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Tuesday, 27th June 2017
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The pulse of corporate banking in Ireland: Bank of Ireland sees increase in market confidence    
An increase in general market confidence is driving activity for Bank of Ireland’s Corporate and Treasury business. In October business activity in the Eurozone grew at the fastest rate so far this year. With GDP rising, the latest economic data demonstrates broad-based gains with increased activity in all sectors and a significant year-on-year increase in companies investing in their businesses.
Bolstered by the confidence in an improving economic backdrop, larger SMEs and corporates are increasingly looking towards US, European and Asian markets for organic growth and strategic investment opportunities. For example, earlier this year Bank of Ireland, along with the BDO Development Capital Fund, provided €20 million in growth capital and expansionary debt facilities to assist Carlow-based security company Netwatch with its continued global expansion. The management team said the funding would lay the groundwork for the next three years and enable it to capitalise on the opportunity that the US presents.
Andrew Graham: We have seen a fairly dramatic shift over the past 10 years in relation to how companies are structuring deals, with multiple parties now involved in many of the larger acquisitions.


Internationally, Ireland is now perceived as an attractive investment prospect, with the sustained economic recovery seen as a blueprint for other nations. Tracked monthly by Bank of Ireland’s Economic Pulse, domestic sentiment is also high, albeit it has been choppy in recent months, with a steep Brexit related drop in July followed by a strong recovery in August. In September, while the index pointed to increasing household confidence, firms in the industry, services and retail sectors were less upbeat, perhaps due in part to the recent high levels of euro/sterling exchange rate volatility. However, overall international and domestic market confidence is gaining momentum and companies are quietly taking advantage of the availability of capital to invest in their business, consider appropriate acquisitions and consolidate with others.
international and domestic market confidence is gaining momentum and companies are quietly taking advantage of the availability of capital to invest in their business, consider appropriate acquisitions and consolidate with others.

One noticeable change now evident in the market is the broadening range of risk capital available to businesses to meet their particular circumstances and requirements. Funding sources now include conventional senior bank lenders, mezzanine/unitranche providers, private equity funds, the European Investment Bank (EIB), and the Irish Strategic Investment Fund (ISIF). The EIB has been particularly active in recent years in financing social and economic infrastructure. Over the past five years it has provided €3.8 billion for investment across Ireland, mainly in transport, energy and education projects. Bank of Ireland’s Corporate Banking team continues to work with clients and their advisors in relation to the optimum composition of a funding transaction.

Andrew Graham, Director - Bank of Ireland Corporate Banking, says: 'We’ve seen a fairly dramatic shift over the past 10 years in relation to how companies are structuring deals, with multiple parties now involved in many of the larger acquisitions. As a bank focussed on long-term relationships, as well as the provision of our own funding, a key part of our client relationship focus is on advising and assisting clients in relation to the optimum composition of their capital structure over the short, medium and longer-term.'

Bolstered by a low interest rate environment, supportive monetary policies and underlying economic market stimulus, the weight of capital now seeking an adequate investment return has driven capital availability up for SMEs and corporates. This, in turn, continues to fuel improving market confidence for investment and M&A activity generally.

Cignal Infrastructure, one of the leading providers of communications infrastructure towers and sites throughout Ireland, was acquired in 2015, backed by Infravia, a French-based fund manager specialising in infrastructure investments and Bank of Ireland Corporate Banking as joint mandated lead arranger. Cignal has ambitious plans to grow its business by developing its existing portfolio and through the acquisition of new infrastructure assets to meet ever-growing Irish telecom industry needs. The execution of this transaction and resulting partnerships with Cignal’s capital providers will assist it in achieving its objective. Discussing the partnership, David Mountjoy, Senior Manager - Bank of Ireland Corporate Banking, said: 'From a lending perspective, the transaction represented an opportunity to support a business with a strong sponsor with a track record in infrastructure investment, a market-leading management team and a business model based on a portfolio of well-invested, strategically vital and unique infrastructure assets.'
there has been relatively little happening in the management buy-out space. Historically (and prior to the economic downturn), succession planning related buy-outs were common, especially for mid-market businesses and SMEs. This area has not recovered as yet to any material extent. Perhaps this is driven by factors such as personal debt issues, overleveraged property investments and legacy valuation expectations. However, every year that these transaction flows remain light, exiting shareholders come closer to a justifiable and often elusive retirement propped up by an adequate pension provision to give them a well-earned and comfortable life style. Inviting management or the next generation of the family to take up the reins can often spark the kernel of interest for a buy-out.

In recent years there has been a noticeable increase in market consolidation, particularly within sectors such as hotels, healthcare, logistics and IT, with companies realising the benefits of scale in competing with their global peers. The hotel sector in particular has undergone a turnaround since the economic downturn, driven by a number of factors. These include increasing tourist numbers, a busy programme of events and new investment in the sector.

Dalata Hotel Group plc has successfully raised over €470 million of new equity over the past two years via various share issuances and over €360 million of senior debt, coordinated by Bank of Ireland, to support the group’s future growth strategy. The investment strategy was to leverage the Dalata's core asset management, hotel operation and development competencies to grow a sustained earnings flow through a mix of owned, leased and managed assets. To date this has primarily been achieved through the acquisition of the Moran Bewley Hotel Group in December 2014 and various other bolt-on acquisitions across Ireland and the UK. As a result, Dalata has developed a 6,592 room portfolio of hotel assets and the company is well equipped for future growth.

In contrast to increasing corporate investment, expansion and M&A activity, there has been relatively little happening in the management buy-out space. Historically (and prior to the economic downturn), succession planning related buy-outs were common, especially for mid-market businesses and SMEs. This area has not recovered as yet to any material extent. Perhaps this is driven by factors such as personal debt issues, overleveraged property investments and legacy valuation expectations. However, every year that these transaction flows remain light, exiting shareholders come closer to a justifiable and often elusive retirement propped up by an adequate pension provision to give them a well-earned and comfortable life style. Inviting management or the next generation of the family to take up the reins can often spark the kernel of interest for a buy-out. Thereafter, with the assistance of good advisors, appropriate structures and available capital can often lead to suitably tailored transactions.

Currency volatility is causing issues for some exporters. However it is also driving others to adapt their business strategy and to focus growth into foreign markets. Bank of Ireland Corporate and Treasury, Ireland’s number one corporate bank, is playing a proactive role in supporting clients in a way that limits their currency risks while delivering efficient and cost effective banking solutions as they seek to enter and transact in new markets.

Market confidence is driving a diverse range of activity, from investment to collaboration to acquisitions, across a broad span of sectors. While uncertainty around external issues such as Brexit can give rise to temporary lulls, the market remains dynamic and the pipeline looks strong.

This article appears in the November 2016 edition of Finance Dublin.

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