a good showing in comparison to global activity, which declined by as much as 20 per cent.
“Despite the challenging macroeconomic backdrop, the Irish M&A market proved to be very resilient, particularly in terms of deal volumes,” says Brian Butterwick, partner, Corporate / M&A with William Fry. “Although overall deal values were down from 2021 and 2022, they were on trend with pre-Covid levels, and this drop was not unexpected given the tightening of financial conditions that occurred in 2023 and the resulting slowdown in mega-cap deals that can have a big impact on aggregate deal values.”
There was also a lengthening in the deal making process during the year, according to Alan Kelly, managing director (M&A) at Focus Capital Partners.
“Our observations were that deals were slower to get completed and this was driven by a change in the funding landscape and more caution in the market with inflation,” says Kelly. “We are part of M&A Worldwide, a global network of boutique M&A firms, and from discussions with other members, Ireland actually fared quite well versus other countries.”
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BDO corporate finance partner Katharine Byrne says the Irish M&A market was “surprisingly resilient” during 2023, especially in the mid-market space of deals worth between €10 million and €60 million where BDO mainly operates.
“We saw a lot of private company owners seeking exits,” says Byrne. “Mid-market deal volume was quite stable and was actually up on pre-Covid levels. There was a high degree of resilience in the mid-market space.
“We are also seeing a number of international private equity houses coming into the market to invest in Irish companies of that size. And we are seeing more Irish companies looking to expand overseas through acquisition. That is good news for Ireland Inc and shows that Government efforts to encourage Irish industry to internationalise are bearing fruit.”
Despite its well-documented travails, the technology sector led the way in terms of both deal volume and value during 2023.
“That’s typical of most years,” says Anya Cummins, a partner with Deloitte’s M&A Advisory team. “We saw some large Irish tech firms being sold or raising capital in the past year. From an Irish market perspective, software and other tech firms continue to deliver high growth and there is a strong appetite for those companies from investors. Valuations have fallen though. The focus is now on cash generation and businesses burning cash or which are loss making are finding it more challenging to raise capital.”
The mid-market space continued to dominate. “Deals in 2023 were concentrated in the mid-market, so while there were not as many headline-grabbing mega-deals there were still a number of transformational deals that were of acute strategic importance for the parties involved,” says Butterwick. “For example, Softbank Corp’s acquisition of a majority stake in Cubic Telecom highlighted the continued strength of the Tech sector here and of Ireland as a destination for inbound investment by large international organisations.”
The most active sectors for the Focus Capital team were technology, private healthcare clinics, engineering services and retail.
“We have been working very closely with our colleagues in Focus Investment Bankers in the US who have a specialism in IT managed service providers (MSPs),” says Kelly. “They are working with US private equity firms and strategic buyers who are actively seeking opportunities in the Irish market as they believe that Irish companies in this sector are very well run and offer an opportunity for a buyer to access Europe seamlessly. We expect activity in this sector to continue in 2024.”
Those themes are also noted by EY corporate finance partner Ronan Murray. “TMT (Technology, Media and Telecommunications) has remained the dominant sector – particularly technology, with strong performances and notable deals across other sectors such as renewable energy, and health science and wellness (HS&W),” he says.
Murray says the trend of digital transformation and new technologies disrupting the business landscape shows no sign of slowing down as the demand for quality technology solutions continues.
“This has seen the TMT sector become the most active in terms of M&A activity in recent years,” he adds. “Similarly, as environmental, social and governance (ESG) strategies gain greater focus from company boards and regulatory bodies, and the demand for talented people increases as Ireland heads towards full employment, deal activity is rising across the renewables and HS&W sectors.”
Byrne believes private equity will play an increasingly important role in the market during 2024. “There are two types of private equity funds active in the market now,” she says. “Those that came here 10 years ago or so and are now raising second or even third funds. They have strong track records of investments and exits and very good stories to tell. They are seeding the market by selling out to other trade buyers or private equity funds and reinvesting that capital.
“The other type is the larger international funds which have been showing increased interest in Ireland. That will continue to increase during the year ahead.”
Deloitte M&A Advisory team partner Jan Fitzell says the firm has a strong deal pipeline for 2024.
“There is greater certainty around interest rates now,” he says. “People have a view that rates have peaked and it’s not a case of if they will come down, but when. That’s a definite bright spot on the horizon.
“Private equity is now raising new funds. Some of the funds didn’t invest as much as they might have last year and there might be a bit of a catch-up play there. We might also see confidence increase in the UK market and there might be a spillover effect here.”
Murray also sees a positive deal making environment for the year ahead.
“Businesses have been challenged in terms of financing deals due to elevated interest rates,” he notes. “This has started to show initial signs of cooling, giving some hope that interest rates may be peaking.
“Despite the global macroeconomic volatility, the deal environment will likely remain robust as structural and strategic drivers in European M&A come into play, including divestitures, technology, ESG, and private equity will collectively shape the landscape.”