M&A A strategy for growth Feargal Brennan, Partner & Head of - - PowerPoint PPT Presentation

Feargal Brennan, Partner & Head of Corporate Department 30 March 2017

M&A – A strategy for growth

Overview

• Backdrop - Small Medium Enterprises Sector

(SMEs)

• Mergers and Acquisitions (M&A) as an engine of

growth

• Global M&A – outlook for the next 12/18

months?

• Lending through Private Equity Funds
• The Anatomy of a transaction

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Ireland Inc. – the background

• The 2008 collapse of Lehman Brothers set in motion

the eventual collapse of Anglo Irish Bank and Irish Nationwide

• September 2008 State provides guarantee over

deposits, covered bonds, senior debt and dated subordinated debt with AIB, BOI, Anglo, Irish Life, EBS, and INBS

• October 2008 – Exchequer deficit reached €9.4

billion with the tax take behind projections

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Ireland Inc. – the background

• At its worst, unemployment levels reached 15.1% by

February 2012

• The employment levels of SMEs fell by a fifth of what

they had been and this represented a decline almost double the size of that experienced by larger firms during the crisis

• Credit lines dry up following collapse of financial

institutions

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Ireland Inc. – the background

• SMEs accounted for 99.7% of all active business and

enterprise in Ireland, according to the Central Statistics Office (CSO) Business in Ireland 2012 study

• 15% Irish businesses went under during the

recession

– CSO data shows that the number of enterprises dropped from 216,265 in 2008 to 185,530 in 2012

• Services Industry by far the largest sector accounting

for 48.6% of total enterprises and 43% of employment

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Ireland Inc. – the background

• SME Value-added describes the enhancement a

company gives its product or service

• According to a report prepared by the EU, value-

added increased by 31%, since the crisis reached its lowest point in 2015

• SME employment increased by 14%, since the crisis

reached its lowest point in 2015

• SME employment is forecast to have created 43,000

new jobs by 2017

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Ireland Inc. & NAMA

• The government established the National Asset

Management Agency (NAMA) as their second initiative aimed at dealing with the recession

• The face value of NAMA loans is circa €74 billion
• €32 billion was injected into the participating

institutions during the NAMA process

• By December 2016, the Agency had €10.6 billion

worth of property and loan sales

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Ireland Inc. & NAMA

• Between its first loan acquisitions in March 2010 and

December 2013, NAMA generated over €16.5 billion in cash flow from debtors

• NAMA has committed to providing €2 billion in

development capital by 2016 to preserve and enhance the value of assets in Ireland

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Ireland Strategic Investment Fund (ISIF)

• ISIF is a strategic investor with strong connections in

both the public and private sectors

• Statutory mandate to invest on a commercial basis in

a manner designed to support economic activity and employment in Ireland

• Managed and controlled by the National Treasury

Management Agency (NTMA)

• €8.0 billion sovereign development fund with a

unique mandate

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Ireland Strategic Investment Fund (ISIF)

• The ISIF is a large investment fund in the context of

the Irish economy.

• ISIF’s investment programme could amount over

time to up to 10% of GDP

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How the ISIF invests

• Purpose of the Fund is to invest “in a manner

designed to support economic activity and employment in the State”.

– This reflects a shift from being a Sovereign Wealth Fund focused solely on wealth creation, to a Sovereign Development Fund with a “Double Bottom Line”

• bjective.

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ISIF Investments to Date

• The ISIF’s current portfolio includes investment

commitments made by the NPRF Commission in preparation for the ISIF as well as initial investment commitments made under ISIF governance totalling

• So far ISIF has invested

– €2.6 billion – Specifically in relation to infrastructure, venture capital and long-term finance for SMEs, through various channels

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ISIF Investments to Date

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ISIF Investments to Date

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ISIF Investments to Date

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ISIF Investments to Date

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ISIF Investments to Date

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M&A and Organic growth

• Traditionally, the strategy for expansion and growth
• f SMEs is simply a natural process of adaptation

and development

• Allows SMEs to choose to build in-house

competencies, invest to create competencies and develop products

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M&A and In-Organic Growth

• The benefits of this type of strategy are:

– Adds new brands and product lines – Access to fresh customer base – Economies of scale – Additional staff – Time to market is reduced giving competitive edge – Reduces competition in market place

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M&A and In-Organic Growth

• M&A allows companies to provide efficient services

and processes

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Benefits of M&A

Shareholders value Increase in market share Increase in cost efficiency Increase value generation

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How SMEs finance their business

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71% Reinvest profits

26% Founders Equity

6% Institutional

10% Friends and Family 6% Equity Government Grants

56% Bank Finance

Expected uses of Equity Finance in growth

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27% Invest in Premises

14% New markets

13% launch new products

13% invest in marketing 8% Recruit more staff

25% Invest in Plant and Equipme nt

Private Equity Transactions – Financing

• Decrease in funding from Financial Institutions

during crisis lead to increase in foreign sponsored and government funded private equity funds which plays an increasingly important role in Irish private equity transactions

• Usually structured with a combination of debt and

equity, each determined by market conditions and the relative cost and availability of debt

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Private Equity Transactions – Financing

• Private equity investors can raise debt, that debt

now tends to be funded by various banks as the banks are increasingly conscious of the need to minimise risk exposure

• Increase in business confidence in the Irish market

has resulted in more Irish companies entering the equity capital markets both domestically and abroad

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Private Equity Transactions – Financing

• Examples of Irish Companies utilising Private Equity

Funds

• Cairn Homes
• Malin Corporation
• Hibernie REIT
• Dalata
• Prothena Corporation
• Presbia

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Private Equity Transactions – Financing

• Funding debt is generally a mixture of senior facility,

mezzanine, working capital, and asset finance

• Increase in private equity financings which include

high yield instruments which are convertible into equity in the event of default of the part of the promoters seeking the private equity co-investment

• Most private equity funds in Ireland have a term of

10 years and generally look for a return of between 30-40%

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New Sources of Capital

New sources

• f Capital

BDO WDC Kernel Capital DELTA BVP Crescent Capital Seedrs AIB Seed Capital Investec Dublin BIC Capitalflow Renatus Cardinal Carlyle Treasury Solutions

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Global M&A

• 2017 M&A activity cautiously optimistic – deal levels

expected to pass 2016 levels

• Business can’t stand still notwithstanding

uncertainty surrounding international events

• Technology, Property, Healthcare, and Agri-Business

expected to be the most active sectors for 2017/2018

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Global M&A

• BREXIT Implications
• UK departure from EU could cause difficulties for

Irish SMEs involved in M&A

• EU Merger Control Regulation – ‘Catch All’ System
• Requirement for M&A approval by national

Competition agencies

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Global M&A Outlook

• New US Administration
• Tax reform is high on the agenda
• Proposals to lower corporate tax rates and

imposition of a mandatory tax on un-repatriated foreign earnings

• Deal making activity will be essential to Irish
• rganisations in achieving strategic objectives
• Timing and execution of revised corporate policies

will be fundamental to ensuring minimal impact on deal activity in the long term

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2 A Year in Review – Ireland 2016 016Review

• M&A activity reached significant heights in first

quarter of 2016 – improved economy, cash-heavy balance sheets, buoyant stock markets

• M&A activity levels mixed as a result of an eventful

2016 – political agenda dominated

• M&A activity levels declined following Brexit
• Growth in smaller deals
• Still the third strongest in 10 years

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Ireland’s return to growth

• Ireland’s return to growth has reinvigorated M&A

deals and is expected to continue

• Growing appetite for acquisitions
• Acquisitions and Finance
• Vendor confidence returns
• Changing funds landscape

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Very strong 2016 Stats for Irish SMEs

• Ireland’s M&A market 2016 steady in comparison

with the more buoyant 2015 market

– Increased 3% from 125 deals in 2015 to 129 deals in 2016 – Value of deals increased by 65% to €26.8bn

• There has been continued strong activity across a

range of sectors such as Industrial and chemicals, energy mining and utilities (EMU), Pharma, medical and biotech (PMB)

• Ireland continues to attract attention from private

equity

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Very strong 2016 Stats for Irish SMEs

• Outbound deals accounted for 40% of total Irish

M&A, higher than France, UK and Germany

• Key Sectors by deal volume:

– TMT (16%), Business Services (13%), Financial Services (12%), Industrial Chemicals (12%)

• Ireland’s improving economic fundamentals, sector

strongholds, and continued reputation as an attractive international business destination will ensure that healthy levels of M&A continue into 2017

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General Anatomy of M&A Transaction

Post M&A Review/Integration Integration & Execution Agreements Approval & Closing Negotiations & SPA Due Diligence Target Companies Strategy

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Q&A

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