M&A activity suffers 23pc drop as post-Brexit fears hit market
Midmarket M&A activity for the first half of 2016 is down 23pc in Ireland and the UK due to ongoing uncertainty surrounding the Brexit vote.
An internal report commissioned by business advisors BDO has found that just eight mid-market mergers and acquisitions were concluded in Ireland in the third quarter of this year, compared to 21 in the same quarter in 2015.
A total of 37 mid-market M&A deals worth approximately €2.6bn were recorded so far this year, compared with 52 deals worth €2.8bn in the same period in 2015.
The most recent deals were chip-maker Movidius' acquisition by Intel for €300m and Dublin-based billing software firm Brite:Bill's sale to Israeli firm AmDocs for €230m.
"Midmarket deals in H1 were 23pc down, principally due to the uncertainty surrounding Brexit," said Katherine Byrne, head of BDO's corporate finance team.
"But this should not come as a big surprise as before the vote over 67pc of dealmakers were of view that Brexit would not be good for investment decisions."
"Since the vote, it has become clear that Brexit will take two to three years to unfold, so the key challenge for Irish businesses is to manage the uncertainties while at same time continuing with their growth plans."
With post-Brexit uncertainty likely to remain for some time, Byrne said Irish firms "need to assess their FX exposure and adopt appropriate hedging strategies".
"But with uncertainty comes opportunity. Ireland is now more attractive from FDI perspective with US buyers looking to buy Irish businesses to develop as platform for growth into Europe.
"Also, Ireland has great potential to capitalise on the move of multinationals out of the UK, starting with the financial services sector."
The opportunities for M&A activity by Irish firms will increase as "valuations of UK businesses will become more attractive as sterling falls and interest rates remain low," she said.
Meanwhile, Ireland's agri-food sector is likely to bear the brunt of post-Brexit economic instability, warns BDO's head of funding and agri-food advisory, Richard Duffy.
"The dominant issue currently for Irish food businesses is the fall-out from Brexit. No industry is likely to feel this impact in the short term more than the agri-food sector, with over 40pc of food exports sold into the UK," he said.
"Depreciation in the value of sterling against the euro has already had an impact on the competitiveness of Irish exports.
"There is also concern over the future shape of the UK's trading relationship with the EU and the potential for an increase in tariffs and in the overall cost of doing business in the UK for Irish exporters," said Duffy.
The widespread pessimistic view among Ireland's corporate finance chiefs regarding post-Brexit M&A activity was echoed recently by Tom Godfrey, chief executive of IBI Corporate Finance.
In an interview with the Sunday Independent, Godfrey said activity is "significantly down" on last year and is likely to remain below 2015 levels for the rest of the year.
"I can see that the volume and value is down significantly on 2016 (in Ireland), and who knows what will be the end result but it is significantly down," said the chief executive of one of Ireland's top corporate finance houses.
He said IBI was set to conclude more transactions in the second half of the year than in the first.
"We're heavily weighted this year, just as it happens, towards the second half so more of our transactions are going to conclude in the second half than in the first half.
"We can't deny that Brexit is going to have a significant impact on activity in Ireland just by virtue of the close ties.
"So 2016 is going to be more muted, but it's not the end of the world, it's not a financial crisis. It's just we happen to have had the Brexit vote in 2016."
He said that for M&A activity to pick up, there needs to be more certainty around Britain's future relationship with the EU.
"The reality of the situation is that nobody wants a bad outcome from Brexit.
"I think it'll be more or less okay. However, my only worry is that it takes a while to get there."
Sunday Indo Business