Appetite for pursuing M&A activity in 2021 is also very strong, with 86% of respondents intending to pursue M&A opportunities this year. This activity will be enabled by readily available funding from private equity and corporates, as well as the quality of assets available here. Unsurprisingly, the top two sectors predicted to attract interest are technology and healthcare.
Covid impact
The impact of the Covid-19 global pandemic may have triggered a shift in the market towards buyers, with more than half (55%) of respondents predicting 2021 to be a buyer’s rather than a seller’s market (25%), and the remainder being neutral. The economic upheaval over the last 10 months will likely create opportunities for buyers, however, given the uneven impact of Covid-19 and Brexit, this is likely to vary significantly by sector.
The global pandemic also disrupted the process of deal making in 2020 with respondents citing relationship building as the most challenging element of M&A activity during 2020, followed by deal origination and approach to valuation. With interactions between buyers and sellers limited to online, more innovative ways of doing deals arose in 2020 to establish personal connections, conduct due diligence and manage valuation discussions.
Increased certainty
KPMG hosted a webinar this week to mark the launch of the report, attended by over 350 M&A executives across the island, North and South. Attendees were surveyed on a number of issues, and respondents indicated that the outcome of Brexit will have a positive impact on Irish deal activity in 2021, with 60% predicting an increase in activity. Just 14% are of the view that it will result in a decrease in activity, and the remaining 26% have taken a neutral view. 2021 may present an opportunity for many island of Ireland businesses as investors seek to acquire and build positions outside of the UK market.
When asked in the same survey whether the Covid-19 vaccination roll out has further impacted their predictions on how 2021 will compare to 2020 in terms of deal volumes, 77% of respondents are of the view that deal volume will increase, 21% that it will remain broadly stable, and just 2% believe that it will decrease.
When asked what impact Covid-19 had on M&A activity in 2020, compared to their expectations in January last year, 69% said it had a negative impact, 19% that it had no change and 12% of respondents said it had a positive impact on activity levels.
Sustainability to influence strategy
86% of respondents said they will factor sustainability into their 2021 M&A strategies, a notable increase from 67% in 2020. This demonstrates the significant and growing influence that the Environmental, Social, and Corporate Governance (ESG) agenda is having on corporate decision-making in Ireland, and continued commitment to the green agenda despite current economic challenges. Increasing legislative and regulatory focus both nationally and globally on sustainability issues will likely result in continued movement of capital flows towards green investments.
Debt funding and deal failure
The majority of participants would consider funding 50% – 75% of a transaction with debt in 2021. Conversations by KPMG’s debt team with local and international funders, including traditional banks and non-bank lenders, evidence the continuing appetite for M&A transactions.
Valuation gaps were again this year identified as a primary inhibitor of M&A activity, with 37% identifying this as the primary reason why deals fail. The challenges in agreeing maintainable earnings has no doubt added to this issue. During 2020, there was evidence of transaction structures being adopted to overcome valuation gaps.
Commenting on the findings, Russell Smyth, Partner and Head of Deal Advisory, KPMG in Northern Ireland, said: “M&A activity was remarkably resilient last year despite the headwinds faced by the economy. That momentum, combined with more good news around the range of Covid-19 vaccines paint a positive picture for the market this year and chime with the strong appetite we have witnessed from both private equity and large corporates.
“KPMG in Northern Ireland worked on a number of deals over the last 12 months including the acquisition by Eakin Healthcare Group of Armstrong Medical Ltd, a Northern Ireland-based manufacturer and supplier of respiratory care medical equipment and other breathing support systems. We look forward to closing out further deals in 2021 as the local economy recovers and confidence returns.”
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