HomeArticles» M&A market cautiously emerges from hibernation
M&A market cautiously emerges from hibernation
Posted on Wednesday 4 August 2010 byUlster Business
Transactions in the local mergers and acquisition market were one of the biggest casualties of the global recession with the handful of recorded deals either forced and/or carried out at reduced values. But, having ravaged the storm, buyers are putting their heads above the parapet once more with recent deals confirming a healthy appetite, writes Paul McBride, a partner in the corporate team of McGrigors Belfast LLP.
Pre-Lehman, Northern Ireland witnessed an unparalleled period of growth in corporate transactional activity across all sectors and at unprecedented values. The period from 2001 to 2008 reflected major investment in the region representing a huge vote of confidence in the economic potential in Northern Ireland and an endorsement of developing political stability. Much activity was driven by major UK or other foreign multiples investing in Northern Ireland by way of acquisition particularly across retail, agri-food and construction but also in investments in secure infrastructure assets and opportunities.
In converse, the 12 months post-Lehman witnessed virtual inertia in corporate activity in the region with transaction volumes and values decreasing to levels more akin to pre-1998. Transactions were fewer, at more reduced value levels, and often involving distressed or formal insolvency situations.
However, Northern Ireland now seems to be entering a period of renewed optimism. Mature local corporates have remained strong and have to some extent been protected from the ravages of the recent recession by their local market dominance, strong business models or their targeting of overseas and emerging markets. These corporates are likely to now begin acquisition strategies, particularly where potential targets have retained strong asset bases, or a developed and capable management team or valuable intellectual property rights. There are also signs of consolidation within certain sectors as former competitors look to combine resources to produce efficiencies. However, deals are more likely to reflect the new economic world with future, rather than historical, performance being much more in focus and earn out and deferred payment arrangements becoming common place. Certainly, the highly debt leveraged transactions of the “boom” years are unlikely to be repeated, with asset prices still low.
Accordingly, more significant and hopefully more sustainable transactional activity is beginning to take shape, not least the recently announced proposed merger between Moy Park and O’Kanes. Other deals by major corporates such as Henderson Group or involving high value businesses such as Survitec are again signs of increasing confidence. The local venture capital market is also showing signs of gathering momentum, the Crescent Capital backed recent management buy-out of the Speechstorm division of Kainos being an excellent example.
However, there remains no room for complacency and there is still the need for significant political intervention and support. The pre-election commitment to consider Northern Ireland as an enterprise zone, turning the region into an increasingly attractive area to invest in, seems key to this process, as is early clarification and pragmatism on capital gains tax. That type of political stimulus is necessary to overcome the prevailing mood of uncertainty and pessimism over recent times caused by global economic conditions and the local impact of those conditions (for example, in the establishment of NAMA).
As with most other corporate law practices in Belfast, McGrigors LLP are seeing this renewed optimism. The commitment from politicians both nationally and locally to actively support the region and the signs that certain of the local banks are willing to support transactions on a selective basis are also welcome indicators of an improving trend back to more normal levels of transactional activity. Whilst there may not be an immediate return to the heights of 2007, there are clear signals that confidence in Northern Ireland as a place to grow or to invest in remains strong.