What led to the recent merger of Eugene F Collins with Addleshaw Goddard? What has been the impact of this?

Eugene F Collins is a long established firm (over 125 years old) and was looking for ways to make a greater impact internationally, to offer a wider range and a greater depth of services to our existing clients and win new ones. The merger brings together two firms with great chemistry and a commitment to delivering impact to clients operating in, to and from Ireland, offering legal coverage across the globe, increased practice and sector strength and more flexible resourcing to our clients. This is especially the case with AG’s Private Equity practice. The Irish market is dominated by US private equity funds, but over the past five or six years an increasing number of UK and European private equity funds have entered in the Irish market, particularly in the mid-market space, which is AG’s sweet spot.

What has been your recent experience of private equity transactions in Ireland?

Notwithstanding the Covid pandemic, a huge amount of pent up demand has built up in the private equity market in Ireland, particularly in the technology, life sciences, and insurance sectors. So much so that last year saw private equity investment reaching the highest values in the past five years. Like many other professional services advisers, 2021 was an extremely busy year for us, particularly in the second half. We are seeing a wide variety of transactions - from direct buy outs (with some management roll over) to acquisitions by PE portfolio companies seeking to scale. We also find ourselves acting on the second, or even third round sales of client companies. For example, we have a hotel client, where we advised on the purchase and development of hotels in the “noughties”, on a debt and equity restructure post the financial crash, and on its exit to a large PE fund a few years later. We have since continued to act for the client and its new owner on the subsequent sale to another PE fund and hope to support this fund in its proposed exit in the near future.

What is the attraction of Ireland to private equity funds?

Ireland is an attractive location for investment generally, as an EU member with a stable legal system, a pro-enterprise corporation tax regime, and a highly educated, talented and flexible workforce. It punches above its weight in sectors such as ICT, life sciences, financial services, engineering and business services, including in advanced manufacturing and research and development. However, it is a relatively young country in terms of wealth and capital creation and historically its economic growth strategy has been rooted in FDI.

Domestically, it had a property investing culture rather than an “equity” culture. In recent years, venture capital and Enterprise Ireland has supported high potential start-ups. PE funds coming into Ireland have filled a funding gap not met by traditional banks or capital providers, especially in the growth phase. We see PE funds investing earlier and driving growth and scale. This is hugely attractive to business owners, who may not have the appetite to take on all the risk of growing the business. Undoubtedly, low interest rates have had a positive influence, but PE is still finding good value in Irish assets and new entrants have an opportunity to get a foothold in the Irish marketplace.

Are you seeing any interesting deal structures or challenges?

Acting on acquisitions of Irish companies by PE portfolio companies, rather than a direct PE acquisition, can be interesting. Firstly, the competition analysis will be a little more complex, as establishing the exact proportion of turnover generated by a PE fund in the State can be challenging. Also, if a PE fund wants the minority and sweet equity to be held in the Irish target group rather than flipping to the Topco, this too can be challenging. Structuring the drag along, valuation methodologies and hurdles can require a bit more finessing as interests are not completely aligned and the minority investors are naturally concerned to ensure that there will not be value leakage from the Irish target group to the larger group, but you can’t have the tail wagging the dog in terms of overall group strategy and exit.

Another challenge we have seen now coming out of Covid is the need for portfolio companies to review their sweet equity models where the hurdles were set prior to the pandemic and assumed an IRR over 2020/early 2021, which in some cases, in particular in the retail and hospitality sectors, could not be realised.

How do you see the Irish market developing in the near future?

We see a huge potential for the growth of PE investment in Ireland. There is already a big demand for PE investment in the country to some extent, due to a lack of other funding sources, and this has allowed PE to get a foothold so that even as other funding sources come into the market, it will still be a significant source of growth and liquidity capital in Ireland. There is also a greater understanding among Irish business owners and managers of PE — that it is not limited to the very large deals in the life sciences or technology sectors only.

Notwithstanding the economic outlook in light of current global events, we remain cautiously optimistic about the continued strong levels of PE investment in Irish companies, as there appears to be a huge amount of capital available, and ready to be invested, and lots of exciting opportunities in the Irish market.