by Ken Casey October-01-2018 in Commercial & Business, Corporate, Brexit

The prospect of a hard Brexit casts a long shadow for our closest neighbour. However, there is a compelling business case for investment in Ireland.


Introduction

Since Brexit, the Irish government has consistently reaffirmed that Ireland will remain within the EU, while maintaining its close connections with the UK. Given the continuing uncertainty on key elements of Brexit, it is essential for business and investors in Ireland to have as much clarity as possible.

Key advantages which make Ireland a leading EU location for FDI remain in place – certain access to the EU’s single market; a flexible, open economy; a well-developed business and legal system; a mature, stable progressive political system; the fastest-growing EU economy; a young, skilled, well-educated, English-speaking workforce; and an attractive, transparent tax regime for business. An EU without the UK provides Ireland with opportunities for additional FDI. For UK businesses, Ireland offers a unique opportunity to hedge against the risk of economic exclusion from a hard Brexit. Many UK businesses recognise this and are acquiring and investing in Irish business.

Brexit – the current position

As the date to end UK withdrawal negotiations (29 March 2019) gets closer, we have received contradictory signals of the likelihood of a “soft” and a “hard” Brexit. The lack of certainty surrounding the UK’s withdrawal terms has caused investors to take a more cautious approach, with completion of deals taking longer.

Recently, there has been renewed hope of a “soft” Brexit and deal activity is increasing with signs that the UK government and senior EU politicians are more willing to reach agreement. However, the risk of a hard Brexit endures and, for businesses, it is time to act.

Ireland – economic indicators

Since Brexit, there has been considerable research on the impact of Brexit scenarios on the Irish economy. This indicates that while Ireland has a trade surplus with the UK, Ireland is the most exposed EU member state to Brexit. For the UK, Ireland is a very significant trading partner and investor.

For the last four years Ireland has been the fastest-growing economy in the EU with growth forecasts of 4.7 per cent for 2018 and 4.2 per cent for 2019. Evidence from a broad range of domestic spending and activity indicators suggests the Irish domestic economy has continued to grow. More encouragingly for potential investors in Ireland is that expansion has been underpinned by continuous strong and broad-based growth in employment and increasing earning.

Recent transaction activity

Market sources indicate that despite strong challenges (hard Brexit and protectionist tariffs; US and UK tax reforms; Ireland nearing full employment; increased living costs; and potential rising cost of capital), transaction volumes are broadly consistent to date in 2018 with 2017 and 2016. Looking past the headline global deals (for example, in 2018, the Takeda/Shire €67.1bn/£59.8bn deal), better indicators are the consistency in deal volumes and that approximately 90 per cent of deals are at values ranging from €5m-€250m.

Activity is greatest by volume in technology/telecoms, food/food services and professional/technical sectors. Deal values are highest in pharmaceuticals (skewed by Takeda/Shire), food/food services and technology/telecoms. Outbound deals by Irish buyers showed a significant increase in value as compared with 2017, representing 50 per cent of deal volume.

This reflects recent trends – the continued importance of high-value pharmaceutical deals and of the pharmaceutical, technology and food sectors. This year has seen increased acquisition activity by Irish buyers in Ireland (in approximately 33 per cent of deals), perhaps a combination of increased optimism and ambition, the strength of the Irish economy, increased availability of debt and equity funding from private equity and alternative funders, and the recent return to equity funding of traditional financial institutions.

Ireland – opportunities

The conditions which fostered strong levels of deal activity have continued and, despite strong headwinds, deal activity remains robust. The reasons for this, relating to the structure of the Irish economy, are enhanced by Ireland’s current and forecast robust growth.

For all of these reasons Ireland should remain a key location for FDI into the EU and for UK and US buyers seeking good acquisition opportunities.

 

This article was published in The Lawyer, October 2018. 

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About the Author

Ken Casey
Ken Casey

Ken is Head of the Corporate team and has built a practice in acquisitions, disposals, and capital markets transactions across various industry sectors; joint ventures and corporate re-organisations of publicly quoted and private companies; and advises on corporate governance and general corporate law. He has extensive expertise in the financial services, aviation, gaming, technology, media and sports sectors.