Changes to the M&A landscape in 2020: The Lawyer Special Report

In the October 2020 issue of The Lawyer magazine, Corporate Partner and Head of the ByrneWallace Brexit Group Gerry Beausang was interviewed about the potential economic implications of COVID-19 and how Brexit may impact the M&A landscape in Ireland.

The full interview is outlined below:

From which areas are you seeing the most deal activity? 

We are seeing significant and consistent activity in the life sciences, technology (including medtech), accommodation, energy and food sectors, with the number and size of transactions for 2020 comparing well against those in 2019. In particular, we have seen a strong international appetite for acquisitions of and investments in scaling Irish businesses with proven track records in these sectors. Most of the sale mandates on which we’ve acted in the last six months pre-dated Covid in terms of when the sale processes began (and thankfully weren’t severely impacted by it).  By contrast, some planned acquisitions and investments involving businesses in other sectors, or with a presence outside Ireland, have been deferred. We will need to wait and see whether those deals are resurrected. There are signs currently that some of them are returning and others are being shelved indefinitely. 

What is driving activity in Ireland right now?

International trade buyers wishing to enter the Irish market have been a strong feature of M&A activity this year. Financial buyers of Irish assets have also made their presence felt. Clearly, some businesses having leverage have needed to restructure their balance sheets and we have been working closely with our colleagues in our Banking & Finance Team to help those businesses achieve this. It is to be hoped that the banks will be able to display the same forbearance towards challenged sectors that they have to date.  Private equity funds continue to be active, both in terms of investments and exits. Lastly, we have seen consolidation in the technology and compliance sectors. For businesses that have been able to avoid taking on a lot of debt, now is a good time to carry out acquisitions as more challenged businesses in this regard have been looking for an exit.  

Are you expecting banks to be more cautious as lenders?

We are expecting banks to be more cautious in lending over the next year. Banks are focused on managing their existing loan books rather than expanding them. Businesses appear to be similarly focused on managing existing loans, including the re-structuring of existing facilities, if required, rather than seeking new loans. We have seen several banks engage in forbearance plans with their customers, in recognition of the changed economic environment.

What issues are you seeing around valuations?

The overall picture for valuations is one of uncertainty, as no clear trend is yet apparent. While we have seen an increase in EBITDA valuations for some sectors, particularly in energy and technology, these must be seen in the context of a smaller number of M&A transactions when comparing Q2 2020 to Q2 2019. The landscape for public companies is also one of uncertainty, which adds to the difficulty of how to value private companies, as we have seen a record recovery in share prices in the US markets compared against more subdued performances in the Irish and European markets. Closer to home, the dust has yet to settle in terms of companies which may downsize or be restructured owing to disruption from the lockdown, as wage subsidies and other government stimulus programmes are wound down over the coming months. Such business contractions may lessen competition in certain markets, affecting valuations on those businesses which remain. This may become evident in the hospitality and retail sectors over the coming months.

Have any other demands been placed on corporate lawyers throughout the Covid-19 pandemic? i.e. crisis management work.

Our Corporate Team have worked on significant mandates directly related to assisting our clients with the fallout from the lockdown and Covid-19 generally. We have provided contract law advice (and presented a number of webinars) to several clients which has focussed on these issues, e.g. analyses of force majeure clauses, helping hospitality clients respond to lockdown measures, re-negotiating commercial contracts where possible and, advising on restructurings.  We have also had to advise clients on best governance practices particularly with regard to the holding of virtual shareholder meetings and executing documents by way of electronic signatures.

What will impact activity over the latter half of 2020/21?

A second lockdown, while unlikely, would do significant damage to business confidence and the overall economy. By contrast, the development of a Covid-19 vaccine would likely provide a boost to consumer and business confidence, and perhaps help stimulate a "V-shaped" recovery. We anticipate that consistently low levels of Covid-19-related hospitalisations and the gradual relaxing of remaining restrictions should see a gradual increase in broad-based business activity and consumer sentiment through 2020 and into next year. This should result in an increase in M&A and other core corporate activity as the economy recovers. Unlike the recession in the aftermath of the 2008 financial crisis, significant government stimulus measures over the next year should help to maintain both spending power and confidence. The banks are much better capitalised than they were in 2008. The fundamentals are stronger. Nonetheless, we anticipate that international tourism will still be heavily affected by a lack of consumer confidence into 2021, with consequent effects on the hospitality, tourism, travel and entertainment sectors. 

How do you perceive the impact of UK/international firms (DLA Piper, Dentons, Simmons & Simmons) moving into the market?

Overall, the entry of the UK and international firms represents an increase in competition for both client work and for the lawyers to deliver that work. International clients entering the Irish market sometimes have a loyalty to a particular brand, which can mean that those clients will instruct an international firm with a Dublin office even if they haven’t worked with any of the lawyers in that office.  By contrast, other clients (both domestic and international) are likely to want to work with full-service Irish firms which have deep knowledge of and connections within the Irish market.  So, while there is plenty of competition, we have seen that well established full service firms with that deep sectoral knowledge and experience will continue to thrive notwithstanding the new entrants.  That being said, notwithstanding Covid-19, we expect the demand for legal services generally in Ireland to increase given its position as an English speaking common law jurisdiction within the EU single market and both Irish firms and the new entrants should benefit from that.  

To read the full special report in The Lawyer entitled “Changes to the M&A Landscape in 2020”, click here.

For advice on preparing your business for Brexit or any corporate issues impacted by COVID-19, please contact the ByrneWallace Corporate Team.