The first half of 2020 has been fairly quiet… if you’re involved in mergers and acquisitions that is.
For everyone else, there’s trade wars between the largest economies in the world, the looming spectre of Brexit to disrupt the EU, and the president of the U.S. fomenting civil unrest in his own country.
Oh, and a global pandemic.
Though it is precisely that economic and social volatility that has caused the significant decrease in merger and acquisition activity.
So, what’s happened with mergers and acquisitions so far this year?
As is discussed in the most recent Experian M&A Report H1 2020, merger and acquisition activity is down significantly so far this year in Ireland, despite a flurry of deal making the first quarter of the year.
As the graphic below shows, while the number of deals done has fallen (to 2013 levels), it is the total value of those deals that has collapsed most significantly (to €5.4bn, the lowest in over a decade).
This is because the majority of that activity is in the small to mid-market range, driving the total value to decline by 91% on the €61.7bn recorded in the second half of 2019.
Have any big deals been done?
The report notes that no single transaction over €1bn was recorded for the first time since 2012.
However, the biggest deal of the last six months did come close, Flutter Entertainment (the Dublin headquartered betting group behind the PaddyPower, Betfair and Sportingbet brands) raised around €894m via a share placing with institutional investors.
The betting group has stated that it intends to use the funds to expand into the U.S. and invest further in its online gaming business, which has become its single biggest earner since the pandemic shuttered many sporting events and physical betting shops.
The next biggest deal of H1 2020, while still large, was significantly smaller, as semiconductor manufacturer Decawave was acquired by US firm Qorvo for €340m. That deal was Ireland’s largest acquisition of the year so far.
Some sectors have seen more activity than others
As is always the case in a volatile environment, some sectors are seeing more activity than others.
Technology was Ireland’s most active sector for M&A deals during the first half of the year, with a total of 78 deals worth around €2.6bn being done in the infocomms space.
In fact, Infocomms was one of four industries to see an increase in deal activity year-on-year, the others being professional services, utilities and construction.
The report further notes that “Infocomms deals accounted for nearly half of all Irish acquisitions in H1 and for more than half the number of private equity funded transactions – as well as seeing high levels of cross border activity, with US and UK firms particularly active.”
Conversely, the biggest falls were seen in the manufacturing, retail, construction and financial services sectors.
What is the main source of funding for these deals?
The biggest source of funding remained private equity, which the report notes was “increasingly prominent in the Irish deal landscape in H1 2020, funding 26% of all transactions, up from 20% during the first half of 2019.”
Significant transactions included London buy-out firm Intermediate Capital Group’s €106m acquisition of a 10% stake in HR software firm Globoforce, and car rental firm ETrawler’s €100m investment from Towerbrook Capital to shore up its capital position in the wake of the pandemic.
Enterprise Ireland was the most active investor in Ireland with seven deals signed off in the first half of the year. Coming joint-second, Frontline Ventures and ACT Venture Capital each recorded five transactions.
Will deal activity return to normal soon?
The short answer is, nobody knows.
Similar to financial markets, those working on mergers and acquisitions prefer stability and certainty.
That needn’t mean any particular political party in power, rather, it just means that a predictable environment is much more conducive to activity because both sides in a transaction can have greater clarity on whether the deal is the right decision.
Uncertainty around how much longer, and how much more severe the current pandemic may get, along with significant unease around the U.S. presidential elections in November, mean that M&A activity is unlikely to rebound strongly in the very short-term.
Though this could change quickly.
The Foxrock Academy view: what does this mean for corporate law firms
As M&A is the single biggest focus of most corporate law firms, the lack of deal activity isn’t great news.
However, both A&L Goodbody and Arthur Cox have been quick to trumpet their top-of-the-table status in M&A activity recently.
That being said, large corporate law firms will always be in a position to capitalise once M&A activity starts to increase.
And, as soon as a modicum of stability returns, it is likely that there will be a flurry of new activity as large companies seek to acquire their smaller and more heavily weakened competition, thus consolidating their position at the head of the table.
All in all, now is a good time to consider a career in corporate law.
It’s an area that will probably fare the pandemic related recession (or pandession, as David McWilliams coined it recently) better than most sectors (as we discussed in detail in this article), and it is also likely to be in line for a bonanza once markets stabilise and deal activity returns.
Want to learn more?
If you would like to learn more about mergers and acquisitions, and the role of a corporate lawyer in those transactions, we would like to invite you to take our Understanding Mergers & Acquisitions corporate law training course.
On the course, we explain the fundamentals of M&A, and provide examples of what it looks like in practice.
The course consists of a series of brief video lectures, which can be viewed at your convenience, and quick tests to measure your progress as you complete the course.
About The Foxrock Academy
The Foxrock Academy helps students and graduates to secure internships and traineeships at prestigious corporate law firms.
It is our mission to open up the legal profession to a broader pool of talent.
We pride ourselves on our ability to guide, advise, and support candidates from a rich variety of backgrounds as they begin their professional careers.