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20 years of Irish corporate finance - from the troubled childhood years through to maturity Back  
The Irish mergers and acquisitions (M&As) market has grown alongside the rest of the economy in the last two decades. It has emerged from the doldrums of the 80s and matured as the years have gone by. R?is?n Brennan evaluates the emergence of the M&A market and foresees private companies becoming an increasingly important component of the M&A market in the years ahead.
Back in 1987, when Finance was first published and IBI Corporate Finance was marking its 21st birthday, the world of mergers and acquisitions (M&As) in Ireland was a remarkably different place from what we see today. In this article, I will try to trace the development of M&A in Ireland over the last 20 years, from its troubled childhood in the recession-ravaged early years, through its rapidly expansionary teenage years in the 1990s, right up to the maturity we see now.
Roisin Brennan

In 1987, M&A business was overwhelmingly the preserve of Ireland's public companies. Public companies might still make up a major component of M&A activity in Ireland but, over the past 20 years, we have seen a steady progression of the Irish M&A market: the rapid expansion overseas by the bigger Irish plcs; the industrial consolidation on the home market; privatisation of State assets; the dot.com boom and bust; the arrival of private equity as a new and important ingredient in the M&A melting pot - and not least the emergence of Irish private companies as major players in mergers and acquisitions.

The difficult childhood years - late 1980s - early 1990s
Many currently working in the Irish M&A industry have little concept of the economic doom and gloom of the mid to late 1980s, when it seemed that Ireland was only a few steps removed from the IMF having to rescue the country from bankruptcy. Ireland then was an economically depressed and depressing country: mass emigration of our brightest and best, capital fleeing the country, sky-high interest rates, massive public debt and a raft of anti-competitive industrial practices. Ireland was apparently in a downward economic spiral.

Corporate investment in the form of M&A activity was at a low - discouraged by the economic crisis, a general lack of confidence, high financing costs and a squeeze on debt by the banks. Survival rather than growth was the main priority of most Irish businesses - and corporate restructuring and asset sales were more the order of the day than expansion.

The few big deals that were done in M&A's childhood years involved larger plcs and possibly the landmark deal of the late 1980s was the 1988 acquisition of Irish Distillers by Pernod Ricard after a convoluted six-month takeover battle, that was eventually only settled by a Supreme Court ruling in Pernod's favour. Other notable deals in this period included Waterford Glass' acquisition of Wedgwood, the sale of WR Jacob plc to BSN (now Danone) and the restructuring of Goodman International.

The teenage years - mid to late 1990s
The improvement in the Irish economy became so marked that a Morgan Stanley economist, Kevin Gardner, first coined the term 'Celtic Tiger' - in effect bracketing Ireland in with the tiger economies of the Far East. The 1990s, as we know, saw unprecedented economic growth and a renewed confidence among the Irish business community.

A number of far-sighted Irish companies took the calculated risk of expanding rapidly overseas through some large acquisitions. These companies knew that, whatever about domestic economic growth, it is often quicker and cheaper to build shareholder value by buying access to overseas markets rather than relying solely on domestic dominance and/or organic growth abroad.
These years saw CRH emerge as a major worldwide player in building materials, Kerry build up a large global food ingredients business and Independent Newspapers become a significant international media player. Major overseas acquisitions, by virtue of their size, mainly involved Ireland's plcs, but privately-owned Glen Dimplex was also a major buyer of international assets in its electrical goods sector.

On the home front, we saw ongoing consolidation - the Avonmore-Waterford merger to form Glanbia in the food sector and the takeover of Doyle Hotel Group by Jurys Hotel Group being among the most significant. IAWS began its transformation from an agribusiness company to a specialist foods group with the acquisition of Cuisine de France. These were deals that provided critical mass and scale, enabling the merged and consolidated groups to expand further internationally.

The Irish Stock Exchange, which had stagnated in terms of new listings for many years, returned to life with significant scale IPOs such as Irish Permanent in 1994 and Ryanair in 1997. The previous ideological opposition to privatisation also dissipated with the flotations of Greencore and Irish Life in the early 1990s and Eircom in 1999 and trade sales such as the disposals of Irish Steel, TSB Bank and the Irish National Petroleum Corporation.

The troubled dot.com years - late 1990s - early 2000s
The Irish economy continued to prosper in the late 1990s and early years of this decade, but no economy could have fully insulated itself from the boom and bust that characterised the dot.com years. This period saw hyped-up expectations of the growth prospects and market valuations of a whole raft of internet-based companies. With little or no earnings on which to base valuations, many of these companies were being valued on multiples of anticipated future sales, which proved in many instances not to be an accurate barometer of their prospects.

When the speculative bubble inevitably burst, it triggered a mild recession in the developed world. Investor confidence in the technology sector ebbed away, venture capital was cut back sharply and the valuations of both public companies and private placements fell significantly. Some of the dot.com companies found themselves with sufficient funds to 'get by', but in the long-term lacked the funds to develop into fast-growing international players.

There is, however, a sizeable coterie of high-quality, Irish technology companies, that survived the dot.com bust. They are still able to raise venture capital at home and overseas at reasonable valuations and, should they continue to progress, will become quality trade sale and/or IPO candidates in the medium term. The success of Riverdeep in becoming an international player in the e-learning sector is one such example.

The maturity years - early 2000s onwards and the private equity boom
This decade saw the Irish M&A sector develop from adolescence to maturity. International private equity companies - previously not a major feature in Irish deals - finally discovered Ireland. Cheap debt facilitated the leveraged transactions favoured by the private equity investors and relatively low valuations meant that some of the larger Irish plcs came into play. Candover took over Clondalkin Group in 1999, which was sold again in a secondary buy-out to Warburg Pincus in 2004. Madison Dearborn spearheaded the take-private of Jefferson Smurfit Group. At the institutionally-neglected smaller capitalisation end of the market, low valuations made some companies tempting targets and notable examples in this grouping include Barlo's takeover of Athlone Extrusions in 2000 and Kerry's takeover of Golden Vale in 2001.

Private equity and MBO deals are an increasing presence on the Irish M&A market - last year some 29 per cent of deals involved private equity in some shape or form, compared to just 8 per cent in 2000. Institutional private equity has already become an established part of the Irish M&A framework, but in recent times we have seen more and more high net-worth private investors becoming involved in M&A deals, as they diversify their portfolios from low-risk property investments into higher risk but potentially higher reward trading vehicles. There is every indication that this pattern will become more pronounced in the years ahead.

With plc numbers dropping and fewer companies of scale opting for a full market listing (Aer Lingus and Smurfit Kappa being the only notable exceptions recently), private companies are going to become an increasingly important component of the M&A market in the years ahead. Last year, more than four out every 10 deals involved private companies - seven years ago that figure was fewer than one in 10.

Private companies are becoming more ambitious, more sophisticated, more willing to take on risk, and are looking to grow aggressively through acquisition. There is a new breed of private company manager, who is increasingly comfortable doing deals at home and abroad. For over 10 years now, IBI's dedicated private companies division, headed by Ted Webb, has serviced this entrepreneurial group and this sector continues to go from strength to strength.

Irish M&A's move from adolescence to maturity is characterised by a move from a small number of large deals to a large number of smaller deals. This is the characteristic of a maturing market as more and more small and medium-sized companies become involved in deal-making. Ireland may have reached M&A maturity later than other developed Western economies but its period of maturity is likely to last for some considerable time.

The Irish M&A market is currently in rude good health, and with adequate levels of debt and private equity financing available, we in IBI Corporate Finance expect further substantial growth in the years ahead.

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