Positive Sentiment Driving Increase in M&A Activity

29 July 2015

Author: Richard Gray
Practice Area: Corporate - M&A

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The financial analysts at Experian noted recently that there had been 44 corporate transactions in Northern Ireland in the first half of 2015 with a combined value of more than £1.2bn.

The headline grabber was of course the strategic acquisition of Moy Park by Brazilian company JBS for £946m of that total. But even outside of that mega-deal, we’ve seen merger & acquisition (M&A) activity start to ramp up and I would go as far as to say the market is as busy as it has been at any point in the past five years.

In the first half of 2015 Experian named Carson McDowell as the most active legal adviser in Northern Ireland, with the firm having been involved in nine deals during that time. They included the sale of Nelson Hydraulics to Flowtech Fluidpower, the merger of H&J Martin into Lagan Construction Group, and the sale of Interweld to Swiss company Sulzer. Based on deals we are currently working on, my view is that the second half of the year is set to be even busier.

Through the recession it was only companies with cash on their balance sheets who were buying, but more firms are now finding they are able to access growth finance from their banks again, which has boosted confidence.

The multiples, or prices, for trading businesses have also risen to the point where some Owner-Managed Businesses who weathered the post-2008 economic storm and still have strong businesses are deciding that now is the time to exit.

In turn that helps market sentiment because the minute people begin to talk about more activity and more money being available, plans start to be brought forward again.

Traditionally we’ve seen a lot of interest from overseas companies in local businesses, but in the current market it’s not just NI firms selling to American and European rivals. There are a growing number of quality, leading NI businesses who have cash to spend and are looking to acquire away from these shores. For example, Eakin Healthcare Group, has made two significant acquisitions in GB in the last 9 months, most recently acquiring a surgical device company in Sheffield.

The reason big US and European players want NI businesses vary, but what we hear cited time and again is that it’s down to the quality of our companies’ products and the expertise of their workforces.

Sectors likely to see the most activity include agri-food, energy, manufacturing, construction and technology, and each is driven by different factors.

Manufacturers will continue to attract interest because of their quality and because traditional manufacturing businesses are often easy for other industrial firms to bolt on to existing operations. Technology firms are harder to value but will remain attractive because of their growth potential.

The energy sector, particularly renewables continue to see significant deal activity both in terms of new schemes and the sale of existing schemes, despite regulatory uncertainty about government subsidy of renewable schemes. Planning and capacity issue may see a move away from new wind.

In construction M&A is being driven by consolidation. Despite the rising tide the sector remains highly competitive and sustained “margin squeeze” over an extended period is leading some to look for strategic alliances.

Factors such as exchange rates, commodity prices, the end of milk quotas and lower demand from Asia mean there will likely also be some consolidation in the agri-food sector.

The main risk to that positive sentiment I mentioned is the Eurozone situation, the impact it has had on exchange rates and the potential it has for causing turbulence on the financial markets.  Locally the continuing delay of implementing Welfare Reform and consequently setting a date and rate for corporation tax reduction has the potential to damage confidence. Business confidence is improving but it remains fragile and any major shocks could slow the upward momentum of deals and deal values.

But assuming those shocks are not too severe, I expect both the number and value of deals involving local companies to keep moving in the right direction.

For more information please contact Richard Gray or another member of our corporate team.

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