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

M&A A strategy for growth Feargal Brennan, Partner & Head of Corporate Department 30 March 2017 Overview Backdrop - Small Medium Enterprises Sector (SMEs) Mergers and Acquisitions (M&A) as an engine of growth Global


  1. M&A – A strategy for growth Feargal Brennan, Partner & Head of Corporate Department 30 March 2017

  2. 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 30/03/2017 2

  3. 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 30/03/2017 3

  4. 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 30/03/2017 4

  5. 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 30/03/2017 5

  6. 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 30/03/2017 6

  7. 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 30/03/2017 7

  8. 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 30/03/2017 8

  9. 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 30/03/2017 9

  10. 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 30/03/2017 10

  11. 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” objective. 30/03/2017 11

  12. 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 30/03/2017 12

  13. ISIF Investments to Date 30/03/2017 13

  14. ISIF Investments to Date 30/03/2017 14

  15. ISIF Investments to Date 30/03/2017 15

  16. ISIF Investments to Date 30/03/2017 16

  17. ISIF Investments to Date 30/03/2017 17

  18. M&A and Organic growth  Traditionally, the strategy for expansion and growth of 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 30/03/2017 18

  19. 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 30/03/2017 19

  20. M&A and In-Organic Growth  M&A allows companies to provide efficient services and processes 30/03/2017 20

  21. Benefits of M&A Shareholders value Increase in market share Increase in cost efficiency Increase value generation 30/03/2017 21

  22. How SMEs finance their business 26% Founders Equity 6% Institutional 71% 56% Bank Reinvest Finance profits 10% Friends 6% Equity and Family Government Grants 30/03/2017 22

  23. Expected uses of Equity Finance in growth 14% New markets 25% 13% Invest in launch new products 27% Plant and Equipme Invest in nt Premises 13% invest 8% in marketing Recruit more staff 30/03/2017 23

  24. 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 30/03/2017 24

  25. 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 30/03/2017 25

  26. Private Equity Transactions – Financing  Examples of Irish Companies utilising Private Equity Funds  Cairn Homes  Malin Corporation  Hibernie REIT  Dalata  Prothena Corporation  Presbia 30/03/2017 26

  27. 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% 30/03/2017 27

  28. New Sources of Capital BDO Treasury WDC Solutions Cardinal Kernel Carlyle Capital Renatus DELTA New sources of Capital Capitalflow BVP Crescent Dublin BIC Capital Investec Seedrs AIB Seed Capital 30/03/2017 28

  29. 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 30/03/2017 29

  30. 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 30/03/2017 30

  31. 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 organisations 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 30/03/2017 31

  32. 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 30/03/2017 32

  33. 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 30/03/2017 33

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