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Friday, 29th March 2024
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Growth rather than recovery: Deals show vitality of the Irish corporate finance industry as 2014 sees return to rude health    
Each year, the Finance Dublin Deals of the Year Nominations provide a telling insight into the great changes that are happening in the capital markets and financing structures that provide a foundation of the Irish economy. This year’s nominations show markedly different trends to what was evident just 12 months ago. They show the gradual easing into history of the restructurings and consolidations that the financial crisis brought, the restoration of normal corporate financing, particularly for the indigenous sector, the increasing sophistication of the financing underpinnings of Ireland’s integrated position in world markets, - redomiciliations, inversions and the establishment of complex corporate structures in Ireland being examples. The parallel rise in global legal and professional expertise on the part of Ireland’s advisory industry, represented by its legal, accounting, other advisory. and financing and banking communities is equally evident.
Finance Dublin has received a record breaking number of nominated deals for the 2015 Awards at 111. This is an increase on last year's record of 97 deals. Nominations were steady across all of the categories: M&A, Debt Capital Markets, Equity Capital Markets, and Financial Services. but growth is most pronounced in the Loans and Financing category. Loans and financings produced 39 deals which is more than double the 19 of last year, which itself was a big increase on the previous year. The improved availability of finance for dealmakers is a message in this year’s deals and its effect reverberates throughout all of the categories.

Nominating firms number over thirty with some nominators back for the first time since the financial crisis. Using this too as a yardstick it is safe to say that 2014 represents an improvement.

the openness of the Irish economy is evidenced in the number of large international deals nominated. However, unlike recent years 2014 sees smaller domestic deals return to the fray. Less evident this year are the restructures and examinerships of the past. Now the agenda is growth rather than recovery. This re-emerging domestic market is also reflected in the deal values where there are a greater number of smaller valued deals than there have been.


In all cases the submissions highlight the expertise in the advisory work carried out in Ireland. The nominators come from the various segments that comprise the corporate finance and capital markets industry. They are law firms, accountancy firms, banks, corporate finance houses and individual corporates.

As in previous years the openness of the Irish economy is evidenced in the number of large international deals nominated. However, unlike recent years 2014 sees smaller domestic deals return to the fray. Less evident this year are the restructures and examinerships of the past. Now the agenda is growth rather than recovery. This re-emerging domestic market is also reflected in the deal values where there are a greater number of smaller valued deals than there have been.

As always the nominations tell stories where each transaction required dedication and perseverance but also ingenuity. Many of these stories involved remarkable turnarounds which resulted in companies emerging from difficult circumstances into bright futures.

In addition to deal making ability a key element present in most of the nominations is innovation. These nominees all contribute to the pantheon of Irish corporate finance and aid the dealmakers of the future by creating a canon of historic deals for other corporates who can not only learn from the processes of these deals but ultimately improve upon them.

Domestic bank financing
The increasing involvement of banks in financing is evident in 2014 and has aided a recovery in corporate finance. Irish banks have been to the forefront of a number of deals. For example, Allied Irish Banks acted as the sole lender to The College Green Partnership with the financing of the acquisition of the Westin Hotel in Dublin. This transaction involved a number of intricate financing features due to the composition of the limited partnership and a number of intricate title issues due to the protected status attached to aspects of the Hotel, Bank of Ireland’s financing of Uniphar Plc and Ulster Bank’s Teeling Whiskey Company’s financing are other notable examples.

Improved liquidity has not come through the banks alone. New forms of finance have entered the market. This has come through the use of capital markets but also through a burgeoning private equity interest. This has in part been aided by the support of the NTMA and the NPRF in part funding funds. Irish focused private equity are Carlyle Cardinal Ireland, MML and AMP.

Inversions
While smaller domestic deals are a trait of this year’s awards multi-billion deals still sit at the top of the tables of the nominations. Many of these multi-billion deals reflect the inversion boom in Ireland in recent years. And these inversions do not seem to be abating despite the US Treasury's move against them in September. Since this move, there have been $156 billion of inbound cross-border US deals announced, compared with $106 billion in the same period last year and $81 billion a year earlier, according to data from Thomson Reuters.

In this year’s nominations List the following deals are all inversions: Acquisition of Forest Laboratories, Inc., a Delaware incorporated company by Actavis plc, an Irish incorporated company for US$28 billion in cash and equity; Vidara Therapeutics Research on its acquisition by Horizon Pharma Inc and Horizon’s related corporate inversion into Ireland for $650m; Endo Health Solutions Inc. corporate inversion transaction involving a newly formed Irish top company, Endo International plc which is listed on both the NASDAQ and TSX stock exchanges following its acquisition of a US target and a Canadian target Paladin Labs Inc.

Another major international deals was the Mallinckrodt plc and Questcor Pharmaceuticals Inc deal where the two entered into a merger agreement under which Mallinckrodt acquired Questcor for $5.6 billion. The transaction completed in August 2014. This was one of the largest cross-border transactions of 2014 and also one of the most significant inversion transactions out of the US.

What is notable about all of these deals is the transactional complexity that are involved and they highlight the development of the advisory market in Ireland.

Also in this list is Medtronic’s $42.9 billion acquisition of Covidien, as well as the third largest global transaction of the year, the $66 billion merger agreement under which Actavis will acquire Allergan in a $66 billion cash and stock transaction. This was the largest takeover in Irish corporate history.

Property related financing
There was an increase in property finance in 2014 and finance was raised in a variety of different forms, which highlights how property finance in Ireland is evolving. The development of Equity based REITS, and their development in raising continued finance is a striking example of capital markets responses to the reordering of the market after the downturn. In many ways these new deals reflect the emergence of a more sophisticated property finance market allowing for different levels of risk and more investors. Deals that show the growing diversity in property finance include the Kennedy Wilson Property Funds Platforms and also the use of REITs, For instance, in the case of the Kennedy Wilson established three property fund platforms through which approximately €600m of Irish property assets and related loans will be acquired. The transactions are innovative in a number of respects including the financing arrangements and the mix of commercial, residential and development assets within the platform.

Also notable this year has been the continued acquisition of Irish loan books by international investors. For example Cerberus Capital Management, L.P. bought the National Asset Management Agency's (NAMA) Northern Irish real estate loan book (Project Eagle Portfolio) for approximately £4.5billion.
The debt capital markets also proved a particularly interesting category with the capital markets playing a growing role in the funding mix of large corporates. In the nominations this is manifested through large Irish corporates and through international firms capitalising on the expertise present in Ireland's debt securities industry. For instance in the Irish large corporate space, Smurfit Kappa senior notes refinancing was a stand out. Notably it was a move from secured to unsecured financing which was a big step for the firm. This financing was also 100bps better than any other before at this credit rating. Also of note was the Ardagh Group financing which contributed to the doubling of the size of the company.

CLOs
In the structured finance/securitisation area CLOs have been a big growth category and have produced a number of interesting deals. These included the Phoenix Park CLO Limited, a €413m deal which involved the establishment by Blackstone / GSO of (i) a CLO origination platform in Ireland to acquire a portfolio of predominantly floating rate senior secured loans to hold either directly or indirectly by establishing CLO transactions into which to securitise portfolios of assets. It involved the establishment of a CLO origination platform in the first European structure of its type, which was structured to establish CLO transactions and to facilitate the holding of retention notes in compliance with the CRR Retention Requirements and the AIFMD Retention Requirements by the purchase and retention by the Irish originator vehicle of certain of the notes issued by the relevant CLO. That deal was also the first CLO transaction established by such a platform.

Also in the CLO space was 3i Group plc, an international investor, in relation to Irish legal and tax matters on a collateralised loan obligation fund, Harvest CLO VIII (“Harvest VIII”). Harvest VIII, a €425 million CLO. An aggregate of €338 million of investment grade debt in four classes and, in addition, €87 million of non-investment grade mezzanine and subordinated notes were issued. Harvest VIII will principally focus on investing in European senior secured loans backing private equity buyouts in Europe.

Another example of an innovative financing was First Citizen Finance on the structure and documentation of the borrowing for origination purposes of circa €150 million from Deutsche Bank. This was one of the first significant structured financing transactions involving externally sourced funding being provided to an Irish retail credit firm since the market crisis. It involved establishing a structure to provide foreign financing to the Irish market for domestic, retail and SME customers, secured on new lending into the Irish economy.

Also this year was DCC’s private placement which was highly bespoke and pioneered numerous structural firsts in the PP market. Firstly, the company was able to price three separate currencies all in the same transaction ($USD, £GBP and €EUR). Given that the majority of PP transactions are priced just on a dollar basis this was very innovative and was one of the first transactions to demonstrate the market’s ability to cater for a wide variety of currencies. Also, the currency tranches on the transaction incorporated both natural and synthetic currency demand, again an innovative solution that drove best execution for DCC and catered to both issuer and investor requirements. This meant the company was able to save on its cross currency swap lines with banks, which due to regulatory factors is increasingly expensive for banks and issuers alike. On foot of this, DCC’s transaction was able to attract investors from three separate countries (the UK, the US and France), including brand new investors who were investing in their first ever traditional private placement. The transaction, through attracting brand new investors, demonstrated the continued evolution of the private placement market into a truly global financing platform. DCC was also able to structure the transaction into two separate fundings, a tranche that settled upfront and a separate tranche that was delayed for six months. This structure enabled the company to minimize any cost of carry issues and allowed it to take the funds down at the most optimal time, taking into account funding needs such as upcoming maturities of existing facilities. In summary the innovations meant the company priced a highly bespoke transaction incorporating nine separate tranches in the same transaction, driving optimal structure, price and execution, and bringing new investors into the PP market for the first time.

Financial Services
Insurance provided the sale of XL's life reinsurance business to GreyCastle Holdings for $570m cash. Aviation finance in 2014 featured most prominently across the categories representing the world leading position of the Irish industry.

Early in 2014, AerCap’s acquisition of ILFC created a global franchise in the aircraft leasing industry with total assets of $41 billion, a fleet of over 1,300 aircraft and a highly attractive order book of 385 aircraft. By acquiring ILFC, already the second-largest leasing company in the world, AerCap more than tripled its fleet to almost 1,400 aircraft. The transaction was cleared without conditions by the Irish Competition Authority on 31 January 2014. The transaction presented a unique strategic opportunity to bring together the experienced personnel of AerCap and ILFC and two attractive portfolios of modern aircraft on lease to a highly diversified customer base.

ICBC Leasing China's largest aircraft lessor and the leasing arm of the world's largest bank by market value and assets, on its first and the first Chinese lessor to list Ex-Im backed notes on the Irish Stock Exchange. This transaction involved non-Chinese financing for the leasing of an aircraft to a non- Chinese airline. Listing Ex-Im backed debt on the Irish Stock Exchange is a recent and growing trend in aircraft financing. This was the first debt listing on the Irish Stock Exchange by ICBC and the first ever for a Chinese lessor. Access by Chinese lessors to foreign financing is an important growth area for the aircraft finance industry and this transaction was viewed by the aircraft industry as a significant development in the diversification of financing for Chinese leasing companies. Increased activity in this area both in terms of external financing to Chinese lessors and listing of aviation debt on the Irish Stock Exchange is expected over the coming year.

In the funds sector, the arrival of AIFMD in 2014 was evident, and in 2015 the ICAV will be expected to make itself evident in deals. BlackRock's establishment of an innovative AIFMD compliant fund structure facilitating investment in European wind and solar projects was notable. But the sector also contributed a significant M&A deal when in Q2 2014 Clearstream and Citco signed an agreement for the sale of Citco’s Cork based Financial Institution Hedge Fund custody processing business to Clearstream. The deal allows Clearstream to significantly expand its hedge fund services for financial institutions.

Equity markets
Equity also proved a successful source of raising capital in 2014. A number of notable IPOs included the Dalata Hotel Group on its dual listing on the Irish and London Stock Exchanges (ESM and AIM) and its €265m equity fund-raising. This was a remarkable deal that will allow to acquire a portfolio of approximately 16-25 hotels throughout Ireland and to pay down existing debt. Dalata’s market capitalization on admission to AIM and ESM was €305m.
Also in December, Avolon plc, the aircraft leasing company founded by Co Clare born entrepreneur Domhnal Slattery launched on the NYSE with its successful IPO, the largest ever on the American market by an Irish founded company.

Another IPO was Mainstay Medical International plc’s initial public offering and the admission to trading of its ordinary shares on Euronext Paris and the Enterprise Securities Market of the Irish Stock Exchange. The IPO valued the company at c.€90 million. Mainstay Medical is the first international medtech company to float in Paris and the first Irish company to have a dual listing in Paris and Dublin.

REITS
Continuing on from the launches of the Hibernia and Green REITS (Ireland's first equity based REITs) last year the ISE welcomed the IRES REIT. The IRES REIT raised €200 million from investors in connection with the IPO and its shares were admitted to listing on the main market of the Irish Stock Exchange. IRES REIT was the first Irish REIT which already owned a property portfolio at the time of its flotation.

Hibernia and Green REITs also featured as they both successfully returned to the market seeking to raise more capital. For example, Project Harp was €400 million placing and open offer by Green REIT plc. This €400 million capital raising took place in the company’s first year of operation following its initial public offering, very shortly after the first introduction of legislation permitting the creation of REITs in Ireland. Green REIT plc was the first Irish REIT. Green Property REIT Ventures Limited, the investment manger of Green REIT Plc, in relation to the July 2013 flotation of the Green REIT plc and the subsequent capital raise by way of placing and open offer launched in April 2014. Hibernia REIT PLC placing and placing and open offer of 285,317,459 new ordinary shares in Hibernia REIT plc raising approximately €299.6m million. The new shares were admitted to the main markets of the Irish Stock Exchange and the London Stock Exchange in November.

Public sector
While the presence of Government involved and public sector deals declined in 2014 on recent years, the public sector remains a vital element in the mix. A highlight of 2014 is the acquisition by way of the privatisation of Bord Gáis Energy, the vertically-integrated energy business of the Irish state-owned energy company, Ervia. The sale of BGE arose in the context of Ireland’s EU /IMF bailout, pursuant to which the Irish Government committed to review potential privatisations of various State assets. There have been very few privatisations in Ireland, much less one brought about under a sovereign bailout programme.

Ireland's international financial services sector has been an area of activity in all of the categories through IPOs, debt securities and acquisitions.

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