M&A trends in 2023 and outlook for 2024
2023 was another year of strong M&A activity for Irish SMEs. Although overall deal volumes were down on an extraordinary 2022, Ireland continued to outperform global and European averages.
The majority of deal activity continued to be at SME level, which remains the cornerstone of the Irish economy. There is a broad and deep investor pool for businesses in this space, ranging from domestic and international trade buyers to private equity.
Consolidation continued to be a core area of focus, as businesses are being aggregated up by larger groups to create immediate scale. We have seen this on a pan-sectoral level, notably in professional services, childcare, insurance and healthcare. During the year, Crowe were delighted to support Thorntons Recycling in realising its ambition to become the largest privately owned company in the waste sector and the second-largest waste processor in Ireland through the acquisition of The City Bin Co.
International demand remains strong for Irish SME businesses as the fundamentals of the Irish economy have proven to be strong and resilient. Examples of transactions involving international buyers that Crowe's corporate finance team advised on in the last year include Compass Group's acquisition of Glanmore Foods, Ireland's largest school meal provider, Baader Group's acquisition of a majority stake in Emydex, a leading provider of Manufacturing Execution System (MES) software for the food processing sector, and Tennants Group's acquisition of Brockley Group, a leading independent chemical distributor in Ireland.
There were significant macroeconomic headwinds that challenged the M&A landscape, but Ireland's resilience as a destination to do business continued to fuel demand.
Interest rate
The impact of rising interest rates was evident throughout the year. Any deal that included a significant degree of leverage was impacted. This created opportunity for private equity and large corporates whose balance sheets supported an acquisition from internal resources.
Inflation
Rising inflation has been a core topic for the last 18 months, creating uncertainty and impacting M&A deals in many sectors. Businesses in a stronger position to set prices could pass on the impact of inflation and in some cases benefited from increased profits. However, businesses locked into fixed pricing contracts or with a more price-sensitive customer base were significantly impacted.
The net effect of inflation on deal-making created a great deal of uncertainty and execution risk as buyers and vendors sought to understand a normalised level of trading in an abnormal trading environment.
Geopolitical instability
The ongoing impact of the wars in Ukraine and the Middle East continue to create a level of uncertainty in the market. These geopolitical risks weigh on transactional activity.
2024 outlook
The outlook for 2024 is positive from an M&A perspective. We expect that some of the headwinds that sustained through the last 12 months will ease, notably the interest rate environment and levels of inflation.
We envisage significant levels of PE-backed deals as the volume of unutilised capital remains high. Equally, there will likely be strong levels of divestment at PE level as funds seek to deliver returns to their investors. The PE landscape continues to evolve and grow in Ireland, and we don't see this changing in the short to medium term.
ESG is expected to be a core area of focus going forward. Ireland's commitment to halving greenhouse gas emissions by 2030 will require significant capital funding at State level, and this will undoubtedly support deal activity in a fast-growing sector.
We expect the trends from 2022 and 2023 to continue into 2024, with deal volumes focused on key sectors including food, TMT, renewables and healthcare.
Crowe's dedicated corporate finance team has a wealth of experience advising SMEs in M&A transactions. If you are considering the sale or purchase of a business, we can help you maximise your investment.
