The views of corporate finance advisers in the Finance M&A Survey capture the paradox of high buoyancy and a sense of resignation side by side in Irish private and public equity markets. There is a reluctance among advisers to put any number on the valuations of high-tech businesses, whereas the average P/E for private sector non-tech companies is estimated to be about nine times earnings.
One could say Ireland is being swept along in the e-commerce tidal wave, or tidal bubble (depending on your belief in the new economy). Any other scenario would point to isolation, protection and closed markets. It should be gratifying that there are plenty of companies and new businesses in Ireland which can ride the wave.
One of the effects of this trend in international private and public equity markets is that businesses as big as AIB find themselves struggling with the same frustration about their share price as Irish second line stocks.
The advice from Prof. Eamonn Walsh on corporate communications in times of undervaluation of the company’s price is applicable also to private companies. To focus on the drivers of value in the eyes of investors is sound. Ultimately, though, one cannot be agnostic about the validity of those drivers of value. If the market were to begin to value fast moving consumer goods companies predominantly on a measure such as unprompted brand recognition among 18-35 year olds, there would be reason to question whether one should chase such a value-driver.
Similarly, ‘eyeballs’ at screens is a superficial value driver. The trend away from B2C (business to consumer) and towards B2B (business to business) e-commerce companies is a good sign.
It is reasonable for investors to ask all businesses, private or public, how they are maximising value for their businesses from the new technologies. This does not mean that CRH, for example, has to become an ‘e-concrete’ business, Glanbia ‘e-food’, or Smurfit ‘e-cardboard’.
Fundamentally, the point made by Tom Mulcahy at the presentation of AIB’s results is correct, and applicable to businesses beyond AIB. Customer contacts and satisfied customer relationships are at the core of business. Efficient customer acquisition and retention are necessary conditions for sustaining a business. This is where the battleground in financial services is, and the jury is very much out as to whether mere market entry, technology investment and new channel development can both capture value from incumbents and win a disproportionate share of new value. Share prices are not discounting a foregone conclusion.
Vigilance for international sector
The concerns among IFSC banks in relation to ‘look-back’ tax audits were important beyond the IFSC. The potential of collateral damage to the international sector in Ireland, financial services or otherwise, from domestic scandals is one which must be guarded against with great vigilance by politicians and top public sector management.
This was the significance of the issue which surfaced in the media in February. There was never any question of IFSC banks looking for leniency or special treatment under the law. Much media comment was ill-informed. What was sought was the same approach from the Revenue as had prevailed for 13 years, where there was no question of tax loss to the Exchequer.
It was lost sight of that between October 1998 and April 1999, the Revenue had already carried out exhaustive audits of IFSC non-resident bank accounts. The Comptroller and Auditor General reported that IFSC banks had gone beyond their legal obligations in furnishing information to him. He also reported clearly that ‘Examinations did not reveal any bogus non-resident accounts’. No material issues arose for tax collection in the IFSC. But that was until the Public Accounts Committee fired off its shotgun blasts and the Revenue responded, under pressure from the political atmosphere, by carrying out exhaustive audits, again, on IFSC banks.
This was a bad moment in public policy and tax administration, which, hopefully, is over. One can only imagine what would happen if a similar episode were to occur in relation to the foreign-owned high tech sector in the country. The price of economic development, as well as of freedom, is eternal vigilance. |
