The latest research from KPMG indicates that 2017 is likely to be even better than 2016 when it comes to merger and acquisition (M&A) activity despite the uncertainty created by Brexit and events on the other side of the Atlantic. The research was conducted among many of Ireland's leading M&A executives and advisers at the end of 2016 and revealed an strongly optimistic outlook with more than 80 per cent of respondents expecting Irish deal activity this year to match or exceed last year's.
"Despite the various headwinds, we remain positive on the overall outlook for M&A activity in 2017," says Mark Collins, partner and head of transaction services at KPMG.
Investor confidence is cited as the single most important factor influencing deal activity, with technology, agribusiness and life sciences as the sectors likely to attract most interest. Strategic fit will be the key investment driver for shareholders ahead of expanding customer base or achieving cost efficiencies or operating synergies.
In a change from last year, Ireland is seen as the more likely source of deal targets for Irish M&A executives, overtaking the UK. Fewer than half said they expected Brexit would have a negative impact on M&A in the short term.
Trump presidency
Interestingly, the majority of respondents did not expect the new United States administration to give rise to a meaningful change in deal activity in 2017. They believe it is too soon to tell if the change in administration would have an impact on deal activity in the medium to longer term. This will largely depend on the timing and execution of revised corporate policies in respect of corporate tax rates, repatriation of funds and trade restrictions; and the response of capital markets to the new administration.
“Deal-making will continue to play an important role for Irish organisations in achieving their strategic objectives, but will have to do so navigating even choppier waters,” says Collins.
Looking back on 2016, Collins points out that Irish companies were involved in a number of large-scale transactions both at home and overseas during the early part of the year. These deals included Couche-Tard's acquisition of Topaz Group for about €450 million and the completion of the Paddy Power and Betfair Group merger.
Uncertainty
Early optimism gave way to uncertainty following the UK’s Brexit referendum result and M&A activity levels declined markedly as boardrooms grappled with what the decision might mean to their organisations and their deal-making prospects. This, inevitably, had consequences for investment levels.
The year closed on a high on both the domestic and international fronts, however. During the final quarter of 2016 a number of landmark transactions were announced, including Avolon's $10 billion acquisition of the aircraft leasing business of CIT Group, Sumitomo's acquisition of Fyffes for €750 million and Greencore's acquisition of US-based Peacock Foods for $746 million. Carlyle Cardinal Ireland's €157 million acquisition of AA Ireland was further evidence of the emergence of private equity as a major force in the Irish M&A sector.
Looking ahead to 2017 there was a sense among respondents that business life had to go on regardless of events in other jurisdictions. A number of respondents commented on the need to progress M&A strategy design and implementation notwithstanding uncertainty surrounding international events. Debt is the preferred form of finance for deals and disposals to strategic trade buyers the preferred exit route.
Key decision-makers stress the need to continue acquisition activity to drive growth, particularly in sectors where organic growth prospects are limited. Various executives point to the role of M&A as potentially both strategic and opportunistic during this time of heightened uncertainty.
"We see a range of options for ambitious and nimble businesses looking to take advantage of opportunities with debt funding the preferred source of capital for deals," says Michele Connolly, partner and head of corporate finance at KPMG. "Whilst the global outlook remains unpredictable, strategic fit and price will be the drivers of activity. Most respondents appear to have already started to factor political uncertainties into their thinking and recognised that businesses can't simply stand still."
