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Sunday, 14th April 2024
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Soft landing of Celtic Tiger presents M&A opportunities for acquirers Back  
David O’Donnell looks back on 2001 and says that many public companies are now potential acquisition targets due to the hammering their share prices have taken over the past year.
The global economic slow down has forced the Irish economy to climb down from the dizzy heights reached in 2000 to a more realistic pace. Meltdown has not occurred but there have been casualties resulting in opportunities for those potential acquirers in cash. Real value is now in abundance and the bargain hunters are out in force.

Snap shot of 2001
Ireland largest ever takeover of a public company took place in 2001 at a price of E2.92 billion. This involved the former State-owned telco Eircom. Eircom was floated by the Irish government in 1999 with the sale of the State’s 50.1 per cent, with a major windfall for the State’s coffers. After demerging its cellular network to Vodafone for E4.4 billion, in the largest private deal of the year, Eircom was back on the market in 2001 attracting significant interest from international players. In the final shakeout there was a bidding war between the winning Valentia consortium (headed by the former Heinz boss Tony O’Reilly) and and the eIsland consortium. The private equity houses backing Valentia were Goldman Sachs, Providence and Soros whilst the US telecommunications private equity fund Spectrum Equity backed the eIsland consortium.
Foreign companies continue to see Irish businesses as a good buy especially State-owned undertakings. Acquisitions from the State in 2001 included Bank of Scotland’s purchase of ICC bank, the US based petroleum company Tosco’s purchase of the Irish National Petroleum Corporation and the Dutch Rabobank purchase of ACC bank. US acquirers are estimated to have spent in excess of E3.53 billion on Irish acquisitions with the UK companies spending in excess E500 million.
Irish companies such as CRH, Kerry Group, Jury and IAWS continued in 2001 to make significant acquisitions outside Ireland mostly in the US and UK. As well as Eircom, 2001 saw other public-to-privates with Seafield and Golden Vale leaving the market.
Whilst 2001 was a busy year in the Irish merger and acquisitions market, activity fell from the record highs of 2000. One industry source reveals that 72 Irish companies were sold in 2000 with this reducing to 42 Irish companies in 2001. The same source reveals that 231 companies (both foreign and domestic) were bought by Irish companies in 2000 at a price of E10.45 billion with this figure reducing to 119 companies at a price of E1.94 billion in 2001. These statistics reveal that whilst the number of acquisitions by Irish companies between 2000 and 2001 fell by just over 50 per cent, the actual amount spent by Irish companies on total acquisition in 2001 dropped by just over 80 per cent from 2000.
2001 was certainly a year of transition. Valuations fell, fund raising on the public and private markets collapsed and many companies were squeezed tightly, especially those in the technology sector. Those companies that did not react quickly found themselves having to restructure or going in to receivership and/or liquidation. Many companies in this environment became potential acquisition targets for those in the business of feeding at the bottom of the market. In the context of merger and acquisition activity in Ireland, it is worth briefly looking at the private equity/venture capital market and the public markets.

Irish stock exchange
IPO activity was non-existent in 2001. The proposed flotation of the national airline carrier Aer Lingus never got off the ground although the government had invested significant time and money in the project. The only equity listing on an Irish equity market in 2001 was Conduit on the ITEQ (the technology market of the Irish Stock Exchange). Conduit had already listed on the Neuer Markt in June 2000 raising E56 million to fund its information service and software businesses.
A few IPO prospects are being mooted for 2002 and these include the drinks company Cantrell & Cochrane and on the technology front Fineos and Spectel. Many of the companies listed on the Irish Stock Exchange seek a dual listing on the UKLA with technology companies opting for their dual listing on Nasdaq or the Neuer Markt. Recently however there has been a trend in secondary stocks dropping their UKLA listing.

Prospects for 2002
2002 is not going to be an easy ride for any Irish business. For some, such as AIB Bank and Elan, two of Ireland’s premier performing public quoted companies over the last few years, it has been a very shaky for all the wrong reasons.
AIB has been rocked to the foundation by the trading fiasco at its US subsidiary, Allfirst Bank. Currency trading losses in the amount of E691 million have come to light as a result of allegations that a trader at Allfirst, Mr Rusnak had exceeded his limits. Several investigations are now on going to determine how the losses occurred and several class actions against AIB have been filed in the US.
In the wake of the Allfirst scandal, the AIB share price has fallen and the prospect of a merger between AIB and Bank of Ireland has been touted. Competition laws may prevent such a merger and thus provide an opportunity for a foreign player to acquire the biggest banking player in the Irish market.
The Elan share price has taken a hammering since the Wall Street Journal queried its accounting policies. Elan might also find itself the subject of a take over bid amid calls for new management.
Other public quoted companies, mostly in the technology and property sectors have experienced a significant drop in their share prices due to trading conditions and are now potential acquisition targets at bargain prices. Many quoted companies are trading at a discount to net asset and are not showing any signs of making any meaningful returns to investors.
In the private company sector, casualties of the technology downfall are being purchased at prices that are significantly lower than the valuations that they procured on their last round of funding. There will be a busy market in this graveyard sector as the technology industry consolidates in some key areas and existing investors call it a day in those companies.

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