Aon Ireland’s M&A survey reveals business caution over M&A activity in current climate

Business, Mergers | Wed 14 Sep | Author – Business & Finance
Pictured at the launch of the report, in the Westbury Hotel, from l-r: Karl Curran, Head of M&A and Transaction Solutions, Aon Ireland; Orla O’Gorman, Non Executive Director and Strategic Advisor, former Head of Listing for Ireland & UK at Irish Stock Exchange and Euronext; Sarah Freeman, Editor Business & Finance and Simon Holmes, Head of Corporate Development, Investments and Integration Management Office Lead, ICON plc.

Professional services firm, Ireland, yesterday launched a new M&A in Ireland report with a panel discussion on the key findings. Orla O’Gorman, Simon Holmes and Andrew Ballheimer explored insights in the report in a discussion chaired by Sarah Freeman, Editor Business & Finance.

Aon’s M&A in Ireland Report, which surveyed 290 businesses across Ireland between April and June 2022, reveals that just 18% of businesses are considering engaging in a merger or acquisition in the next two years, with rising inflation (69%) cited as the main risk for engaging in M&A activity.

The short-term outlook is even more stark, with just 7% of business leaders saying they are more likely to engage in M&A activity in the next six months. This number only marginally improves when the outlook is extended to 12 and 24 months, with only 11% saying they were more likely to engage in M&A activity during those periods. The vast majority of business leaders, 70% and 71% respectively, say they don’t know, suggesting a “wait and see” attitude amongst most business leaders when it comes to anticipating any possible improvement in the current economic climate.

M&A risks and drivers 

While rising inflation followed by high valuations (45%) and lack of sustainable investment options (43%), constitute the top three risks for business leaders across Ireland who are considering engaging in M&A activity, the current geopolitical environment was also singled out as an area of concern, with almost 2 in 5 (39%) citing geopolitical unrest as a risk when it comes to engaging in M&A activity.

Meanwhile, for those Irish organisations which are contemplating transactions, key drivers include a desire to increase business efficiencies (39%) and protecting and growing market share (33%). Other key motivators include accessing skilled talent (28%), highlighting the continued impact of ‘The Great Resignation’, followed by strengthening ability to navigate current volatility (20%).

Due diligence

Amidst a rapidly evolving fiscal and geopolitical environment, Aon’s research also offers important insights into the main areas of focus for business leaders across Ireland when it comes to due diligence.

While financials have emerged as the top focus area, according to the research, it is interesting that human capital ranked second having been cited by 38% of respondents, ahead of the traditional areas of legal (37%) and tax (32%).

ESG

The survey also points to a growing awareness of the importance of ESG and cyber security within the due diligence process. A third of business leaders say that ESG standards are extremely important during a transaction, with the impact of the M&A target on the climate ranked as the most important ESG factor (24%). However, more than half of respondents 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.

Cyber Security

Meanwhile, although 42% of respondents say that failure to identify cyber security and technology risks in M&A targets could prevent a deal from taking place, just 26% of respondents cite cyber security as an important focus area for due diligence, suggesting a gap between business leaders’ awareness of the importance of cyber security and how much they prioritise it within the M&A due diligence process.

Commenting on the results of the survey, Karl Curran, Head of M&A and Transaction Solutions at Aon Ireland said: “Just as the world began to recover from the Covid-19 global pandemic, spurring a stellar year for global M&A activity in 2021, the landscape for M&A has changed again.

“The invasion of Ukraine has raised geopolitical tensions and the economic impacts are already being felt around the world. Inflation is rising and central banks have either started to increase rates or have signalled their intention to do so, while stock markets have gone into reverse in anticipation of a recession. Against this volatile and uncertain backdrop, Aon’s M&A in Ireland Report offers insights to business leaders as they look to adapt to an increasingly complex M&A landscape.

“The results are not unsurprising, with just 18% of Irish businesses considering engaging in a merger or acquisition within the next one to two years. This is in contrast to the global outlook for M&A, with Aon’s recent global M&A report revealing that more than two-thirds (68%) of businesses expect M&A deal numbers to increase over the next 12 months. However, our research also shows us that the vast majority of Irish businesses are undecided, meaning that there is significant potential for increased M&A activity in Ireland once the current headwinds subside.