The Northern Ireland mergers and acquisition market is expected to see a busy year, although sentiment has been dampened slightly by the political uncertainty surrounding Brexit and the continued stalemate at Stormont, the KPMG M&A Outlook for 2019 has revealed.
The report, which surveys M&A executives and advisors, found that three quarters of respondents expected activity here to be at or above 2018 levels as the region maintains its appeal as an attractive deal location.
However, 80% of respondents to the survey expressed concern that Brexit will have a negative or neutral effect on deal activity in the coming year. The lack of Executive at Stormont, which has just recorded its second anniversary, is also said to be weighing on sentiment.
Russell Smyth, Partner, Corporate Finance at KPMG, (pictured) said: “In the five years that we have been conducting this survey, 2019 is undoubtedly one of the most difficult to predict. Notwithstanding this, the Northern Ireland M&A market is relatively optimistic for the coming year, despite the headwinds posed by Brexit and the continued stalemate at Stormont.
“A carefully designed approach to M&A, now more than ever, forms a key plank in the strategic foundations of business.
“However, despite the various macro headwinds, our survey indicates sustained deal activity through 2019. The busiest sectors are slated as agri-business and food, technology and energy and infrastructure which are all attracting global interest.”
The imminence of the Brexit decision, with its wide-ranging impact on trade, border controls, cross-border tariffs, the tax and regulation environment and foreign exchange markets, makes accurate forecasting and managing 2019 expectations challenging for the M&A community.
Debt will once again be the primary source of deal funding (67%), with attractive terms, flexible instruments and the presence of new lenders in the market. Global and domestic private equity is expected to be the primary source for 17% of deals, while the use of existing reserves is also expected for a minority of transactions.
The report also showed that 67% of respondents expect 2019 to be a buyer’s market, a marked difference from the Republic where the majority (60%) expect sellers to be in the driving seat.
When it comes to the type of those buyers, the majority are expected to be either overseas multi-national companies, indigenous companies or multi-national companies operating in the local market.
Just 27% is expected to come from either domestic or global private equity, much less than the 48% slated for the market in the Republic.
Strategic considerations are expected to be the main decision used by sellers to dispose of their businesses, followed by current market conditions and both valuation and de-risking. Buyers are expected to place strategic merit/fit as their top consideration to add to their portfolio, followed by cost/operating synergies.
The main reason cited by respondents for post-deal integration failure is cultural misalignment, followed by people-related challenges and inadequate diligence/planning and inaccurate forecasting.
When it comes to the most preferred exit strategy in 2019, sale to a strategic buyer is expected to be the most likely, according to 70% of respondents.