Investment activity begins to pick up
Sunday Business Post, March 7th 2010

 “Origin, along with a number of private Irish equity investors, has just completed the acquisition of a UK provider of clinical software solutions for the healthcare sector”. Synbiotix Ltd provides Hospital information systems, clinical systems and clinical audit tools to a number of UK Hospital Trusts.

Working in corporate finance has been a difficult task over the last year.  Overall activity is down, and there were no guarantees that any deals which had been in place would make it through to completion.  But the outlook for 2010 is better and many players in the sector are far more optimistic about the levels of mergers and acquisitions (M&A) activity.

"Corporate finance activity for Origin has started to pick up since last summer, particularly in the technology, health and professional services sectors," said Dermot Grant, managing director of Origin Corporate Finance which specialises in mergers and acquisitions, business sales and investment.

According to Grant, the major focus at Origin is currently on investment work in the software and technology sector although it has also been active on transactions in the professional services sector.  But there is also a significant amount of work in assisting companies across all sectors in re-organising and restructuring shareholding, the provision of exit advice to shareholders, management buy ins and incentive schemes for management.

"This area is vital for all companies to consider in this post-boom era,” he said.  “Share ownership, capital and debt structures, which were appropriate in the good times, are likely to need an overhaul in these tougher times."

These greater levels of investment activity are in marked contrast to the early part of 2009 when, according to Grant, things were very difficult, with time mainly being spent on rescue and re-organisation work.

“While there were active deals, it was extremely difficult to get them across the line - with the perception that values continued to drop sharply during the sales process, with the absence of finance from banks and with conservative private investors,” he said.  "While in the past, you could rely on part of the deal to be leveraged with bank debt, last year this was substantially replaced by an absolute dependency on private equity or finance from a trade buyer." 

Although the perception is that there is great opportunity for well-capitalised buyers, in acting for acquisitive trade purchasers, Origin has found that when targeting potential acquirers there is a tendency for potential targets to rebuff an approach and insist on holding on until things improve.
That is, of course, unless they have no other choice but to sell, or are in a sector where values remain reasonable.

"Going forward, we are hopeful there will be plenty of work in all sectors and there is a significant amount of private equity available to close deals," says Grant.

"A large part of private equity is coming from individuals, rather that private equity houses.  We consider that banks will re-engage to provide loan capital, albeit with more stringent and costly conditions. Bank of Ireland recently announced the provision of acquisition and working capital facilities for an acquisition of a company in the healthcare sector," he said. "This would indicate a willingness from banks to provide support either directly or indirectly through venture capital funds."

"Banks are providing support along with Enterprise Ireland and large corporates to a number of venture capital funds - for example, NCB Ventures backed by Ulster Bank and Kernel Capital, backed by Bank of Ireland.  Hopefully the focus on direct bank support in the future will be more favourably balanced in favour of enterprise, rather than property related activities".

Still, Origin envisaged that management buyout activity will remain quiet, particularly with the lack of leverage. But deals are being done with the help of private equity, strategic investors and imaginative deferred consideration mechanisms where there is a determination for the seller to exit.