Friday 9 December 2016

With corporate activity hotting up, where will the big deals of 2016 be done?

Irish businesses are entering the New Year against a very positive backdrop, write Luke Charleton and Graham Reid

Luke Charleton and Graham Reid

Published 03/01/2016 | 02:30

With strong levels of growth predicted to continue into 2016, Ireland has a very positive economic outlook ahead. (Stock picture)
With strong levels of growth predicted to continue into 2016, Ireland has a very positive economic outlook ahead. (Stock picture)

The strong levels of growth seen in 2015 and forecast to continue into 2016 indicate that Ireland has a very positive economic outlook ahead.

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Welcome developments including falling unemployment, increased consumer confidence, low oil prices, growing levels of construction, improving US and UK economies, and continued low interest rates present a positive backdrop for Irish businesses to enter 2016.

However, there are a number of issues that remain to be considered when assessing the outlook for the year ahead, including high levels of indebtedness at the personal, SME and national level, weaker economic performance within the EU and globally, the impact of international political uncertainty, an EU referendum in Britain and our own election.

The 2015 transaction market was characterised by an increase in the number of mega deals at a global level and an increased number of deals by indigenous Irish companies looking for new investment and bolt-on acquisitions.

At EY, we have been involved in more than 20 deals in 2015 including the sale of Realex to Global Payments, the merger of Town of Monaghan and Ballyrashane Co-ops to form LacPatrick, the acquisition of Maydown Engineering by Schivo and the sale of Bladnoch Distillery.

The EY Entrepreneur community are increasingly active raising both equity and debt to drive international growth and seeking acquisition opportunities to expand. We expect this growth trend to continue.

This year we expect to see activity in similar sectors as in 2015. These are sectors where Ireland continues to perform strongly, such as agri-food, technology, med-tech, pharma, hospitality and real estate. As a result of the collapsing price of oil, which was a notable development in 2015, we foresee more transactions in the mining, oil and gas sectors - both opportunistic and as a result of distress.

The pillar banks continue to expand, lending to strong companies across many sectors. As confidence improves, banks will continue to look for opportunities to lend to Irish companies looking to expand.

New non-bank entrants continue to enter the Irish lending market, primarily focused on asset-backed lending into the property, hospitality and construction sectors.

For the last three years, Ireland has experienced unprecedented activity in the loan sale market where banks have deleveraged through selling loan books. In 2016, the volume of loan book sales will be less than previous years. We expect to see significant activity in refinancing of those loans sold previously and consensual sales of the underlying collateral.

From our experience, the loan purchasers prefer to do a deal with the borrower whereby the loan is refinanced or the assets are sold. The starting benchmark for a deal is determined by the market value of the assets.

The formal insolvency market was busy in 2015, although there was a reduction in the volume of higher profile cases. The significant majority of receivership appointments involve property assets.

There are a small number of high profile property assets which will trade through receivership in 2016 but the majority are likely to be over smaller commercial properties.

With a welcome return to a performing property market there will continue to be a high turnover of property transactions.

The retail sector continued to see a number of examinerships during the year, with the majority of these undertaken to facilitate the resizing of retail estates.

Examinerships facilitate new investment while resizing liabilities - and we expect that companies in other sectors may look to use this approach in order to facilitate a restructuring in 2016.

Overall, there is a very positive backdrop to the Irish economy at present. However, as a small and open economy, we remain dependent on global markets, which remain somewhat uncertain. The risk of shock can have a disproportionate impact on us.

Nonetheless, given the growth in the Irish economy, we expect this year to be another positive year for Irish businesses.

Luke Charleton and Graham Reid are Partners - in Restructuring and Corporate Finance respectively - in Transaction Advisory Services at Ernst and Young

Sunday Indo Business

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