Despite the challenges 2022 was a good year for Irish M&As

Rising funding costs, a slowing domestic economy and the prospect of a global recession had an impact on mergers and acquisitions in 2022 – but not as much as you might expect. It helped that the year began on the back of a stellar performance in 2021.

“This year started off with a bang, with a huge amount of capital and high valuations,” says Fergal McAleavey, EY Ireland partner and head of corporate finance. “Sellers had lots of opportunities to exit, with high valuations and cheap and relatively available debt.”

There was also plenty of private equity with ample “dry powder” to invest.

“We began to see a marked slowdown in activity in the summer as a result of a number of shocks. We first got a sense of the challenges that lay ahead from our US counterparts, and from there it took two to three months to spread from the US to the EU, UK and finally here,” says McAleavey.

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The biggest impact was a lengthening of the time it took for deals to be executed. The changed economic environment, which included the entrenchment of Russia’s war in Ukraine, the energy crisis and inflation, also resulted in a softening of valuations.

By the fourth quarter however, the mood had improved. “In the last four to six weeks things have stabilised and activity has begun to pick up again,” says McAleavey.

Much of that is being driven by strong and continuing interest in Irish businesses, which typically do not have huge levels of debt, he explains. The fact that Ireland isn’t overly endowed with traditional-type heavy industries that require enormous energy inputs means the impact of the energy crisis on deal flow is also negligible.

UK private equity companies are active here and hunting very hard

—  Fergal McAleavey

“UK private equity investors are really active in Ireland. They see lots of opportunity and now also lower valuations. What’s more, Ireland is still showing growth where most other economies are not,” he says.

“Lots of Irish businesses have grown very well over the last five to 10 years, with owners either at a stage in life where they want to sell, or effect a partial sale in a deal that allows them to take some money off the table and de-risk their personal financial situation, while at the same time gaining access to capital for growth,” he adds.

Some UK private equity firms are pulling back from doing deals in the UK due to higher levels of uncertainty there regarding interest rates, labour costs and shortages, as well as uncertainty over government generally.

“UK private equity companies are active here and hunting very hard,” he notes.

The sense now is that the US has inflation under control which should lead to fewer interest rate rises than feared. “I’m mildly optimistic for next year,” McAleavey says.

Deal structures adapt to changing environments

—  Jan Fitzell

The fact that 2021 was one of the biggest deal years in history meant 2022 was always going to feel quieter in relative terms, but it was still busy overall, affirms Jan Fitzell, partner within Deloitte’s M&A advisory team. While there was some uncertainty around interest rates and debt availability, “there is still huge amounts of private equity out there and corporates with strong balance sheets”. Interest rates, while on the rise, are still low by historical standards.

“We are quite optimistic as to levels of deal activity. Where previously M&A activity was across the board, certain sectors will be most active including tech, healthcare and financial services,” says Fitzell.

Deal structures adapt to changing environments, so expect more minority equity deals, earn outs and deferred considerations, he adds. And while valuations have softened, “good businesses are being very highly competed for so that is helping to keep valuations up”, he adds.