Recent Trends in Local M&A

31 Mar

The private M&A market in Northern Ireland has been remarkably resilient during the last 18 - 24 months. This momentum looks set to continue through 2022 and, in this article, we highlight some of the trends we have seen develop during the COVID period:

1. Earn-outs. Earn-outs are increasingly commonplace on M&A deals in Northern Ireland. This can be attributed to two key factors. Firstly, earn-outs help mitigate risk and can bridge valuation gaps in what remains an uncertain market. Secondly, both buyers and management teams appreciate that earn-outs can play a wider role in incentivising management sellers in the important ‘handover’ period following the completion of a sale. Where an earn-out is in play, the seller should be careful to ensure appropriate protections are included around the conduct of business during the earn-out period – not only to safeguard the earn-out but also, where possible, maximise deal value.

2. W&I. Falling costs, together with greater awareness of the range of W&I products available (including at the lower end of the market), are slowly but surely increasing the use of W&I insurance in Northern Ireland. In addition to standard W&I policies, we have seen bespoke policies deployed to address specific tax risks on restructurings. We view both trends as a positive contribution in unlocking deals and promoting sensible risk allocation.

3. MBOs. Alongside traditional M&A activity, we have seen an increase in (full or partial) MBOs, with ownership teams looking to realise value while passing an equity interest to their management teams, rather than a third party investor. These deals can provide owners with a cleaner exit (e.g. limited due diligence and warranties) and greater deal certainty, albeit the price for this may come in less cash out at completion.

4. Data rooms & disclosures. Whilst the difficulties associated with COVID have generally prompted a more collaborative approach to deal-making within the advisory community, we have seen some buyers pushing back on established positions such as the general disclosure of information included in a well-prepared data room. In our view, this development feels like an unwelcome read-across from more investment-type work and a seller would be well-advised to ensure the general disclosure position is appropriately addressed at the heads of terms stage.

5. Covid support. A side-effect of the significant financial support provided to businesses through COVID is how risk should be apportioned if that support is subsequently challenged following the sale of your business. In practice, much of the underlying paperwork was completed online (so records are limited) and it remains unclear how closely Government will scrutinize and/or seek to re-open historic awards. Typically, however, we are seeing sellers offering some level of warranty and/or indemnity cover around the validity of claims/awards received prior to completion in the event that they are un-picked following completion.

6. NSI regime. It is still early days for the Government’s new national security and investment regime but, given the expansive drafting, it is likely to have an impact across a range of transactions, with the parties involved being asked to assess whether their deal raises questions of “national security” and, if so, how to address the associated notification requirements. In the short term, parties would be well-advised to consider the issue at the very start of a transaction and then work together to understand any impact on their anticipated timetable.

This article is for general information purposes only. If you would like advice or any further information, please contact Vicky Dummigan, Raymond Duddy or your usual Davidson McDonnell contact.