Wednesday 22 November 2017

Buyout deal frenzy -- but who will be next to fall?

Private equity firms are circling and look set to pick off corporate Ireland, company by company, writes Louise McBride

THE Irish stock market, long battered by the recession and property downturn, is about to be stripped of many of its longtime players.

Foreign companies are eyeing up many of Ireland's biggest listed companies and may be poised to embark on a flurry of takeover deals over the next couple of years.

Some of the obvious targets are Aer Lingus and Irish Life -- the life assurance arm of Irish Life & Permanent. With the government under pressure to sell its 25 per cent stake in Aer Lingus, a sell-off of the national airline seems inevitable. Irish Life must be put up for sale by the end of October.

The Irish financial services firm IFG has just received an unsolicited takeover approach. Although the approach is only preliminary, if IFG gets the right price from its suitor, it might well jump.Greencore, bruised by its failed bid for Northern Foods, could now be vulnerable to a takeover. The building materials group Readymix is possibly in the market for an approach. Readymix was in takeover talks for months -- before announcing last March that the talks were over and that no offer had been received.

The takeover battle for the Irish Continental Group ferry group, which festered for years, could be about to kick off again. The beleaguered Irish banks, up to their eyes in debt, are also targets for bottom feeders.

"There's certainly an increase in the amount of large- and medium-sized well-capitalised businesses owners that are interested in buying businesses," says Michael Neary, corporate finance partner with Grant Thornton. "More Chinese and Indian companies are showing an interest in buying Irish companies."

Neary believes that a resurgence in business confidence is behind the new appetite for takeovers.

"There's been a lack of confidence among business owners over the last few years," says Michael Neary. "Confidence is starting to creep back among international businesses and profits are starting to level out."

Some, however, believe that takeover activity will not pick up until the European debt crisis is resolved.

"There's too much uncertainty in Europe for takeovers at the moment," says Joe Carr, managing partner of Mazars. "Once you get certainty there, you're likely to get more takeovers. There is still a worldwide shortage of capital and the appetite to invest in Ireland is limited enough."

The cheap pickings up for grabs on the Irish stock market, however, could be enough to persuade would-be suitors to set aside any concerns about the European crisis.

"Business owners believe that value multiples [how long it takes for an acquisition to earn enough profit to pay off its costs] are down, so it could make sense to buy now," says Neary. "The stock market is a cyclical thing. Many businesses had very high valuations in 2007 and 2008 and now people are assessing the value out there and looking for opportunities. International players are looking at the Irish stock market from a value perspective."

Debt-ridden companies in particular are likely to be picked up for a fraction of their boom price. McInerney Holdings, once one of the largest house builders in Ireland, cancelled its stock market listings in Dublin and London last November after it went into examinership. McInerney has been eyed up by the US private equity fund Oaktree Capital since last August.

"Things are not as bad outside of Ireland as inside," says the head of a major Dublin-based corporate finance firm who did not wish to be named. "Capital availability is pretty good at international levels and international corporate balance sheets are in good shape.

"On the other hand, a lot of companies on the Irish stock market have fallen into distress and assets are up for sale. There will be individual businesses that will be sold off through the banks -- companies that are in decent enough shape but in too much debt. Irish corporates are not buyers and are unlikely to even take part in consolidations amongst themselves. Anyone spending euro in Ireland will be from overseas."

A recent study by Grant Thornton suggests that many Irish business owners are hoping for a takeover offer.

About one-in-three Irish business owners are planning a merger or acquisition over the next year, according to the study.

Takeover deals have changed from the debt-fuelled takeovers of the boom years. Cash and equity capital are being increasingly used to fund takeovers. Almost 70 per cent of business owners plan to fund takeovers or mergers this year through retained earnings, 54 per cent through bank finance, and 18 per cent through private equity, according to Grant Thornton.

"With many businesses emerging from the global downturn, strategic growth rather than cost-cutting and mere survival has come to the fore again," said the study.

International companies have already struck takeover deals for Irish corporates over the last six months. Cyril McGuire's financial software firm Trintech was bought out by US private equity firm Spectrum for close to €100m before Christmas. In February, Irish financial software firm Norkom agreed to a €217m takeover deal by British defence group BAE Systems.

Ireland's foreign suitors are unlikely to stop at Trintech and Norkom. Who's next in line?

Sunday Indo Business

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