Resilient Irish M&A market looks set to maintain its edge in 2024

After a bumper year for Irish merger and acquisition (M&A) transactions in 2021, deal activity showed signs of stabilisation over the course of 2022 and 2023, despite the challenging geopolitical and macroeconomic global backdrop, says Ronan Murray, corporate finance partner, EY Ireland.

“Globally, the M&A transaction landscape has slowly begun to increase after a few years of decline. Ireland continues to outperform the global M&A market, with two record deals in life science and technology – Amryt Pharma’s sale to Italian pharmaceutical company Chiesi for €1.5 billion and Softbank’s investment into Cubic Telecom, which valued Cubic at over €900 million – concluding last year.”

While funds invested into Irish SMEs reached €1.35 billion in 2023, or 2 per cent up on the previous year, funding for the fourth quarter fell by 16 per cent to €204 million, from €244.6 million in the same period in 2022, according to the Irish Venture Capital Association (IVCA) VenturePulse report, in association with William Fry.

“The first half of 2023 looked extremely strong, with €963 million of investment. However, the second half saw a marked decrease, with only €394 million. This is not totally surprising in a year where VC funding globally fell by 38 per cent in 2023 and by 25 per cent in the final quarter compared to same period in 2022,” says IVCA chairperson Denise Sidhu.

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The Irish economy is one of the most successful in Europe, with a fantastic education system producing highly skilled talent, a stable political environment, strong and ongoing Foreign Direct Investment, an ever-expanding pool of successful indigenous entrepreneurial companies, a business-friendly approach, and EU membership, says Murray.

“Additionally, Ireland’s position on the edge of Europe, its close links with the US and a talented, English-speaking workforce were all factors in the island’s robust deal activity during 2023,” he adds. “Brexit has also brought benefits, not only with US investors, but also UK investors looking for an entry point to the EU.”

Additionally, we are seeing continued strong availability of capital across both private equity (PE) and corporates, says David O’Kelly, head of M&A at KPMG.

“Notwithstanding the increase in interest rates, the banks and alternative lenders remain supportive of acquisitions which are appropriately structured. This availability of capital drives deal appetite as buyers seek to invest and grow,” adds O’Kelly.

“While the balance has shifted away from an extremely buyer-seller market, we continue to experience strong demand for good companies that clearly express their investment case.”

The Irish M&A market saw more than 350 transactions completed in 2023, says Murray.

“From these transactions, technology, media and communications (TMT) was the dominant sector – particularly technology – with a strong performance and notable deals across other sectors such as renewable energy, and health science and wellness,” he adds. “We are also seeing increasing M&A activity in the advanced manufacturing and materials sector which, along with hospitality, is an area to watch in 2024.

“Digital transformation and new technologies have disrupted the business landscape for years and this trend 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.”

Murray says companies across the sector and, increasingly, private equity firms, are monitoring innovative technology and solutions that can disrupt the market, with this likely to drive increased acquisition/investment of businesses with disruptive solutions.

Don Harrington, head of the growth team at Goodbody, agrees that private equity players will remain a key driver of M&A activity in Ireland in 2024.

“In the last decade there has been a tenfold increase in private equity coverage of the Irish market and the market size has grown to accommodate this change,” he says. “Ireland provides a compelling backdrop for global investors, given its strategic entry point to the EU trading bloc, business-friendly taxation regime and growing economy.

“The expansion of institutional private equity on the island has expanded the ambition level amongst companies, creating wider incentives for businesses to take on PE/VC funding to support growth. In the context of what has been a challenging macroeconomic backdrop, these funds still have significant amounts of capital to deploy and the appetite to execute deals.

“Additionally, increasing levels of divestment as funds near their preferred exit horizon will likely foster further activity in the market and open new opportunities.”

Harrington says opportunities will be driven by PE funds harvesting investments from earlier funds and selling to new investors, and family businesses deciding to partner with growth funds to expand internationally and provide liquidity for family members.

Additionally, drivers will include restructuring opportunities, where some companies may have over-leveraged their balance sheets in the past two-to-three years with new equity or ownership change required to put the business on a stable footing, and venture capital investors looking to exit investments that have been held for longer holding periods over the technology correction since 2021, among others.

While geopolitical uncertainty, inflation and interest rates may have an impact on M&A activity over the coming year – for example, increasing due diligence requirements on transactions – the Irish market is well placed to see an uplift in deal volumes this year, as Irish assets continue to attract interest from investors, both local and international, says Murray.

There are some macro challenges to the M&A market that we continue to navigate, including wars in Ukraine and Israel/Gaza, and associated activities impacting shipping, says Harrington.

With interest rates nearing their peak and inflation slowing, we anticipate a higher level of deal closure in the second half of this year compared to 2023

—  Don Harrington, Goodbody

“A US election year can also lead to a period of reflection as buyers consider the possible economic and other policies of possible new administrations,” he adds.

“We may also have an election in Ireland to consider. Notwithstanding these points, we are cautiously optimistic about the outlook for mid-market M&A in Ireland. With interest rates nearing their peak and inflation slowing, we anticipate a higher level of deal closure in the second half of this year compared to the previous year. Sellers moderating their price expectations may lead to higher deal closure in 2024.”

The 2024 KPMG M&A Outlook survey points to an optimistic landscape for deal activity in Ireland, with 78 per cent of M&A leaders planning to pursue deal opportunities this year and 89 per cent expecting deal volumes to either increase or remain stable, says O’Kelly.

“A market view that we are at the top of the interest rate cycle and lower inflation forecasts are expected to bolster deal-making activity in 2024,” he adds.

Megan Smythe, director, M&A, KPMG, says she expects market resilience to continue in 2024 with pent-up demand from buyers.

“Similarly, many sellers have delayed exit decisions during the recent market turbulence and will eventually seek transactions,” she adds. “We are also seeing the strategic need for many organisations to transform existing business models. It is commonplace for companies to pursue technological advancement through acquisition and lower technology valuations may create opportunities in 2024.”

This year has commenced with optimism for deal activity, driven by decreasing concern about inflation, positive views on the interest rate cycle and the availability of capital, says O’Kelly.

“KPMG’s M&A Outlook 2024 also found that, as in prior years, valuation gaps continue to be cited as the primary deal inhibitor by dealmakers,” he adds. “Transactions always involve an element of risk and potential deal breakers. It is the role of those driving the deal to prepare for potential obstacles and to deploy a solutions-orientated mindset.”

O’Kelly says last year “evidenced some buyers completing great deals despite uncertainty”. In 2024, he adds, “we expect buyers with cool heads in times of volatility to be rewarded with transformational acquisitions”.

Murray also expects the Irish M&A market to continue its robust performance from 2023 into 2024.

“Many investors and businesses have been challenged in terms of financing deals due to elevated interest rates,” he says. “However, this has started to show initial signs of cooling, giving some hope that interest rates may be peaking and that there may be rate cuts on the horizon later this year.

“Ireland is a very competitive country internationally with an innovative, technology-driven, service-focused and open trading economy. Our regions have grown and developed into destinations of choice for global companies, as well as providing a platform for indigenous private companies to develop and scale.”

Recurring drivers of M&A activity such as succession planning, shareholder de-risking, expansion into new markets/geographies and growth in customer numbers are expected to continue into 2024.