This review, published in association with  Mergermarket, focuses on M&A activity in the first  half of 2014. We also look at the likely trends for the  remainder of 2014 based on recent developments.

In H1 2014, Irish M&A showed renewed impetus.  The first half of the year saw 42 deals announced,  a 31.3% increase on H1 2013’s figures, and the  second highest H1 result since 2008. Indeed, both  Q1 and Q2 2014 saw higher or equal deal numbers  than their 2013 counterparts.

Values witnessed an even more dramatic boost,  with €39.3bn worth of deals announced in H1  2014 – the highest ever Mergermarket-tracked  figure for a half-year period in Irish M&A. The key  to this uplift was US-based medical device maker  Medtronic’s €33.9bn acquisition of healthcare  company Covidien – the largest deal in Europe  so far this year.

The Covidien deal is the most high-profile example of  the inversion deals that have dominated Irish inbound  M&A over the last year, particularly in the medical and pharmaceutical sectors. This follows the trend  in 2013, with Perrigo Company’s €4.9bn purchase  of Elan Corporation, and Actavis’ €6.5bn deal for  Warner-Chilcott. While controversial in the US political  sphere, inversions afford overseas acquirers the  right to re-register in Ireland and optimise their  arrangements in a transparent environment, as  well as giving such acquirers a foothold in Europe.

Encouragingly, opportunistic foreign buys are not the  only drivers of this uplift in M&A figures. Bidders are  looking to the country because of the quality of Irish  targets. In particular, the consumer sector has been  a big driver of this, with the nine deals conducted in H1 2014 outstripping the sector’s deal numbers  for the whole of 2013. One of these deals, the  Fyffes-Chiquita merger in the banana industry, will  see US-based Chiquita Brands International access  Dublin-based Fyffes’ 16% market share of European  banana distribution, the largest on the continent, as  well as allowing the combined company to control  14% of the global banana market.

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NEW DRIVERS

The variety of deals in terms of sector and type has  been a welcome trend so far in 2014. Seven different  sectors made up the top 10 Irish M&A deals in H1.  For instance, outside the landmark inversion deal for Covidien, the third most valuable deal in H1 2014  was a privatisation, with Bord Gais Eireann, the  state-owned energy company, selling electricity and  gas supplier Bord Gais Energy for €1.1bn to a group  including UK multinational Centrica and Canada’s  Brookfield Renewable. 

Elsewhere, US-based Horizon Pharma’s €474m  buyout of Vidara Therapeutics Research was driven by Horizon Pharma’s desire to expand its portfolios  and markets and to create a more tax-efficient  corporate structure.

In addition, there has been continued investment  in Irish property. Commercial property (particularly  office property) remains a key target, but there is  also focus now on the leisure sector. For instance,  Donald Trump’s property company, Trump, recently  bought the Doonbeg golf and hotel resort for €15m.  Dalata Hotel Group also boosted its portfolio with  €30m-worth of hotel investments in June, following  its initial public offering (IPO) three months earlier.

In terms of other transactions, acquirers controlled  by Irish businessman Denis O’Brien have taken  the opportunity at a smart time to buy companies  that were leveraged in the boom times. Recent acquisitions include infrastructure support services  group Siteserv, the Topaz Group, Ireland’s largest  petrol retailer, and the Beacon Private Hospital,  the latter two deals taking place this year. This  proves that Irish businesses, including those that  became highly leveraged, are considered attractive  opportunities for investors.

BUOYANT CAPITAL MARKETS

Irish companies are finding that the capital  markets are becoming more receptive to listings.  For instance, Irish games company King Digital  Entertainment, the company behind the successful  app “Candy Crush Saga”, had a $500m listing  in March. Green REIT, the first Irish REIT, which  floated in 2013, raised a further €400m this year.  This followed on from last November’s $476m IPO of  Hibernia REIT. In the same month, Shannon-based  engineering company Mincon Group dual-listed on  the Irish and London stock exchanges, raising €50m.  Following these successes we expect to see more  capital markets activity in the near future.

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APPETITE FOR M&A AMONG  FOREIGN AND DOMESTIC ACQUIRERS

High-value deals are still dominated by foreign  players entering Ireland. Indeed, nine of the top 10  deals involved overseas corporates buying/merging  into the country. This highlights the positive  sentiment among overseas acquirers towards  Ireland, with the economy improving and valuations  continuing to be attractive. 

Even so, it is encouraging to see a greater proportion  of domestic M&A taking place. In H1 2014, nearly  one-third (31%) of all deals were domestic, compared  with 27% in the whole of 2013. This is being driven  by highly competitive domestic markets in need of  consolidation. In the consumer foods space, 2014  has already seen deals such as the management  buyout of Freshways from Kerry Foods, and WHW  Bakeries’ acquisition of Irish Pride Bakeries. The  highly competitive nature of this market has driven  these moves, and we expect this trend to continue  into the future.

A FEW SPEED-BUMPS AHEAD

Despite the broadly positive climate for M&A,  Ireland faces a number of challenges that could put  a damper on dealmaking. For instance, the levels of  public and private debt in Ireland remain troubling.  While banks are increasingly showing a willingness  to lend, credit to SMEs remains tight. The  Oireachtas (the Irish parliament) has been active  in trying to kick-start lending to these businesses,  and, in July, introduced a Bill to provide for the  creation of a publicly owned bank, to be called the  Strategic Banking Corporation of Ireland, that could  lend up to €5bn to Irish SMEs. The Bill is currently  making its way through the Oireachtas.

We are also seeing transactions more frequently  being structured as auction processes. The fact  that acquirers are competing to acquire Irish  assets demonstrates their desirability. However,  on the down side, auctions increase the cost  burden on potential bidders, as many go through  the process and its associated costs without  getting the desired asset, resulting in what will  effectively be a dead-weight loss in terms of  advisers’ fees and other costs.

THE IRISH M&A HORIZON

Ireland’s M&A at present is looking much healthier  as we enter the latter stages of 2014. Encouragingly,  a range of factors – both macro and micro – are  pointing to a brighter future.

The country is still attracting foreign investors,  demonstrated by the fact that US companies  remain the top buyers in Ireland. In addition, the  first half of 2014 saw the second-highest number  of deals for a H1 since 2008. Encouragingly,  domestic M&A is also rising, with nearly one-half  of all transactions in H1 2014 being “home-grown”  purchases. It is no longer just a case of investors  and companies coming to Ireland looking for  distressed assets “on the cheap”; it is a story of  companies and investors buying healthy companies  with excellent growth prospects.

The increase in volume, value and diversity of  Irish M&A is positive. As we noted in our Review  of 2013 issued earlier this year, challenges remain,  particularly around debt levels, but the increased  prominence of both domestic M&A and key foreign  players is paving the way for a healthier and more  active market, with quality businesses being  targeted for the growth opportunities they offer.