Strategic window of opportunity opens for transactional activity

If we go back 12 months, no one could have predicted the world we are in today.

“Covid has brought about so many challenges, and we are all aware of sectors - leisure, non-food retail etc which are fighting for survival. However, when looking at the global economy and within that our domestic economy it is very much a story of Covid sector impact.”

“After the initial pause in March to assess what a lockdown means for business, we have seen specific sectors (software tech-enabled, healthcare, managed services, utilities etc) continuing to grow. This two-tier sector performance profile (K-Shaped recovery as economists are calling it) will mean certain business owners will have traded strongly over the last nine months. For these businesses who have proven to be resilient to a global pandemic, I firmly believe this is a good opportunity to assess your options.”  

Fundamentally interest rates are very low/negative, and this is not changing any time soon.

“This means for corporates with strong balance sheets and excess cash; they can’t get a return,” said Bowe. “Their options are either hand the cashback to shareholders or look for growth through acquisition.”

Where the story around organic growth is challenging for corporate, acquisitive growth is also on the agenda. “Strategically corporates are focused on their supply chains and where once it was all roads to China, it is now about dual supply and nearshoring or in region supply,” said Bowe. “Ireland will be a net winner in this given our strong links to the pharma, MedTech and technology sectors where all the major multinationals have a significant presence here. Suppliers into pharma and MedTech have huge opportunities to promote the region benefits of the only English-speaking country (post-Brexit) in Europe.” 

In terms of deals completing, initial activity paused in the period Mar – Jun 2020. This is fully understandable as both trade and private equity assessed the Covid impact across business units and portfolio companies, respectively.

“Once assessments were made, actions taken, and trading performance impact better-understood deal activity was going to pick-up. Since June that has been the case, with notable Irish transactions involving trade buyers include Asavie acquired by Akamai Technologies and Identigen (MML portfolio company) acquisition by MSD Animal Health.”

On the private equity side, notable transactions included BGF investment in Edgescan, Renatus investment in CRS, Further Global Growth Capital investment in AA Ireland (a Carlyle Cardinal Ireland Fund portfolio company) and Summit Partners investment in LearnUpon.

“When you look at these businesses, although in different sectors, you see characteristics of recurring and repeatable revenue streams,” said Bowe. “This is what made them interesting investment targets for PE, and for the Trade Buyers, there was strong strategic rationale. From talking with my global M&A colleagues in Mazars, this activity trend is seen across markets with deal volume certainly picking up across both trade and Private Equity buyers during Q3 and into Q4 2020 and businesses with recurring and repeatable revenues demanding strong interest.” 

One thing to keep in mind when considering your options is it takes time to get an investment or to sell a business. “A typical process takes 6 to 9 months, but for planning purposes, you should plan on a year. Getting an advisor on board earlier in the process will help as preparation will add value.”

Bowe said that with both trade and private equity active and significant amounts of capital available for acquisitions and investments, businesses that have shown resilience during Covid and have recurring/repeatable type revenue streams will attract a premium valuation in this market.

“It’s back to the K-shape recovery which means there will be fewer opportunities for investors as certain sectors will not be attractive. This creates competition for resilient businesses which ultimately is good for business owners in better performing sectors who are considering their options.”

This article first appeared in The Business Post on the 22nd November 2020.