published Ireland M&A: Wireframe for Insight M&A in Ireland Report 2022

C-Suite Series: Mergers & Acquisitions

Ireland M&A: Adapting to the shifting business landscape of 2022

C-Suite Series: Mergers & Acquisitions Ireland M&A: Adapting to the shifting business landscape of 2022

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Between April and June of 2022, iReach Insights conducted research on behalf of Aon Ireland into attitudes and actions to do with M&A in Ireland. The research involved 290 responses from business decision makers across the country. Participants included 81 mid-sized businesses, 86 large businesses and 123 enterprises with 250+ employees.

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If your business is considering buying or selling, contact your Aon account executive to discuss how we can help your organisation maximise value and minimise risk from the M&A process.

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ESG is fast becoming a key component of M&A transactions, and it must be quantified, managed, and mitigated. When Irish businesses were asked about the importance of ESG standards, a third (33%) of businesses said they were extremely important during a transaction. However, more than half of companies say they have not considered ESG to date. These results show that while there is a growing perception that strong ESG performance and commercial strength often go together, many businesses across Ireland have yet to establish this link. From climate change risk to social issues, ESG considerations will play a role in every M&A transaction. ESG requires the same detailed due diligence traditionally afforded to financials and tax. However, the risks remain hard to quantify and subject to shifting goalposts. In due diligence processes, buyers will increasingly scrutinise the targets’ ESG credentials, honing in on reputational risks as well as regulatory concerns. For today’s dealmakers, the race is on to improve ESG due diligence.

ESG and the Quest for Clarity

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Methodology & Key Findings

M&A Outlook

Navigating Emerging Risks

The Changing Face of Due Diligence

Leveraging Digital Solutions

ESG and the Quest for Clarity

Aon’s M&A in Ireland Report 2022 highlights the growing complexity of M&A transactions and the need to widen the scope of due diligence beyond the traditional areas of financials, legal and tax. While those areas remain pivotally important, they cannot be solely relied upon to deliver an accurate assessment of a company’s true value. Download our full report to read more insight into the M&A Outlook in Ireland.

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Methodology & Key Findings

Leveraging Digital Solutions

For Irish organisations contemplating transactions, there is a lot more to consider in 2022 and beyond. In our research, the key drivers for carrying out transactions include a desire to increase business efficiencies and a goal of protecting and growing market share. Other key motivators are access to skilled talent and enhancing innovation capability. But our research suggests that the current economic environment is having a cautionary effect on businesses leaders’ attitudes towards M&A. Just 18% of all businesses are considering engaging in a merger or acquisition in the next two years, with rising inflation cited as the main risk for engaging in M&A activity in today’s economic climate. With so many factors influencing on the market, Aon set out to better understand attitudes and actions to do with M&A amongst senior business leaders in Ireland.

M&A Outlook

As we’ve all experienced in the last few years, the world can change dramatically overnight, which makes this cautionary “wait and see” option a great deal more understandable today than it was this time three years ago. Inflation, which had already begun to rise before the outbreak of war in Ukraine, has continued to increase and is viewed as the top risk by more than two thirds (69%) of Irish corporates. Geopolitical tensions were cited as a key risk by 39% of Irish businesses but this came in fourth behind high valuations (45%) and lack of sustainable investment options (43%). From a positive perspective, the pandemic was named as one of the three most significant risks by only a quarter (26%) of respondents to the global survey and didn’t feature at all for Irish businesses. While COVID-19 has most certainly not gone away, it is not impacting business sentiment to the same extent that it did in 2020 and 2021.

Navigating Emerging Risks

When it comes to due diligence, the traditional areas of focus – financials, tax, and legal – remain critically important but they are now joined by cybersecurity, intellectual property, human capital and ESG risk as key agenda items. In fact, more than half (55%) of respondents said it was important to consider cybersecurity and technology risks in M&A targets pre-deal. Although there is a growing awareness of the importance of ESG in M&A activity, just 18% of Irish companies cited ESG as an area of due diligence focus. Among the issues many businesses face in relation to areas such as cybersecurity, ESG, and IP are difficulties with assessing the value and risks associated with them. However, they are amenable to due diligence, and new tools and methodologies are being developed all the time to support dealmakers in these areas.

The Changing Face of Due Diligence

Key Findings

The key findings were:

Increasing business efficiencies (39%) is the top reason for considering M&A activity, followed by protecting and growing market share (33%) and accessing skilled talent (28%).

Economic-linked factors such as rising inflation (69%), high valuations (45%), and a lack of sustainable investment options (43%) are the top three risks for businesses engaging in M&A activity in today’s climate, while almost 2 in 5 business leaders (39%) see the current geopolitical situation as a top risk, with cyber-attacks coming in as the fifth largest risk (32%).

Just 18% of all businesses are considering M&A in the next year or two, with 7% of leaders considering M&A activity in the next six months and only 11% considering it in the next 12 and 24 months.

The three main areas of focus for companies when it comes to due diligence are financials (53%) followed by human capital (38%) and legal (37%), with financials particularly important for mid-sized companies (65%).

Although just over 1 in 4 business leaders cite cyber as a key focus area for M&A due diligence, a much higher percentage (42%) say that cyber risk could prevent a deal from going through, with a total of 55% of businesses saying they assess the cyber risks of the target company pre-deal.

1 in 3 (33%) businesses say ESG standards are extremely important during an M&A transaction, with the impact of the target business on climate (24%) emerging as the most important ESG factor, followed by availability of sustainable investment (22%) and level of community engagement (17%).

Almost two-thirds (65%) of respondents to our M&A research in Ireland said that due diligence was carried out either wholly or in part by an external party. Those organisations therefore benefit from access to the digital capabilities which their external partners have invested in over the past number of years. That investment is likely to continue. While relaxations of COVID-19 restrictions have enabled more traditional due diligence work, many dealmakers will also look to continue to deploy their new tools – not least because in some cases, these have accelerated processes. Technological innovation has the potential to support M&A in a wide variety of areas, from understanding tax and credit risk to driving valuation models and gaining deeper insights into a company’s cyber risk exposure.