M&A Review 2017
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M&A Review 2017 1 M&A REVIEW 2017 Contents Foreword 6 Overview 8 Economic and financing climate 9 Mid-market reign 9 Sector watch 10 The continued rise of Fintech 13 FDI as a driving force 14 In-depth: Private equity - a key player 16 In-depth: Brexit focus 17 In-depth: Outbound dealmaking 18 Outlook for 2018 20 About William Fry 22 Contacts 23 3 Against a backdrop of significant macroeconomic and political uncertainty, 2017 saw a return to very healthy levels of transactional activity M&A REVIEW 2017 Key Trends in Irish M&A M&A Deal Volume Inbound Activity Private Equity Mid-market Activity Deal volume reached its Highest annual volume Highest year on record by highest total on volume Mergermarket record in 2017 OF TOTAL DEALS DEALS DISCLOSED VOLUME* WORTH WORTH UP FROM IN 2016 Key Sectors by Deal Volume A number of key sectors saw strong activity by volume, including: BUSINESS SERVICES TELECOMS, MEDIA AND FINANCIAL SERVICES CONSUMER TECHNOLOGY *figure represents deals with a disclosed value 5 WILLIAM FRY Foreword Welcome to the seventh edition of William Fry's The stellar performance in 2017 is renewed Irish M&A Review, published in association evidence of Ireland's strong economic growth, its with Mergermarket. business-friendly environment and ready access to capital for businesses. Early in February, the In last year's review, we commented on the European Commission announced that GDP muted Irish and global M&A landscape in late growth for Ireland was 7.3% in 2017. This is the Shane O'Donnell 2016. We further noted that while the volatile fastest growth rate in the EU. Indeed, Ireland has Head of Corporate/M&A global macroeconomic picture would have a outpaced all other eurozone economies for four T. +353 1 639 5112 strong bearing on the pace of M&A in 2017, we successive years. A relatively low corporate tax E. [email protected] expected Irish deal activity to rise as a result of rate, a flexible and multi-lingual workforce and Ireland's growth predictions and strong business a transparent legal system continue to underpin fundamentals. Ireland's attractiveness to overseas buyers – both strategic and private equity (PE). PE players were Against a backdrop of significant macroeconomic particularly active in the Irish market in 2017 and and political uncertainty, 2017 saw a return to very we expect to see this trend continue in 2018. healthy levels of transactional activity. Indeed, the number of deals targeting Irish assets actually Inbound dealmaking increased in 2017 to 93 reached its highest annual total on Mergermarket deals. Although the UK and US have traditionally record (since 2001), with the announcement of been the most dominant international acquirers, 143 transactions valued at €14.9bn. Mid-market Irish companies drew interest from a wide array businesses, the engine of the Irish economy, of jurisdictions in 2017 including Japan, Australia attracted significant M&A attention in 2017, and South Africa. This inbound activity also cementing their position as consistent drivers spanned a variety of sectors, highlighting the of M&A activity in Ireland. diverse range of growth-oriented businesses coming to market in Ireland. 6 M&A REVIEW 2017 Foreword While there was plenty of interest from foreign Ireland is proving to be an attractive option for players in the Irish market throughout 2017, large many such businesses and there is evidence and domestic corporates such as Kerry Group of some companies using the M&A market to plc, ICON plc, DCC plc and CRH plc also sought establish a first foothold. to enter new markets and diversify their portfolios abroad. Low interest rates and an abundance of We hope you find reading this year's edition of funding (in some part facilitated by the European the Irish M&A Review informative and as always Central Bank (ECB)'s continued quantitative we welcome your feedback. easing (QE) program) supported this growth. Outbound M&A increased its share in overall volume, from 39% to 42% year-on-year, reflecting good financing conditions and healthy balance sheets among Ireland's leading corporates. Shane O'Donnell In 2018, we expect that the ongoing Brexit Head of Corporate/M&A negotiations may have an influence on the level of inbound transactions. The UK was the biggest net source of professionals moving to Ireland in 2017 accounting for 21% of the net migration to Ireland during the period to October 2017. UK and international businesses concerned about marketing and distributing their products and services in the EU following the triggering of Article 50 are in increasing numbers considering relocation to mitigate the fallout from Brexit. 7 WILLIAM FRY Overview In M&A terms, Ireland performed well in 2017 in Irish M&A Quarterly Trends, 2011-2017 Volume Value (€m) the face of uncertainty in the foreign markets driven by factors such as Brexit and the divisive 60 40,000 new US administration. While 2017 saw fewer 35,000 megadeals than previous years resulting in the 50 drop in overall value year-on-year, a total of 143 30,000 deals worth €14.9bn were announced over the 40 25,000 year, representing a 5.9% increase in volume. €m Deal Value 30 20,000 As highlighted in earlier reports, the mid-market 15,000 which is traditionally a cornerstone for Irish 20 Number of deals M&A continues to draw interest from domestic 10,000 and international bidders alike. 2017 was no 10 5,000 exception, with dealmaking in the mid-market accounting for 93.5% of total volume (up from 0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 82.4% in 2016). Factors such as strong valuations 12 12 12 12 13 13 13 13 14 14 14 14 15 15 15 15 16 16 16 16 17 17 17 17 and growth focussed businesses are driving the high levels of activity. The total of 49 deals announced in the second quarter in particular between Ireland and the global investment of international players diverting their attention reflected strong mid-market growth. community. The bill represents a move towards away from the UK. However, uncertainty ensuring that Ireland retains a sound regulatory surrounding the nature of the Irish border would PE dealmaking experienced impressive growth environment in accordance with international hamper crucial trade relations with the UK and last year, perhaps proving itself to be an area standards. The change brought about by this could negatively affect M&A deals between the to watch in 2018. A total of 37 deals worth legislation should increase the options available two countries. €12.2bn were announced, more than double in Ireland for fund promoters (including venture the value of all announced PE deals in 2016. We capital and PE) which may have a knock-on-effect Further, the ECB's winding down of its QE are now starting to see the first signs of exits on M&A activity. program over the coming months may constrain for domestic PE funds, such as Carlyle Cardinal. dealmakers' ability to access capital and cause The Government approval of the drafting of the Looking forward, dealmakers will be watching the financing climate for Irish M&A to become Investment Limited Partnership (Amendment) Bill the Brexit negotiations closely this year. Brexit less liquid in 2018. 2017 will, it is hoped, strengthen the relationship holds potential benefits for Irish M&A in terms 8 M&A REVIEW 2017 Overview Further afield, the US government has legislated These economic indicators are above average The mid-market, which is for the most fundamental overhaul of US compared to the Eurozone and substantially corporate tax policy in decades, reducing the higher than what was predicted in the spring traditionally a main driver for Irish tax rate from 35% to 21%. The impact this will 2017 forecast. By comparison, the UK economy M&A, continues to draw interest have on Ireland's ability to continue to attract grew just 1.5%, according to the Office of from domestic and international significant levels of investment from American National Statistics, with growth expected to be companies is yet to be seen. limited over the next few years amid ongoing bidders alike. 2017 was no Brexit negotiations. exception, with dealmaking in the Despite an unpredictable macroeconomic climate, it is expected that Ireland's strong Ireland's economy has been given a significant mid-market accounting for 93.5% economic fundamentals will continue to boost over recent years due to the ECB's €1tn of total volume, up from 82.4% outweigh external destabilising factors, 2018 QE programme which began in 2015. The will follow on from the strong finish to 2017 program served to reduce borrowing costs to in 2016. Factors such as strong and we will continue to see healthy levels of a record low and stimulate economic growth. valuations and growth-hungry Irish M&A activity. The ECB has recently decided to wind down businesses are driving the high this programme and plans to cut the amount Economic and financing climate of bonds it purchases on a monthly basis from levels of activity. In a climate of widespread political uncertainty, €60bn to €30bn for a nine-month period. and with many currencies across the globe Although the announcement is broadly in line experiencing considerable volatility, the Irish with market expectations, it will likely affect 2020 given below-target inflation and continuing economy performed well in 2017. The European the levels of liquidity in the M&A financing slack in local labour markets, signalling a Commission predicted 4.8% growth for the environment in 2018.