Ireland primed for dawn of new buyout age

Kenny Wastell
09 September 2016

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A maturing growth capital landscape renders the Irish market ideally positioned to capitalise on increased appetite from international private equity investors. Kenny Wastell reports

Unlike its immediate neighbours, Ireland has typically seen relatively low private equity activity over the years. According to UN statistics, the country has a population 7.2% the size of the UK's, yet unquote" data reveals buyout volume over the past 10 years has been just 2% of that seen in Great Britain and Northern Ireland.

"It is a relatively immature private equity market compared to the UK," says Anya Cummins, partner and head of M&A at Deloitte Ireland. "There isn't the same level of activity or understanding of what a private equity deal looks like, what the structure entails or the benefits a private equity investor brings to the table beyond just money. A lot of that has historically been less understood in the Irish market, but that is changing."

Indeed, while buyout volume in the country has fluctuated over the past 10 years, the seven-year period between 2006 and 2013 saw a steady increase in the number of annual expansion deals for Irish businesses – up from four to 19. There have been signs over the past two years that an increase in venture and growth capital investments has paved the way for buyout houses to enter the fray.

Historically there has been an association of private equity with distressed M&A or property transactions [in Ireland]. Recently it's becoming more widely known as a growth capital or buyout funding option for privately owned companies" – Anya Cummins, Deloitte

As Cummins highlights, 2015 saw a dip in the combined volume of expansion and buyout deals in Ireland compared to the peak of 44 witnessed the previous year, yet the average deal value of €61.35m is the highest since 2010. Of particular note over the past 12 months, Exponent Private Equity sold tax-free shopping service Fintrax to Eurazeo in a deal worth up to €585m, while Blackstone and a group of venture players took part in a £119m growth capital round for student lending company Future Finance. The country also played host to a mega-buyout in March 2014, when Charterhouse Capital Partners acquired Skillsoft from Advent International, Bain Capital Europe and Berkshire Partners in a deal reportedly worth more than $2bn.

Cummins says the increase in valuations reflects a move from distressed deals to healthy, growth capital transactions: "There's an increasing awareness and understanding of private equity as a funding option. Historically there has been an association of private equity with distressed M&A or property transactions. Recently it's becoming more widely known as a growth capital or buyout funding option for privately owned companies."

The knock-on effect of an increased presence of growth-focused investors is a rising number of assets that are more suitable as targets for private equity buyout houses, Cummins says. "In effect, you've got more sophisticated management teams in those companies. They have investors helping to introduce more sophisticated structures, in relation to running, growing and managing their businesses. This makes them more attractive to private equity. I would certainly expect that, as some of those companies mature, they will look to private equity as a potential exit or partial exit route."

Ireland-dedicated funds take root
The changing landscape has coincided with the emergence of buyout funds specifically dedicated to the country. These include MML Capital Partners' vehicle Growth Capital Partners Ireland – which held a final close on its €125m hard-cap in November 2013 – and a joint fund managed by The Carlyle Group and Cardinal Capital Group called Carlyle Cardinal Ireland, which closed on €292m in July 2014.

"There are a number of domestic funds active in the Irish market and they're right across the spectrum, from smaller vehicles that are doing €2-10m deals up to traditional mid-market players," says Cummins. "There is an increased appetite and interest in the Irish market from both UK and US funds, across a wide range of sectors. Historically, a lot of that activity has been focused on the technology space, but there is growing activity from the international funds for a wide spectrum of Irish businesses."

The tipping point, Cummins argues, will be when domestic funds start delivering successful exits. Until 2013 these had been few and far between, but 2014 and 2015 saw an astonishing surge in aggregate exit value, according to unquote" data. The total of €8.94bn generated from sales in 2014 was nine times greater than the next highest total in 10 years, 2006's €913m. This level of sales persisted in 2015, although it was slightly lower at €8.39bn. These figures could grow further, once the likes of MML and Carlyle Cardinal's 2013- and 2014-vintage vehicles start making divestments.

With a steady flow of growth capital investments paving the way and an increasing number of international backers lining up, the Irish buyout market could soon start coming of age.