RENATUS CAPITAL PARTNERS PRIVATE EQUITY NEWSLETTER DATABASE M&A REVIEW

• H1 FY20 was significantly impacted by the start of the Covid-19 pandemic. The majority of the 117 deals executed in H1-20 were likely executed pre-March or heavily progressed at this point.
• Many companies paused M&A activity and focus was put on operations and the core business as everyone adapted to a new way of life. Thanks to advances in technology (Zoom, teams etc) and government supports many industries were not adversely impacted by the Covid-19.
• In Q3 FY20 M&A activity gained momentum as paused processes recommenced and Companies saw opportunity in the market.
• Despite various strains of the virus and lockdowns, working remotely became second nature to M&A teams, PE firms and advisers, enabling significant activity in the market. In February 2021 we closed our investment into Kappture, which was completed 100% remotely, a feat which would have been unconceivable a few short years ago.
• The news of a vaccine in Q4 FY20 and Q1 F21 gave Companies and PE firms additional confidence to pursue M&A opportunities which drove the 50% increase in M&A transactions in 2021.

• As to be expected, exits by Private Shareholders still dominate with a total of 325 deals in 2021 (c. 83%) which was driven by industry consolidation, retirement and strong buyer interest.
• There was a notable increase in Private Equity exits during the year with 25 exits being recorded in 2021. Private equity is at a relatively early stage of development in Ireland and it was great see a large number of successful exit throughout 2021 including Arkphire’s (Bregal Milestone) sale to Presidio and Healthcare21’s (H2 Equity) sale to Addlife.
• PLC’s were the least frequent seller type by volume (19 in 2021) however, their deal values would be significantly higher when compared to other deals across the market.

• The overall estimated transaction value on deals rose year-on-year, a view that would be widely agreed upon within the Irish market. Factors such as inflation, the influx of foreign competition, and the excess of dry powder in investment firms have all contributed to this change.
• There was only a 10% difference in deals with a transaction value of less than €10m between FY20 and FY21. This scale of deal is likely to remain resilient as drivers such as industry consolidation and shareholder retirement drive activity.
• The volume of transactions over €200m tripled in 2021 in comparison to 2020. This is likely to be due to larger transactions not being a priority during the initial outbreak of Covid-19 with Companies conserving capital and focussing on the core strategy. Some notable large deals that occured in 2021 included:
  • Bank of Ireland’s acquisition of Davy’s Wealth Management, Capital Markets and associated businesses
  • Bain Capital’s acquisition of Valeo Foods Group
  • Macquarie Asset Management’s acquisition of Beauparc Utilities
  • Kingspan’s acquisition of Logstor International Holding; and
  • Aker Horizon’s acquisition of a reported 75% stake in Mainsteam Renewable

• The increased number of foreign companies acquiring companies here in Ireland may represent a strategic choice by companies to hedge against any potential fallout from Brexit, with some companies seeking to establish a European base in Ireland.
• Despite changes to the much-publicised corporation tax, which will rise from 12.5% to 15% from 2023, Ireland is well-placed to further cement itself as a leading European country for foreign direct investment. Being English-speaking, offering access to a world-class talent pool and being supported by pro-enterprise policies all point to an attractive business environment here in Ireland.
• The increase in private equity in the Irish market is providing vendors with an alternative option by offering a potential liquidity event and the ability to participate in the future success of the company.

• Insurance deals accounted for c. 52% of deals completed within the Financial Services Space in our newsletter database for 2021, a year-on-year increase of 29%.
• Financial services is the most reported sector in our newsletter and insurance deals are the most reported subheading within that sector. The play here is a buy and build consolidation of broker networks, allowing for economies of scale. Businesses such as Aston Lark, Arachas, and Innovu have all been active participants in this sector, which appears to be transitioning from what was traditionally a very fragmented market to a more consolidated one.

• Nursing homes are undoubtedly one of the most frequent targets for M&A activity at present, according to our newsletter database. Nursing home deals accounted for c. 44% of the transaction within the Healthcare sector from our 2021 newsletter database, a year on year decrease of c. 3%
• In Ireland, companies such as Orpea Group are often at the forefront of this activity, establishing themselves as one of the biggest care home operators in Ireland. According to a Bank of Ireland sector report, by 2036 our over-80 population is projected to increase to 343k from 170k in 2020. This will exert pressure on a market where there is already excess demand. We should expect to see further transaction activity by domestic and international funds as they provide the capital to support the development of adequate and much-needed facilities over the coming years.

• Based on data for the year to date and what we are seeing in the market, 2022 is promising to be another blockbuster year for the industry
• Company balance sheets are strong and private equity have significant dry powder
• We expect valuations to remain strong due to the scarcity of quality companies and competition in the market
• Further consolidation in financial services, healthcare, and managed services is likely as a number of companies have stated their intention to grow through M&A.
• We also expect ESG to drive investment decisions as it is high on the agenda of consumers and other stakeholders.
• Author, Morgan Housel eloquently puts it in his blog, “every forecast takes a number from today and multiples it by the story of tomorrow”. The story of tomorrow has many challenges such as interest rates, inflation, and conflict in Ukraine, not the mention the unknown unknowns.
• Whilst the future outlook for M&A looks positive, what we are most confident about is the ability of Irish SMEs to adapt to whatever challenges lie ahead.

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