Please click here for your copy of the William Fry M&A Mid-Year Review 2016, detailing the key trends over the first half of the year.
This review, which was undertaken in conjunction with Mergermarket, provides a detailed insight into Ireland’s M&A landscape to-date this year, an examination of the emerging trends and opportunities in the current economic environment, as well as an outlook for the second half of 2016.
Welcome to William Fry’s mid-year M&A Review, published in association with Mergermarket. In this edition, we look at deal activity in H1 2016, as well as the likely developments for the rest of the year. Following the surge in Irish M&A activity in 2014 and 2015, we noted in our last report that the pace of Irish dealmaking was slowing at the start of 2016 due to a number of political and macroeconomic factors affecting global markets, but we were cautiously optimistic that Ireland’s strong fundamentals would drive momentum as the year progressed. From a slow start in the first two months, M&A value jumped sixfold to €17.7bn in H1 2016 year-on-year, while volume increased 9% to 58 deals. The increase in value was largely attributable to the year’s biggest deal, which saw Johnson Controls purchase Irish fire and security provider Tyco International for nearly €15bn. Absent this one outlier, value for H1 2016 totalled of €2.8bn, similar to the €2.7bn total value seen in H1 2015. In general M&A activity has been more muted in 2016, returning to more normalised levels from the buoyant years of 2014 and 2015. While activity levels have thus far remained robust, evidently the effects of recent political developments OVERVIEW in the UK and beyond are starting to have an impact on Irish dealmaking. With foreign investors traditionally making a significant contribution to Irish M&A figures, it is not unexpected that global factors have influenced deal activity, and, in particular, the number of inbound acquisitions. Although the challenges highlighted in our 2015 report remain relevant, the guarded expectation is that there will be similar levels of activity in H2 2016 as investors seek to close out on transactions which had been postponed and as the markets adjust to the fallout from the Brexit vote. BREXIT, STAGE LEFT The UK’s decision to leave the EU had a big shortterm effect on global markets, with the pound plunging to a 31-year low and the Dow Jones falling 500 points in the immediate aftermath. However, from an M&A perspective, it is possible that the weakened sterling in the wake of Brexit may offer some opportunities. Attractive valuations attached to UK companies could pique the interest of foreign buyers, including Irish firms. Moreover, after the initial paralysis in markets, the UK’s decision is likely to result in some increased activity as many businesses, including those based in the UK with strong trading links with the EU, explore their options in the months and years ahead, and seek to exploit the post-Brexit environment as best as they can. 0 5 10 15 20 25 30 35 40 Q2 16 Q1 16 Q4 15 Q3 15 Q2 15 Q1 15 Q4 14 Q3 14 Q2 14 Q1 14 Q4 13 Q3 13 Q2 13 Q1 13 Q4 12 Q3 12 Q2 12 Q1 12 Q4 11 Q3 11 Q2 11 Q1 11 Q4 10 Q3 10 Q2 10 Q1 10 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 IRISH M&A DEALS, 2010 — H1 2016 Number of deals Volume Value (€m) Value of deals €m MIOn top of this, a survey of Irish employers by ManpowerGroup Ireland, published in mid-June, found the country’s net employment outlook to be at its strongest point since Q2 2007. The recent sale of motoring group AA Ireland to Carlyle Global STRONG FUNDAMENTALS In spite of Brexit’s impact, there are many indicators suggesting positive momentum in the Irish market. Revised GDP forecasts for Ireland predict that the economy will grow by approximately 4.8% in 2016, one of the fastest growth rates in the EU. Blue-chip multinationals continue to be drawn to Ireland’s hospitable business climate and skilled workforce — not least in light of BEPS — while indigenous Irish firms are growing to increase market share. Announced Date Target Company Target Dominant Sector Bidder Company Bidder Dominant Country Seller Company Seller Dominant Country Deal Value EUR (m) 25/01/2016 Tyco International plc Industrial products and services Johnson Controls, Inc. USA 14,973 02/02/2016 Creganna-Tactx Medical Services (other) TE Connectivity Ltd. Switzerland Permira Advisers LLP United Kingdom 824 04/02/2016 Xtralis Pty Ltd. Industrial products and services Honeywell International Inc. USA Blum Capital Partners LP; Pacific Equity Partners Australia 438 31/05/2016 ION Trading (10% Stake) Computer software Carlyle Partners VI LP USA TA Associates Management, L.P. USA 359 10/06/2016 eircom Group limited Telecommunications: Carriers GIC Private Limited Singapore 230 24/04/2016 Cordal wind farm project Energy Element Power Limited United Kingdom Saorgus Energy Ltd Ireland (Republic) 160 29/06/2016 AA Ireland Limited Services (other) Carlyle Global Financial Services Partners II L.P.; Carlyle Cardinal Ireland Fund, L.P. Ireland (Republic) AA plc United Kingdom 157 29/04/2016 Argentum Property Holdco Limited Construction Cairn Homes Plc Ireland (Republic) Newlyn Developments Limited; Anchorage Capital Partners Pty Ltd Australia 106 17/05/2016 Paddy Whiskey Limited Consumer: Other Sazerac Company, Inc. USA Irish Distillers Limited France 90 30/04/2016 ATA Tools Group Limited (65% Stake) Industrial products and services Management Vehicle Ireland (Republic) MML Capital Partners LLP United Kingdom 52 TFinancial Services Partners and Carlyle Cardinal Ireland for €156.6m demonstrates how Irish companies continue to be attractive targets for acquirers. IRISH DEAL MAKEUP In terms of the Irish market in H1 2016, mid-market and smaller-cap deals, a useful indicator of the broader M&A climate, have decreased year-on-year in terms of numbers. M&A deals valued between €5m and €25m fell by 21%, dropping from 19 deals in H1 2015 to 15 in H1 2016. Nonetheless, it is clear more generally that mid-market acquisitions rather than blockbuster deals continue to be at the forefront of Irish M&A. Of the 29 deals where the consideration was disclosed, 27 of them had a valuation of under €500m. Similarly, there were 28 deals in the same size range in H1 2015. The experience this year in terms of large-cap deals continues to reflect a trend of multinational firms making strategic plays in Ireland. For instance, the largest Irish transaction of 2016 to date was US-based conglomerate Johnson Controls’ €15bn acquisition of Tyco International, an Ireland-based fire and security manufacturer. SECTOR WATCH In the TMT sector, the theme of foreign players targeting Irish companies as part of bolt-on strategies, as discussed in our 2015 M&A Review, looks set to continue. Games maker Hasbro, for example, purchased animation firm Boulder Media and another notable TMT deal in H1 of 2016 was the sale of UTV Ireland to telecoms firm Virgin Media. Leisure, which performed strongly in H1 2015, did not register any new deals in H1 2016; however, we expect to see some activity in the sector in the latter part of this year. In particular, Irish hotels continue to attract international interest. Meanwhile, pharmaceuticals, medical and biotech (PMB), which in recent years has dominated the Irish M&A landscape, certainly in terms of deal value, has seen value decrease considerably in H1. This may have been influenced by the U.S. Treasury Department rules impacting corporate inversions, which, in a high profile example, put paid to US pharma giant Pfizer’s proposed acquisition of Dublinbased Allergan. Yet PMB continues to remain a major sector for Irish deal-making, contributing 13% of all inbound deals in the first half of 2016. From a sectoral perspective, an interestinindustry has had seven transactions in H1 2016 — 23% of total inbound deal volume — compared with just two in the first half of 2015. Deal value in the sector was heavily impacted by the Johnson deal, but removing this deal, value for the sector still saw a rise, standing at €480m in H1 2016, compared with €49m for 2015 as a whole. The real estate sector is also showing an increase in deal flow, reflecting attractive valuations and expectations of high returns. Following on from the buoyant M&A market experienced by the sector in the last couple of years, the first half of 2016 has seen three real estate acquisitions. For instance, Oaktree Capital Management, a USA-based private equity (PE) firm, purchased two Hazel Portfolio retail parks for a combined total of €50m. Meanwhile, in June, US PE firm Blackstone announced it would buy the Blanchardstown retail centre in Dublin for approximately €950m. Outbound M&A has seen a dip in volume alongside an increase in value in the first half of 2016. The number of Irish firms buying targets overseas slid by almost 45% in H1 this year to 34, compared with 61 in the same period in 2015. By contrast, deal value rose by 25% from €28bn in H1 2015 to €35bn in H1 2016. However, 91% of this value total is made up by just one deal – pharma group Shire’s €32bn bid for US-based pharmaceutical firm Baxalta. There was only one other deal with a value of more than €1bn in H1 2016. In May, Ireland-based Jazz Pharmaceuticals announced its acquisition of Celator Pharmaceuticals for €1.1bn. By contrast, there were six €1bn-plus outbound deals in H1 2015. Considering overall Irish outbound M&A, H1 2016 saw 24 deals with disclosed values of below €1bn for a combined €2.3bn, while H1 2015 had 42 similar deals worth €3.4bn. While PMB has dominated outbound Irish deal value on the back of the Shire deal, volume by sector saw a more even split. The industrials and chemicals sector had six outbound deals, PMB had seven and business services had eight deals, which is reflective of a broad and healthy spread of M&A activity. PRIVATE EQUITY SNAPSHOT PE activity has continued to grow in the first half of 2016 with volume increasing to 13 deals from 10 year-on-year. Deal value jumped 106% to €2bn. The rise in value is reflected in six PE deals featuring in the top 10 transactions of the year so far, compared with just two in H1 2015. One deal in particular accounted for the substantial jump IRISH OUTBOUND M&A 2010 — 2016 YTD 0 5 10 15 20 25 30 35 40 45 Q2 16 Q1 16 Q4 15 Q3 15 Q2 15 Q1 15 Q4 14 Q3 14 Q2 14 Q1 14 Q4 13 Q3 13 Q2 13 Q1 13 Q4 12 Q3 12 Q2 12 Q1 12 Q4 11 Q3 11 Q2 11 Q1 11 Q4 10 Q3 10 Q2 10 Q1 10 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 Number of deals Value of deals €m Volume Value (€m) MID-YEAR M&A REVIEW 201OUTLOOK The continued stablility in Irish M&A in early 2016 is a positive indicator for the economy more generally. While 2014 and 2015 were particularly buoyant, M&A activity is still relatively resilient against the backdrop of a more challenging economic climate. While the UK’s vote to leave the EU increased uncertainty and will have particular resonance in Ireland — just four Irish deals were announced in June — it is expected that, over the coming months, market reaction will stabilise. When this happens, deal-makers will start to look at acquisitions which were suspended either with a view to implementation or with an alternative strategy, and it is to be expected that there will be reasonable levels of deal-making in the latter part of 2016, certainly in the mid-market. Much still remains unknown for Irish/UK M&A until a clear structure around Brexit is established. However, regardless of the structure of the deal negotiated, interest in Irish targets is not expected to recede significantly — in particular, the sectoral strongholds remain solid against a background of strong fundamentals. We would also expect there will be opportunities for Irish outbound acquirers in the UK and further afield as Irish corporates continue to pursue growth strategies internationally. ibids or deals valued below €5m. Remark, the research and publications division of The Mergermarket Group, publishes over 60 thought leadership reports and holds over 70 events across the globe each year which allow clients to demonstrate their expertise and underline their credentials in a given market, sector or product. For more information, please contact: Simon Elliott, MD EMEA, Remark, The Mergermarket Group Tel: +44 (0)20 3741 1060 Email: Simon.Elliott@mergermarket.com The Mergermarket Group offers a range of services that give clients the opportunity to enhance their brand profile, and to develop new business opportunities. To find out more, please visit: www.mergermarketgroup.com/events-publications/ A