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Mergers and acquisitions holding up well Back  
About twelve months ago it was already clear that a technology-led slowdown was getting under way. Mon O’Driscoll said that insofar as merger and acquisition (M&A) activity was concerned, one of the key questions was whether there would be a pattern of the strong surviving while the weak went to the wall, or a pattern of amalgamations and takeovers. Both outcomes have been in evidence and at the end of 2001 some of the companies in the sector are still running out of money and again one speculates as to whether they will fall by the wayside or be taken over.
What we can say at this point is that neither the general slowdown in economic growth which was already in evidence long before September 11th nor the subsequent fallout from the tragic events of that day have impacted the level of M&A activity in the Irish market. That is not to say that there may not yet be an effect should there be any further weakening of confidence, but we are seeing value come into the market. Many businesses with cash to invest were holding back when valuations were beginning to look unsustainable. They are now coming back and doing deals at more realistic values.

The numbers of deals done have been holding up well and up to mid-November we had noted over150 acquisitions by Irish companies of which just under half (47 per cent) were made in Ireland with over 20 per cent in the UK and 15 per cent in the US. The software and technology sectors accounted for some 25 per cent of these deals while financial services, food and telecommunications were also well represented. During the same period almost 140 Irish companies were acquired and while it follows from above that about half of them were acquired by Irish companies, The UK and US also featured strongly as acquirers of Irish businesses, accounting for 21 per cent and 12 per cent respectively. Again, software and technology were the most popular target sectors for foreign buyers of Irish companies, together accounting for 22 per cent of such transactions, followed by telecommunications (6 per cent).

During the year, AIB Corporate Finance was involved in a number of high profile transactions. We advised Fexco in relation to the acquisition by First Data Corporation of a 25 per cent stake in Fexco. AIB Corporate Finance also advised AIB Group on an unsolicited bid by OCBC Bank for Keppel Capital Holdings. AIB had an option to subscribe for 25 per cent of the share capital of KCH. AIB Corporate Finance negotiated a revised higher offer from OCBC requiring a complex irrevocable undertaking including warrant exercise provisions, resulting in a profit in excess of •90m for AIB Group. AIB Corporate Finance also advised Envirotech on its sale to DCC plc. Other large deals included advising AIB Group on the merger of its Polish interests, Wielkepolski Bank Kreditowy, and Bank Zachodni, and on the subsequent flotation of the merged bank, BZWBK on the Warsaw stock exchange.

Through Goodbody Corporate Finance, AIB Capital Markets advised Eircom on its take private by Valentia, the most high profile deal of the year, not least because of the much publicised tussle between the Valentia and eIsland consortia.

Other high profile deals during 2001 included Greencore’s acquisition of Hazelwood Foods, BT’s acquisition of Esat Digifone, Irish life and Permanent’s acquisition of TSB Group, Vodafone’s purchase of Eircell, and Kerry Group’s acquisition of Golden Vale.

The planned Aer Lingus IPO ran into difficulties as a result of a number of issues arising in the markets in which it operates and certain IR problems. As with the whole of the aviation industry the events of September 11 had a serious impact on Aer Lingus.

2001 was a year in which we would have expected to see a greater level of take privates and MBOs of unquoted businesses than actually transpired. We believe that there remains considerable appetite in the system for such transactions, which will probably materialise during the year ahead.

As we look forward, a continuing low interest rate environment for the foreseeable future should facilitate the funding of M&A activity, while a more circumspect approach should mean sustained but sensible activity with valuations falling within more conservative ranges.

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