M&A Outlook

2019
Deal insights for Ireland
Foreword
We are delighted to present the
Mark Collins
findings from our survey on the
Partner, Head of Transaction
outlook for Irish M&A activity in Services
2019. This fifth annual survey was
conducted with many of Ireland’s
leading corporate executives and
David O’Kelly
M&A advisors. We hope that it
Partner, Corporate Finance
provides valuable insights into
M&A trends for the year ahead.

2018 – A BUOYANT M&A MARKET 2019 – MIXED SENTIMENT

The 2018 M&A market in Ireland remained buoyant, In the five years we have been conducting this
building upon the already strong levels of activity survey, 2019 is undoubtedly one of the most difficult
in 2017. This reflected the general confidence in the to predict. The deal making community is cautiously
Irish economy, availability of funding at attractive optimistic about the year ahead, with the majority of
terms and the re-emergence of M&A as a strategic respondents expecting deal volume at or above prior
imperative in Irish corporate boardrooms. year levels, despite prevailing global macro-economic
uncertainties.
Large Irish corporates remained very prominent on
the international M&A landscape in 2018. The year M&A executives believe that it continues to be a
was bookended with Total Produce’s acquisition seller’s market having regard to strong valuations and
of 45% of the agricultural multinational Dole Food access to funding. Depending upon the strength of
Company for US$300 million and Greencore’s the global economy and sustainability of corporate
disposal of its US operations for US$1.1 billion. Other earnings, this balance may shift towards buyers
highlights during the year included the disposal over time.
of Adapt Pharma to specialty biopharmaceutical
Concern about the potential impact of Brexit
company Emergent BioSolutions for up to US$735
negotiations, which are at a hyper-sensitive point,
million and Smurfit Kappa’s robust defence from
is evidenced by a widely held view amongst survey
International Paper’s multi-billion dollar bid.
respondents that a no deal / hard Brexit can only be
Notwithstanding volatility in domestic and negative for Irish M&A. However, many respondents
international global markets towards the latter half note that Brexit may present opportunities should UK
of 2018, Irish plcs such as DCC, Applegreen and businesses seek to mitigate associated regulatory and
Glenveagh utilised capital markets during the year supply chain risks through strategic acquisitions of
to fund their current and future acquisition pipeline. Irish operations.
However, a number of planned IPOs in Q4 were
Respondents anticipate (i) Technology, (ii) Healthcare
shelved and capital markets remain subdued.
and (iii) Food and Agribusiness will be the most active
Private equity continued to feature as a major player sectors for M&A transactions, with these sectors
in the Irish M&A environment, a trend that has consistently attracting global interest.
increased year on year during the five year lifetime
Separately, many respondents attribute post-deal
of our M&A Outlook. 2018 also saw a further wave
integration failures to cultural misalignment, people
of private equity exits from initial investments as
related challenges and inadequate diligence.
funds refreshed their capital for the next round of
M&A activity. This cycle of investment, growth and An overarching survey sentiment is the positive impact
exit is now well established as a clear and attractive of the robust funding environment, with increased
funding option for Irish companies and is anticipated competition for targets amongst well funded trade
to continue throughout 2019. and financial buyers. Debt continues to be the funding
source of choice, with attractive terms and new
entrants / alternatives in the Irish market.
Finally, we would like to thank all those who took the
time to complete the survey and inform our analysis.

M&A OUTLOOK 2019 | 01

 Highlights

2019 DEAL VOLUMES SELLER’S MARKET

Respondents remain optimistic for the year 60% of respondents expect
ahead, with 87% forecasting activity 2019 to be a seller’s market,
at or above 2018 base levels, reflecting with increasing numbers of domestic
Ireland’s continuing appeal as an and foreign investors competing
attractive location for M&A. for Irish targets.

BREXIT FINANCING
The majority of respondents expressed Debt will once again be the primary
concern that Brexit will have a source of deal funding, with attractive terms,
negative or neutral effect on deal activity flexible instruments and increased presence of new
in 2019. However, many M&A executives cited lenders in the market. Global and domestic
that this period of uncertainty could also private equity is also expected to
provide M&A opportunities feature prominently.
for Irish companies.

02 | M&A OUTLOOK 2019

 Highlights

DEAL DRIVERS M&A GROWTH STIMULANTS

An increasing proportion of M&A executives Respondents generally assert that deal activity
expect strategic merit / fit to be the can be further stimulated by building
primary driver of acquisitions. awareness of available targets
and more sophisticated
vendor preparation.

INTEGRATION EXIT
Cultural misalignment, people related Compared with previous years, a growing share
challenges and inadequate diligence of respondents think disposals to
and planning are the main factors cited for financial buyers will be the
post-deal integration failures. most likely exit option.

M&A OUTLOOK 2019 | 03

 Decrease

13%

Remain
52% broadly
stable
Increase 35%

Deal volume
How do you expect deal volume in Ireland
in 2019 will compare to 2018?

Respondents are optimistic that 2019 deal volume “ Despite various macro
will continue to at least track the buoyant levels
of activity evidenced in 2018, with (somewhat headwinds, our survey
surprisingly) just 13% anticipating a reduction in indicates sustained deal
deal flow.
activity through 2019.
Ireland continues to be viewed as an attractive
A carefully designed approach
business environment, particularly in the mid-
market M&A space. This is attributed to the ability to M&A, now more than
to achieve sustainable growth through strategic ever, forms a key plank in the
acquisition, together with the availability of finance
at attractive rates, private equity funds with capital strategic foundations of
to deploy, a resurgent domestic banking sector and Irish businesses.”
strong corporate balance sheets.
Irish deal makers are cautious but broadly optimistic MARK COLLINS
for the year ahead, while calling out current Partner, Head of Transaction Services
macro-economic and geopolitical headwinds, most KPMG in Ireland
notably: (i) the outcome of Brexit negotiations; (ii)
international trade wars (US / China in particular);
and (iii) capital market volatility.

04 | M&A OUTLOOK 2019

 60%
Seller’s
market

40%
Buyer’s
market

2019 market
Will 2019 be a buyer’s
or a seller’s market?

The majority of participants believe that 2019 “We see great potential to transform
will primarily be a seller’s market as prevailing
market conditions are expected to continue: and grow our core business while
• Strong pipeline of attractive Irish assets,
scaling new opportunities. This can
with sound post-recession financial track be achieved by exploiting organic
records; growth opportunities and pursuing
• 
Competition for Irish target assets amongst acquisitions in selected markets
domestic and foreign investors;
that fit within our existing business
• Persistence of strong valuations; and
segments. While there are always
• Availability of financing.
specific and global risk factors which
Deal makers are increasingly wary that these
market dynamics may not prevail and the
will influence our business expansion
balance could begin to shift towards buyers plans, we have a significant pipeline
over time. of business opportunities as we look
into 2019 and beyond.”

PAT DALTON
CFO, IPL Group plc

M&A OUTLOOK 2019 | 05

 Brexit negotiations
What is the likely impact of Brexit negotiations
on deal activity involving Irish companies in 2019?

Decrease 44%
activity 34%

31%
Neutral
30%

Increase 25%
activity 36%

2019 2018

There is understandable uncertainty within the “ Irish organisations with interests

Irish deal making community surrounding the
outcome of the ongoing Brexit negotiations and in the UK need to undoubtedly
the consequences from an Irish perspective. We prepare for Brexit related business
go to print at a time when a range of outcomes
disruption. However, if focusing
remain possible, with far reaching consequences.
on preserving and driving a ‘local’
A significant proportion of survey participants
(75%) believe that Brexit will have an adverse UK strategy, they also need to
/ neutral effect on deal activity in 2019 - a far continue to position themselves
more negative outlook in comparison to 2018.
The imminence of a Brexit decision with its wide to capitalise on acquisition
ranging impact on trade, border controls, cross- opportunities that will
border tariffs, the tax and regulatory environment
and foreign exchange markets make accurate
inevitably present.”
forecasting and managing 2019 expectations
challenging for the Irish M&A community. It has EOIN TONGE
potential to create significant overhang in the CFO, Greencore Group plc
M&A market.
Conversely, many note the increased attraction for
UK businesses to acquire Irish companies during
2019 as a defensive restructuring mechanism and
a means of de-risking in the context of regulatory
and supply chain uncertainty. Similarly, 2019
may present a window for opportunistic Irish
companies to acquire / build positions in the UK
market through strategic acquisitions.

06 | M&A OUTLOOK 2019

 Deal making Deal failure
What factors will enable greater In your opinion, what are the
deal making in Ireland in 2019? primary reasons for deal failure?

Awareness Valuation
37% 39%
of targets Gap

More sophisticated Unexpected

27% 21%
sell side preparation diligence issues
Speedy access Lack of
21% 20%
to financing readiness

Quality of deal team Other macro

15% considerations 14%
/ deal process
Quality of
6%
deal team

The prevailing economic environment in Ireland has As captured in previous surveys, price / valuation
supported the continued increase in deal activity is the rock on which many deals perish. This
in recent years. The view of participants is that an highlights the importance for sellers of educating
increased awareness of targets would enable deal potential buyers about the value proposition and
making, with a heightened emphasis placed on this the specific market dynamics which drive their
factor in comparison to 2018. A more systematic valuation expectations.
approach to identifying targets and an awareness
Sellers should ensure that significant issues are
of increasing competition in the market can greatly
appropriately flagged at the outset of a process
enhance deal activity and success.
giving time for management and advisors to
Participants continue to view more sophisticated sell effectively manage and communicate the issues.
side preparation and speed of access to financing as
From a buyer’s point of view, an even-handed,
important enablers of deal making.
fact-based approach to due diligence can expedite
Prior to entering a sales process, it is essential that the resolution of price adjusting diligence findings.
potential diligence issues are identified on a timely
basis in order to encourage remediation actions to
be taken to avoid value erosion. This can pre-empt
bidder issues and provide solutions that can be put
in place prior to commencing a process.

M&A OUTLOOK 2019 | 07

 Existing
Reserves

18%

57% Debt

Equity 25%

Acquisition funding
What is likely to be the primary source of funding
for acquisitions which you anticipate undertaking in 2019?

The majority of respondents intend to use “ We funded Irish companies

external funding for acquisitions in 2019. A
consistent trend of this survey is that debt doing innovative deals across
is the most common type of financing for a variety of sectors in 2018.
acquisitions, with the debt markets having
Looking forward, we plan
a positive effect on credit availability and
attractiveness of terms. on continuing to support
The variety of lending options available the growth ambitions of
continues to increase, driven by the presence Irish business.”
of international banks, non-bank lenders and
the use of flexible instruments. Global and
SIMON SCROOPE
domestic private equity remain very active
Head of Corporate Banking, AIB
in the Irish market, with significant levels
of capital to deploy. Private equity concerns
continue to invest through a variety of
innovative structures, in both majority and
minority deals.

08 | M&A OUTLOOK 2019

 Global 25%
private equity 19%

Domestic 23%
private equity 20%

Overseas multinational 20%

companies 19%

Irish indigenous 19%

companies 22%

Multinational companies 13%

in Irish market 20%

2019 2018

Acquisition volume
Which of the following groups would you consider the most likely
to complete the highest volume of acquisitions in Ireland in 2019?

The proportion of respondents expecting financial “Private equity remains a prominent

buyers to be the most acquisitive group within the
domestic marketplace has increased significantly, feature of the Irish M&A market
underlining the growing importance of private given the advantages of private
equity for Irish M&A activity. However, it remains
equity to founder and family-
a very competitive landscape with a relatively even
spread across multiple buyer groups / types. owned businesses both in funding
Respondents believe that Irish indigenous / long-term growth and supporting
multinational companies will remain very relevant succession planning.”
and active participants in auction processes and
will continue to compete with financial buyers for
JONATHAN COSGRAVE
strategic acquisitions.
Managing Director, The Carlyle Group

M&A OUTLOOK 2019 | 09

 Deal considerations
Acquisitions Disposals

Strategic merit / fit 29% Valuation 30%

Expand customer base Current market

19% 22%
/ lines of business conditions

14% Strategic
Expand geographical reach 21%
considerations
Opportunistic e.g. target
14% De-risking 15%
becomes available
Succession
Cost / operating synergies 14% 12%
planning
Regulatory
6%
considerations
Other e.g. technology
4%
/ talent acquisition

It is telling that the alignment and compatibility of Perhaps unsurprisingly, survey respondents
long-term goals is deemed of greatest importance highlighted valuations as the key driver they
and ranks higher in executive decision-making than consider when assessing whether to initiate a
the availability of targets or the opportunity to grow disposal process, reflecting the strong multiples
customer bases or boundaries. achieved by well-managed, profitable Irish
businesses in recent times.
It illustrates that M&A has become a central tenet
of Irish boardroom strategy and is increasingly to be This has been possible due to the increased
found towards the top end of the order of business at competition in the Irish M&A marketplace for targets
executive meetings. amongst well-funded trade and financial buyers.
A surprising feature of the survey results is that In 2019, we expect further carve-outs of business
regulatory and technology considerations were segments or the strategic disposal of non-core
ranked by just 6% and 4% respectively as the assets as companies seek to maximise shareholder
main imperatives for deal making in 2019. It will be return and utilise capital raised to focus on driving
interesting to note whether a greater proportion of growth in markets and areas of core competencies.
respondents identify these factors as the main drivers
of acquisitions when we conduct future surveys.

10 | M&A OUTLOOK 2019

 Sectors
Within which sectors would you anticipate the most
acquisitions to occur in Ireland in 2019?

Technology 25%

Healthcare, Pharmaceutical
20%
and Life Sciences
Food and
18%
Agribusiness
Property and
12%
Construction
Energy and
10%
Infrastructure

Financial Services 8%

Other 7%

For the second consecutive year, respondents “ We have completed a number of

anticipate that Technology, Healthcare and
Food and Agribusiness will be the most active
innovative minority deals, across
sectors for M&A transactions. a range of sectors, with private
These results come as no surprise as Ireland is equity investing and founders
well established as a global leader in the Food taking significant value off the
and Agribusiness sector while Irish based
Technology and Healthcare sectors continue to table. We expect both of these
develop innovative, best in class businesses. trends to continue in 2019.”
Sector convergence and consolidation is likely
to be an emerging theme in 2019. DAVID O’KELLY
Partner, Corporate Finance
KPMG in Ireland

M&A OUTLOOK 2019 | 11

 Integration Exit strategy
In your opinion, why does In your opinion, which exit strategy
post-deal integration fail? will be most preferred in 2019?

Cultural misalignment 31% Sale to 60%

strategic buyer 64%
People related
25%
challenges
Sale to 29%
Inadequate financial buyer 25%
21%
diligence / planning

Inaccurate forecasting 9% Management 8%

buyout 5%
Insufficient resources 7%
3%
Other
Failure to understand 6%
7%
market dynamics
2019 2018

Cultural misalignment, people related challenges The majority of M&A executives expect that
and inadequate diligence and planning are the strategic buyers will continue to compete
reasons most frequently cited by respondents for effectively with financial buyers for Irish assets
the failure of businesses to successfully integrate given their sectoral presence and expertise,
post-acquisition. ability to exploit synergies and long-term value
realisation perspective.
The absence of a formalised cultural alignment
plan with appropriate resources to implement has However, a growing share of respondents view
resulted in post-deal complications on a wide range disposals to a financial buyer as a more likely exit
of Irish M&A transactions. option in the coming 12 months.
Inadequate diligence / planning is a largely avoidable It also appears that survey participants will be
impediment to successful integration, yet it taking a more cautious approach to the capital
continues to frustrate and even derail transactions. markets in 2019, a consequence of the recent
turbulence in global markets.

12 | M&A OUTLOOK 2019

Methodology
M&A Outlook 2019 is based on research conducted
in December 2018 amongst a wide cross section of
Ireland’s leading M&A executives and advisors:
• Indigenous private Irish: 30%
• Corporate finance, legal and other advisors: 29%
• Irish PLCs: 21%
• Private equity: 13%
• Multinational companies in Irish markets: 7%
Contact us

Mark Collins
Partner, Head of Transaction Services
KPMG in Ireland
T: +353 1 410 1407
E: [email protected]

David O’Kelly
Partner, Corporate Finance
KPMG in Ireland
T: +353 1 410 1606
E: [email protected]

kpmg.ie

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Produced by: KPMG’s Creative Services. Publication Date: Jan 2019. (4444)