18 November 2024
The Irish M&A market is showing resilience once again in 2024. After a cautious start to the year in terms of deal volume, the second quarter of 2024 highlighted the robust nature of the Irish M&A market.
The total number of transactions for H1 2024 stood at just over 200, reflecting a deal flow increase from the volumes recorded in H1 2023, albeit that period set a low benchmark. It is anticipated that the total deal volume for the entire year will mark the fourth consecutive year of activity above pre-Covid levels.
Nonetheless, the volume of €100m+ deals is down 17% in H1 2024 compared to H1 2023. 1 Ireland is witnessing declining inflation rates, and, together with ECB rate cuts, further growth in the Irish M&A market is expected.
The Technology, Media, and Telecom (TMT) sector continues to lead in deal activity, driven by advancements in AI, cloud computing, and cybersecurity. The increasing demand for digital transformation solutions has made this sector particularly attractive for M&A, accounting for over a quarter of the Irish M&A market so far in 2024.
The Business Services and Financial Services sectors have seen significant growth compared to this time last year, making up a combined 20% of the deals in H1 2024. Some of this growth may be attributed to the Financial Services sector experiencing consolidation as firms seek to enhance their technological capabilities and expand their market reach. Fintech, in particular, is a hot area for M&A activity.
Bord na Móna’s partnership with SSE highlights a growing focus on sustainability. The Energy Sector, particularly renewable energy, is attracting significant investment, especially in regards infrastructure projects related to green energy.
Ireland’s strong R&D infrastructure and skilled workforce also make it a key location for M&A activity in the Life Sciences and Pharmaceuticals sector.
Industrial and Construction deals in H1 2024 experienced a decline in activity compared to the same period last year, however, the sector appears to have rebounded in July and August, comprising almost a quarter of the total transaction volume during those months.
Irish PE transactions rose from 4 deals in H1 2023 to 12 in H1 2024, with foreign PE agreements increasing from 9 transactions to 21 during the same timeframe. UK-based funds played a significant role, contributing 12 out of the 21 foreign PE deals. Ireland’s favourable economic conditions have contributed to this uptick in PE activity.
Inflation has decreased from 5.2% in 2023 to 2.2% as of July 2024, with further reductions forecast. 2024 has also seen Irish based funds execute very successful exits such as MML’s sale of Kyte and the sale of AQF Medical by Renatus.
Looking ahead to 2025, several leading indicators suggest a positive outlook for Irish M&A activity.
According to the Economic and Social Research Institute (ESRI), growth is anticipated in Modified Domestic Demand (MDD) and GDP, with MDD expected to grow by 2.5% and GDP by 2.3%, providing a strong economic foundation for increased deal-making.
Additionally, the global M&A landscape is showing signs of recovery, particularly in the US, where M&A activity has been on the rise. Our US colleagues report very strong deal pipelines and a much more active M&A market. Overall, we are optimistic for the M&A outlook with evidence of gathering pace and a backlog of deals beginning to come to market.
The robust market and strong outlook for 2025, both in Ireland and to a somewhat lesser extent globally, together with certain other trends, will ensure that the pace and pressure of dealmaking will create challenges for legal professionals. At the same time, the introduction of new regulation in Ireland, particularly the Screening of Third Country Transactions Act 2023, as well as the implementation of EU sustainability directives, will add a layer of complexity and potential delay in deal activity for certain non-EU acquirers as well as regulated EU entities.
We will review these developments in turn.
The Screening of Third Country Transactions Act 2023 (Irish FDI Act) was passed in response to Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 (EU FDI Regulation), which established a framework for the screening of foreign direct investments into the European Union (EU). 2 The EU FDI Regulation, which has applied since October 2020, is intended to allow member states to identify, evaluate and mitigate risk to security and public order by means of establishing criteria for the screening of foreign direct investment within the EU. Transactions that affect any one of five (5) key areas (Critical Areas) may lead to increased scrutiny of and prohibition of the transaction. The Critical Areas are those that affect: (a) critical infrastructure; (b) supply of critical inputs; (c) access to sensitive information; (d) the freedom and pluralism of the media; as well as (e) critical technologies and dual use items.
The Irish FDI Act has not yet come into force, but its implementation is expected in Q4 2024. Importantly, the Act requires notification of transactions falling with the specified Critical Areas to the Minister for Enterprise, Trade and Employment at least ten (10) days prior to the effective date of the deal. The Minister will then have 90 and up to 135 days to review the transaction, impose conditions, or block it. Failure to notify a notifiable transaction carries significant consequences. The Irish FDI Act also empowers the Minister to “look back” for a period of 15 months at already completed transactions.
The Irish FDI Act will no doubt bring a certain amount of delay and uncertainty in the context of inward cross-border activity, and the Minister’s approach may not be fully developed for some time after implementation. 3
New environmental, social and governance reporting regulations have taken effect in Ireland, and the EU more generally, and similar rules are likely to be adopted in the Asia-Pacific and other regions. This aims to greatly expand the level of due diligence and data that potential buyers will need to manage to meet new compliance, reporting and other requirements.
On 5 July 2024, Ireland transposed the Corporate Sustainability Reporting Directive into national law through the European Union (Corporate Sustainability Reporting) Regulations 2024 (CSRD). An additional sustainability directive, the Corporate Sustainability Due Diligence Directive (CSDDD) - Directive (EU) 2024/1760, came into force on 25 July 2024. Member States, including Ireland, have until 2026 to transpose it into national law. Acquirers and advisors need to develop new and tailored due diligence requests to address the more complex sustainability regulatory landscape. At the same time, businesses must develop reliable methods of accessing, collating and reporting the required data, and can reasonably expect that investors will want to see detailed data, beyond the regulatory reporting requirements. This may include external assurances and third party reporting. Complying with the rules and opening new windows of transparency into the acquired company may also prompt changes to a target’s operations, structure and supply chain. Similarly, deal lawyers will need to craft warranties and indemnities that reflect the risks associated with the sustainability data.
M&A deal-making will continue at a more rapid rate and complexity as advancing technology and more available data drive new efficiencies and transparency across the deal cycle. From matching buyers and sellers to post-integration planning, the role of M&A lawyers will likely evolve as routine tasks are standardised and automated.
With the huge volumes of data that are typically relevant in Irish and international reorganisations, legal professionals will increasingly assign technology to do more basic work. This includes scanning and producing documents, summarising information, preparing reports and tracking time and expenses.
Approaches to due diligence will also change. Technology tools, especially generative artificial intelligence (genAI) will streamline the scope of the legal review by delivering reliable information summaries quickly on matters such as standardised contracts, litigation, market terms and insurance policies. With genAI facilitating first drafts and research, the lawyer’s legal knowledge and review capabilities will need to be updated to ensure quality and accurate deliverables.
In fact, the opportunities that technology can bring to M&A transactions are so vast that they can seem overwhelming. As deals continue to pick up pace and workflows are adapted in Ireland, it will be important for lawyers to understand that their role in the process remains fundamentally the same: to negotiate sound terms, execute and optimise buy-sell agreements including by identifying and seeking to mitigate risks associated with the target, apply prior deal knowledge and create strategic business solutions for their clients.
Technology is designed to make the journey faster and smoother, but the destination is unchanged. The most successful legal teams will likely be those who use technology appropriately and efficiently to bring more added value services to their clients in a collaborative format.
The digital divide between developed and developing countries will continue to narrow as businesses in countries such as Indonesia and Vietnam skip over previous technologies, and create the new infrastructure to support genAI, mobile, 5G and other contemporary advances. The latest wave of technology offers another opportunity for developing countries to “leapfrog” in areas such as developing precedents and running major due diligence exercises.
This may level the playing field by allowing new M&A players in developing markets to ramp up their capabilities quickly and compete on more equal footing with established investors and strategic buyers in developed jurisdictions such as Ireland. This speed of development will require extra effort and vigilance in areas such as training, the ethical use of AI and cyber security.
As the world of M&A evolves in the Irish and global markets (with which we are intrinsically linked), the legal profession is being given a tremendous opportunity to utilise new technologies and approaches to enhance deal flow and improve client results.
However, Irish lawyers should also be aware that these new technologies and approaches also require a new skill set. Lawyers who are able to respond quickly to shifting global attitudes, an increased use of AI and new regulations will likely be able to gain a substantial advantage both for their own teams and their clients.
