Mergers and Acquisitions in 2023 and Beyond

Brian McCloskey Partner, Corporate, Matheson LLP

The ties between Ireland and the United States are incredibly strong, both from a cultural and economic perspective. The business ties between the two countries is evident across all sectors of the Irish economy, particularly in the technology, financial services and pharmaceutical industries where almost all of the largest US companies in those sectors have operations in Ireland.

Matheson LLP is one of Ireland’s most established and preeminent law firms, with a significant presence in the US (New York, Palo Alto and San Francisco). As a firm, we have the privilege of working with a large number of the US corporations and financial institutions that are active in Ireland, supporting them on their various legal, tax and regulatory requirements relevant to their business activity in Ireland and across the world.

Mergers and Acquisitions (M&A) activity tends to a good barometer for broader economic activity. The levels of M&A activity in Ireland remained resilient in 2023, in spite of many external pressures and macroeconomic challenges. In volume terms the Irish M&A market was broadly in line with 2022, itself significantly ahead of historic averages, with activity levels increasing as the year progressed. The level of activity in Ireland in 2023 compared favourably to global markets, where there had been a marked downturn in transaction volumes and values over the course of the year.

Having said that, the macroeconomic and geopolitical factors that contributed to the more challenging deal environment globally – high inflation, rising interest rates, recessionary fears, conflicts in the Middle East and Ukraine, greater regulatory and political intervention – all impacted activity levels in the Irish M&A market. Despite these global challenges, US buyers, both trade and private equity, continued to drive a significant level of all M&A activity undertaken in the Irish market.

Some noteworthy deals in 2023 included the Irish-American merger of Smurfit Kappa and WestRock. Once completed, this will create of the world’s biggest paper and packaging group, with combined annual revenues of €32 billion. Other significant transactions included the acquisition of Irish technology company, Taoglas, by US private equity fund, Graham Partners and the acquisition of Enva, a leading provider of recycling and resource recovery solutions, by US infrastructure manager I Squared Capital.

The mid-market (typically deals with a value of €5 - €250 million) is consistently the most active segment of the Irish M&A market – over 90% of deals are typically undertaken in this space - and was again the case in 2023. The fact that mid-market deals are typically less reliant on debt funding, which has become significantly more expensive with successive interest rate rises, goes some way to explaining why the Irish M&A market, in volume terms at least, remained steady compared with markets in the US, UK and Europe, where highly leveraged M&A deals are more of a regular feature of those markets.

A well-functioning M&A market is typically underpinned by consumer and corporate confidence, as well as a stable legal, regulatory and tax environment. Ireland, as one of Europe’s best performing economies over the last ten years, alongside its low corporate tax environment, common law legal system and English speaking population, combine to make it a consistently attractive jurisdiction for US buyers looking to expand their operations into Europe by way of M&A.

As corporate buyers and private equity firms get greater visibility into interest rate trajectories and inflationary fears begin to recede, there is a sense of cautious optimism that M&A opportunities will increase over the course of 2024. Certainly, where private equity funds have greater certainty around financing costs, we are likely to see more sponsor-led transactions this year.

In Ireland, the sectoral trends we have seen over the last few years across the wider M&A market – with technology, financial services and energy to the fore – will, we expect, carry on this year as those sectors continue to perform well. The ongoing digitalisation of businesses across a range of sectors, the green transition and the need for corporates to invest in new capabilities to drive growth – e.g. generative AI – will, undoubtedly, drive further activity.