The right conditions are in place for a good 12 months

The Irish Times Mergers & Acquisitions Special Report

The brisk start to 2021 is likely to continue in the opinion of Deloitte M&A advisory team partner Jan Fitzell. “We are optimistic for the year ahead,” he says. “And we are quite happy with the pipeline of deals we have coming through. The levels are very good with trade deals and private equity activity both very strong.” Unlike previous recessions and periods of economic volatility, distressed sales haven’t been a significant feature of the market thus far. “That’s something we haven’t seen yet. It may be because a lot of companies in distress have been receiving supports from their banks and the Government. If either or both of them are turned off the owners may decide to exercise their options. They may choose to sell or take in new equity.” And there will be no shortage of potential acquirers given the amount of private equity out there and trade buyers with strong balance sheets, he adds. External buyers aren’t the only option, of course.

“Management buyouts [MBOs] will be another theme during the year,” says Deloitte corporate finance partner Anya Cummins. “Founders whose businesse have been adversely impacted by Covid may not want to double down and go through the process of rebuilding the business. They may look at selling to the existing management team.” And then there are those businesses which are still doing well. “Ireland has a lot of disruptive and massively scaling technology businesses and some of them have actually benefitted from the pandemic, particularly those in the e-commerce, fintech, and life sciences sector,” says Cummins. “We are seeing evidence of this in the Deloitte Fast 50 Awards ranking of the country’s 50 fastest growing technology companies. When we looked at those companies in 2020 during the pandemic the growth rates have been phenomenal. They are riding the wave of disruption and have built up significant levels of capital. Many of them are raising capital to make acquisitions in order to internationalise and accelerate growth. That’s good news for Ireland.” Valuations may present difficulties, however. “Earnings are quite volatile at the moment,” she says. “That makes valuations very difficult and deal structures quite challenging. We will see more earnouts and deferred considerations to bridge the gap between owners’ and buyers’ expectations.

“Earnings forecasts are quite difficult so paying for future potential as a buyer usually would is a lot more complex. “You need downside protection for buyers but there will be upside opportunities for sellers as well.” Those difficulties will ease over time, according to Fitzell. “When we see the vaccine rolled out and life getting back to normal, valuation may be a bit easier. As we see other sectors like hospitality and transport businesses opening up again, we may see people selling or spotting opportunities for acquisitions. You will have winners and losers and that will lead to more M&A.”

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