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Property deals fueled growth in market in 2005 Back  
2005 proved to be a highly active year for Irish M&A transactions with a recent survey data showing the value of deals executed rose by 19 per cent to more than E11 billion, writes Fergal McAleavey. The year saw a trend towards fewer but larger transactions, and growth was helped by general positive sentiment among investors and supportive market conditions, such as low interest rates and strong property prices.
The past 12 months has seen a number of key developments in the Irish M&A market including; an increase in property related transactions, a move by companies to diversify into new market areas or extend their current product range and strategic evaluation by companies’ of their core strengths.

Property based transactions
A high proportion of deals in 2005 had a property aspect to them and strong property values became an important factor in the investment rationale.

At the beginning of 2005, Superquinn, the privately owned Irish supermarket chain, was acquired by Select Retail Holdings, a consortium of Irish investors, many of whom have a property background. The deal was structured taking into consideration the trading business and the significant property asset base. Select Retail Holdings have stated they wish to expand the business and invest in the supermarket chain, while also maximising the potential for the property assets.

Asset backing was also a key driver in the sale of the Irish Shell retail and commercial business in the Republic of Ireland and Northern Ireland to the Ion Equity led Topaz Energy group. The deal included six oil importation facilities, 35 local distribution depots, 55 company-owned petrol stations and supply agreements with another 105 Shell stations throughout Ireland. The freehold title of many of the 55 service stations was seen as an attraction in structuring the deal and it is expected that the consortium will try and maximise the property development potential by selling or developing some of the sites in prime locations.

One of the longest sagas of 2005 was the battle for Jurys Doyle Hotel Group, which began in May 2005 with an unsolicited takeover approach by Precinct, the three man consortium that had taken the Gresham Hotel Group private in 2004, and concluded in October 2005 with the Doyle family-led consortium acquiring the company for €1.25bn. A significant driver of the process was the strong property assets of the business and their development potential. Following months of speculation and interest from various property and financial investors, property developer, Sean Dunne, who had built up a 28 per cent stake in the company, bought the Jurys Ballsbridge site for €260 million and the Berkeley Court site for €119 million.

Other hotel deals, which featured in 2005, involved exclusive hotel and golf clubs with valuable property elements. Michael Smurfit and developer Gerry Gannon acquired the K Club (Hotel & Country Club) for €115 million in a deal that also included 2.5 acres of potential development land in Dublin’s Clonskeagh, the site of a defunct group paper mill, as well as a reported 100 acres of farmland beside the K Club. Capel Developments, a Dublin house builder, purchased the Portmarnock Hotel and golf links for €70 million amid speculation that the golf course could be used in a land-swap deal in order to free it up for development.
Further activity in the hotel sector was confirmed for 2006 when the Dublin Airport Authority (DAA) announced that it intends to dispose of the Great Southern Hotel Group. It is intended that the hotel assets will be sold as going concerns but should, none-the-less, solicit much interest from both hoteliers and property developers alike.

Diversification/product extension
During 2005, many companies undertook strategic deals by expanding their product offering or entering entirely new markets for their business. This trend reflects a strong degree of confidence in the growth prospects of many Irish companies.

Kingspan agreed in March 2005 to acquire Monaghan-based Century Homes, Europe’s biggest timber-frame house builder, for up to €91m. The Century Homes business complements Kingspan’s existing range of products, while allowing Kingspan entry into the high growth timber frame house market. The deal also builds on Kingspan’s ambitions to be the leading player in the off-site low-energy construction markets in the UK and Ireland.

Another example of new market entry was Eircom’s €420 million purchase of Meteor in late July, which gave the company a necessary re-entry mechanism into the Irish mobile market. The deal gave Eircom about a 10 per cent market share in the mobile market and put Eircom in a unique position in the Irish telecoms market as the only company offering mobile, broadband and fixedline services. Eircom plans to invest in Meteor over the next four years and wants to double the size of the business in that time.

Furthermore, the willingness of Irish companies to broaden their business interests away from their core areas was evident in 2005. One example includes Stafford Holdings’ purchase of Lifestyle Sports for ?60 million was a major move for the Group, as it had traditionally been an oil, shipping and property firm. The Stafford Group had signalled its ambition to expand into other business areas and Lifestyle’s strong performance in the retail sports market made it an attractive acquisition for the Group, which plans to continue to grow the Lifestyle business in Ireland by opening new stores and larger replacement outlets.

Strategic evaluation
2005 saw companies evaluating their existing structures and undertaking strategic transactions to ensure concentration on core strengths for their business and efficient use of resources.

In November, AIB entered a ?1.3 billion joint venture with Hibernian Group, the Irish life assurance operation of Aviva plc. The joint venture, in which AIB will have a 25 per cent stake and Hibernian a 75 per cent stake, brings together the third and fourth largest operations in the Irish long term savings market. The combined entity will enjoy the benefits of scale in product manufacturing as well as AIB’s distribution strength in the retail channel together with Hibernian’s position in the broker and direct sales channels.

An Post sold its PostTS subsidiaries to Alphrya for ?85 million in March. The unit consisted of international mobile telephone electronic top-up operators, PostTS UK and PostTS Spain, which have an 8 per cent and 20 per cent share of their respective markets. Alphrya consolidated its market position across Europe as the biggest independent electronic payments provider while An Post saw the sale as a recovery of overall strategy by disposing of non-core subsidiaries.

Trends for 2006
We expect corporate finance activity to remain buoyant in 2006. Positive trading conditions are likely to continue to be driven by the availability of inexpensive debt, the availability of private equity, healthy economic growth, low inflation and good management teams. The opening months of 2006 has already generated some interesting corporate finance activity. Eircom is the target of a fresh takeover bid as Babcock & Brown Capital has expressed an interest in making an offer for the company. Following from the Irish Shell deal, Statoil have begun a process to sell their Irish petrol retailing businesses and Texaco have been reported in the press to be following the same initiative.

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