News that Italy's Ray-Ban maker Luxottica and French lens-producer Essilor are to effect a €46 billion (€43bn) merger in one of Europe's largest cross-border deals is a reassuring act of faith in a period of international uncertainty.
“Global transactions are continuing,” says Graham Reid, corporate finance partner at EY Ireland, “And that is our experience here at home too. Companies are continuing to seek out new markets and looking to achieve synergies, and that will continue.
“What will slow that down, however, are issues on the political side, such as the likelihood of US policy changes in relation to taxation or the impact of Brexit. These will slow things down as people get to grips with the impact such issues are likely to have from a value perspective.”
That uncertainty already resulted in a fall-off in international transactions last year over 2015.
“At the same time we’ve had a period of change for some time now, and businesses recognise that they are not able to influence these issues, so they have to just deal with them. International M&A activity involving companies with a greater dependency on the UK will be impacted more significantly. In Irish terms the result will be to see more internationally-focused M&A activity.”
The Irish food sector in particular is likely to see consolidation as companies look to achieve efficiencies, including in their supply chain, to help propel them into markets further afield.
Brexit may also encourage overseas companies looking for a European base – which very often comes via mergers or acquisitions – to choose Ireland over the UK.
Platform
“We have a number of clients that are US companies looking to use Ireland as a platform from which to trade into the EU,” says Katharine Byrne, partner and head of corporate finance at
BDO
.
“These are not foreign direct investment in the IDA sense, but businesses looking to come here as an entry point to the EU which, prior to Brexit, would have been looking at both the UK and Ireland, but who are now looking more closely at Ireland.”
Last year saw Galway-based medical devices company Creganna – owned by a London-based global investment firm Permira – bought by Swiss-based TE Connectivity for $895 million (€839m). Post-Brexit more such deals may emerge.
As international buyers increasingly run the slide rule over Irish-based businesses, what’s going on here at a policy level will come under increasing scrutiny, says Byrne.
“We need to demonstrate to them that we can support the scale of investment these buyers want to make here, in terms of things like infrastructure and talent. Daily headlines about healthcare crises and housing shortages all give international buyers pause for thought.
“Overseas buyers are doing their commercial due diligence, and then they are looking at these infrastructural elements such as the need to ensure access to talent or to bring in particular executives.”
It is not just corporate tax but income tax and capital gains tax here that are being looked at by international buyers. “We are a very small country after all, and not a clear entry route to Europe. Yes, we are English-speaking, but we shouldn’t presume to think that is enough to attract deals,” says Byrne.
Appetite
The increasingly international flavour of the deals made in the past 12 months is evidence of this appetite for Irish businesses from overseas buyers where there is value to be had.
"Wind energy company Gaelectric sold to a Chinese company, fruit company Fyffes is being bought by a Japanese company. We are seeing increasing interest from Asian buyers entering the market, and competing with US buyers here," says Byrne.
For Irish companies looking to land such buyers, certain prerequisites are needed, namely a scalable business and profitability of over €5 million. Such businesses are hard to find here, but that too is changing thanks to the increasingly international outlook of the indigenous sector.
“99.9 per cent of Irish businesses are sub-€5 million. However, the Irish businesses we work with are much more ambitious now about their businesses than previously,” says Byrne.
"Enterprise Ireland has been successful at encouraging companies to scale up and aim to be a global-based business from Ireland. The management teams we have here have the confidence and the ability to do that, but again they need to demonstrate that they are supported by the right government policies."
Asian buyers
The advent of Asian buyers here is a consequence of increased competition for deals in the UK market, where such buyers have had a presence for longer.
"For a number of years now Asian, and particularly Chinese, buyers have been coming into the UK market, and we're starting to see them look here now too, not as a response to Brexit but because they are looking around for good value deals," says Michele Connolly, partner and head of corporate finance at KPMG.
“It’s not jurisdictional so much as it is a question of what is a good political and bureaucratic environment in which to do business. That is something Ireland has traditionally come out well in relation to – as a very stable environment politically that is not overly-bureaucratic.
“However, that is why we need to be careful in relation to changes made to our taxation regime. If someone is thinking of or has invested in a business here and the government moves the goal posts, that can be very damaging.”
MAJOR GLOBAL DEALS
The past 12 months may not have broken any records for global M&A activity, but there were still some serious deals being done.
These included US telecommunications equipment maker Qualcomm’s bid to buy NXP Semiconductors for $ 47 billion (€44bn), announced in October.
This month saw agreement between British American Tobacco over a $49.4 billion (€46.6bn) takeover of US rival Reynolds American, creating the world's biggest listed tobacco company.
US telecoms company AT&T has agreed to buy content-maker Time Warner for $85.4 billion (€80bn) subject to regulatory approval.
