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Technology still among favoured areas for M&A, but ‘old economy’ trade sales prove emerge as the ‘old reliable’ Back  
In which areas do you expect most M&A activity among Irish companies in the coming 12 months, by industry sector; by deal type and by value of deals?
There been a sharp change in the focus of predicted M&A activity over the coming 12 months. Respondents to the survey are expecting that old economy trade sales will be back in fashion, with technology M&As taking a back seat. However both IT And telecommunications are still predicted as areas of activity during the year - but at advisers seem to agree that the level of activity in the coming 12 months will be substantially lower than in 2000.

Hugh McCutcheon of ABN AMRO sees M&A activity focusing on the middle sized companies - small and mid cap quoted companies. He also expects further consolidation in the financial institutions sector. In technology McCutcheon, predicts a continued move away from IPOs but a growing number of ‘outright sales of Irish technology companies to foreign buyers’.

‘In light of the current volatility of global equity markets McCutcheon anticipates that the main deal types to be management buy outs MBO/acquisitions of smaller/middle cap stocks which are trading on low valuation multiples;

Increasingly, we expect to see trade sales rather than IPOs of unquoted technology companies; and like 2000 we believe that the pharmaceutical companies (Elan & Galen) will spend heavily on acquisitions.’

Paul Finnerty of KPMG was reasonably bullish on Irish M&A prospects for the coming year. ‘With a buoyant economy and relatively strong business confidence, I expect M&A activity to be relatively strong in 2001. Because of the economic uncertainty in the US and the consequent impact on international M&A activity, some of which is already evident, I don’t think that Irish M&A activity will match the record level of 2000. However, I do expect more disposals of medium-sized private companies, which are attracting a lot of international interest and achieving strong prices for their shareholders.’

Mon O’Driscoll at AIB Corporate Finance believes that by sector TMT, small to medium sized private companies and small to mid cap plc will be the most active in the coming 12 months. By deal types he expects disposals of Irish companies and acquisition by Irish companies to dominate the M&A sector, with public to private transactions and MBOs following. O’Driscoll believes that the smaller transactions will be more abundant and predicts that over 80 p.c. will be less than ?20 million in size, and just 5 per cent will be over ?100 million.

Meanwhile Paul Keenan at BDO Simpson sees IT; telecommunications; financial stocks dominating. ‘Stock markets will continue to be difficult for the next 6-9 months and this will result in cash flow problems for both telecommunications and IT companies. Therefore, we anticipate consolidation and some ‘quiet deals’ to get companies out of trouble. Telecoms may dispose of parts of their business to realise cash and I anticipate a surprise deal during the year - possibly one of the major players exiting. The financial sector will see further consolidation over the next 18 months, with probably movement in the building society area.’

But on the issue of old economy companies Keenan sees a substantial increase in activity. ‘The more traditional businesses with strong cash flows will become a lot more attractive during 2001. Therefore MBO’s will show an increase, particularly in light of low multiples in the stock market. Low multiples will discourage sales of private business to plcs which will mean more opportunities for MBO’s. The low stock market values attributed to some good businesses probably mean that there will be 2-3 public to private deals this year.’

According to Mark McComish of CFM Capital ‘The larger value deals will continue to be in the value sectors of financial services, construction and pharmaceutical. IT will drive number with a smaller amount of high value transactions in the short-term given the current market environment.’

Over at Davy Stockbrokers, Ivan Murphy identified financial services, technology and possibly agencies like recruitment and advertising as being areas of upcoming M&A activity. ‘I see the rate of closure of private equity funded deals being considerably slower this year than last even though the VCs are well funded and valuations in the technology area are way down on last year. Thus most likely to be a number of acquisitions of Irish companies for whom the IPO window is currently closed. Secondly mergers with other companies and early stage fundings coming in third.’

Brian O’Kelly at Goodbody Stockbrokers, and again touted the telecommunications, technology and financial services sectors and suggested that the type of deals would be merger & acquisition (including disposals), MBO, and early/development state capital.

He said ‘we expect to see further consolidation through mergers and acquisitions in the next 12 months, particularly in the telecommunications and technology sectors. The continuing shakeout in the technology sector will lead companies to reassess their business models. Many will come to the view that they need to increase their scale significantly if they are to attain their global ambitions. We also anticipate that there will be at least one or two ‘public to private’ transactions as the ratings of some second tier stocks remain stubbornly low and relatively cheap financing continues to be available.’

Ruairi O Nuallain of ICC Corporate Finance identified telecommunications, financial/ insurance sectors and the privatisation of state utilities as likely areas of activity. While these areas will be where the larger value deals are O Nuallain pointed out that the amount of activity is likely to be higher in other sectors, namely IT/ software, consumer staples and retail.

O Nuallain added that acquisition/disposal is the main deal type he expects to see throughout the coming year. ‘Growth companies - businesses that have achieved a good track record in terms of growth are likely to be more sought after by acquirers. There is an increasing realization that MBO’s/MBI’s can be structured to achieve a liquid market for shareholders to achieve exits. We expect deal flows involving MBO’s/MBI’s to increase, and that they will become more established as a way of acquiring or disposing of a business for shareholders generally. Among the attractions of an MBO/MBI for shareholders is the fact that they may not disclose valuable process, control or customer information to competitors, and the fact that MBO’s provide some liquidity to achieve an exit.’

Meanwhile Fergus McLoughlin at NCB Stockbrokers predicts that financial services; food; and building and property development to dominate the M&A market over the next 12 months. He said ‘Notwithstanding the ‘pinch’ currently being experienced in the technology sector, we do not forecast significant levels of M&A or consolidation in the sector in the next 12 months, except perhaps among some of the larger companies in the sector. Funding will be the key problem. That said, there may be some interesting opportunities for venture capitalists and private equity providers arising out of this.’

Looking at the deal types Bryan Evans of PWC predicts that acquisitions, mergers, and public to private deals will be favoured. ‘This will be a year of consolidation, particularly in the building materials and retail sectors, as companies search for cost synergies to support continued earnings growth. I also expect to see a steady flow of privately owned businesses being sold as vendors take advantage of low capital gains tax and reasonable valuation levels. In the technology sector, I anticipate a number of opportunistic deals by larger and well-funded groups.’

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