A&L Goodbody LLP
  April 14, 2005 - Ireland

Irish M&A and Corporate Activity Still Buoyant
  by Eithne FitzGerald

2004 has again been a very busy year on the M&A and Corporate Finance front, with the building materials, financial services, media and the property sectors dominating. The take private arena has been particularly active. Having been privatised in 2002, eircom was floated again earlier in the year with a market capitalisation of €1.1 billion. Significant public to private deals included Royal Bank of Scotland’s €800m public takeover of First Active plc by way of a court scheme of arrangement and the €353 million takeover bid by Grafton Group plc for building materials group, Heiton Group plc. The take private trend is, however, expected to slow down somewhat as many of the more obvious management buy out and take private deals have been completed. There has been a lot of activity on the private company M&A front, and more is expected. There have been a number of sizeable transactions in the commercial property sector with Irish investors frequently looking overseas, the largest single deal being the Quinlan consortium €1 billion acquisition of the Savoy Hotel Group in the UK. The building materials sector is also undergoing some consolidation and change with UK group, Wolseley, buying the Brooks Thomas Group from its Finnish parent for €183 million and the Grafton takeover bid for Heiton. CRH continues to make significant purchases in overseas markets. Acquisitions have also continued in the food and agri sector with Barry’s Tea, together with the private equity wing of Bank of Scotland (Ireland), buying the Batchelors food business from Northern Foods for €95 million and Fruitfield Foods acquiring W&R Jacob, the biscuit business of Groupe Danone. Kerry Group continued to expand significantly in overseas markets. Quite a bit of consolidation has occurred in the media sector, with the sale of both radio stations and local newspapers. More activity in the financial services sector is expected with recent press speculation suggesting that a couple of leading financial institutions in Ireland are possible takeover or investment targets. Ireland has a well developed software industry but, as in Europe and the USA, the tech sector is still in recovery mode. There are a large number of small companies which need to look at consolidating with other indigenous or overseas companies in order to acquire scale, but this has not happened as much as would be expected. Eontec was sold to Siebel in the US for €108 million, but this was the exception rather than representative of the market as a whole. The tech sector has also seen a number of companies such as Alphyra, Riverdeep and Conduit, which had only recently gone to the market, being taken private again by way of management buy-out. Apart from the flotation of eircom and drinks group, Cantrell & Cochrane, there has been little activity on the equity public offerings front and not much more activity is expected in the short to medium term until markets stabilise some more and there is greater certainty on the international scene. Plenty of foreign and domestic private equity and venture capital funding is still available, even if private equity providers are more selective and cautious in their investments than they might have been a few years ago. They are also keen to have a more diverse portfolio than in the past. Two examples of this are where A&L Goodbody recently advised four Irish and US private equity firms on an investment into AGI Therapeutics Limited in a deal reported to be the largest first round financing of an Irish life sciences company. We also acted as Irish adviser to Warburg Pincus in its secondary buyout from Candover of Irish packaging firm, Clondalkin for €630 million, the largest European Investment by Warburg Pincus to date. Ireland is fertile ground for overseas investors, especially those from the UK looking to further develop a successful tried and tested formula, due to the similarities in the two business environments, markets and the fact that there are no language barriers. It is often a natural place for UK companies looking to grow their markets, as indeed the UK is, for Irish companies. When considering Irish acquisitions, investors need to be aware of the need for careful tax planning from the outset. For example, asset acquisitions often attract 9% stamp duty and so are frequently avoided if possible. In contrast share sales attract stamp duty at 1%. Irish corporation tax rates stand at an attractive 12.5%. Depending on the sector, competition and other regulatory clearances (for example for acquisitions in the banking and insurance sectors) may be necessary. Ireland has a compulsory merger notification system. All media mergers require competition clearance, as do most acquisitions above certain financial thresholds relating to Irish companies, even if they are largely being internationally driven, provided the EU Merger Control Regulation does not apply. The test applied by the Irish Competition Authority is whether the transaction will result in a substantial lessening of competition in Ireland. If a transaction is notifiable and the parties fail to notify it, they will be guilty of an offence and may be subject to fines. The transaction will also be void, as a matter of Irish law. With estimates that in excess of 70% of defined benefit schemes of Irish companies are under-funded, managing pensions risk is obviously very important and should be a priority item. With current M&A and corporate finance activity still at a reasonably buoyant level, indicators would suggest that industry sectors such as financial services, media, healthcare, property and food and agri will continue to see a good degree of activity in the near term.


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