Aon plc, a leading global professional services firm, today published its latest report about the attitudes and actions regarding mergers and acquisitions (M&A) among senior business leaders in Ireland.
Aon’s M&A in Ireland 2023 Report surveyed 281 businesses across Ireland between June and July 2023.
Results show that 11 percent of all businesses are actively considering engaging in a merger or acquisition in the next 12 months. Businesses in the Technology, Media, and Telecom sector (TMT) are the most active for M&A, with 26 percent considering dealmaking in the next year. 17 percent of financial and professional services firms are also considering engaging in M&A activity in the next 12 months.
For firms considering M&A activity, the top reasons include accessing skilled talent (31 percent), increasing business efficiencies (30 percent), and building innovation capacity for the future (28 percent). The top motivator for TMT businesses was expansion into new jurisdictions (46 percent) while 37 percent of financial and professional services firms indicated that expansion into new business areas was a key driver.
Nearly 2 in 3 firms (62 percent) that engaged in M&A over the past 12 months said the deals had achieved their strategic objectives, indicating that M&A activity may increase should economic conditions improve.
Evolving risk landscape
The risk landscape for Irish firms has shifted considerably over the past 12 months. Rising inflation (56 percent) remains the top risk to M&A for Irish businesses, although it has fallen by 13 percent since last year, indicating businesses are at a turning point in managing its impact on their M&A strategy. Lack of sustainable investment options (44%) and high valuations (43%) make up the remaining spots within the top three risks identified by business leaders in Ireland considering M&A activity.
Cyber and ESG due diligence rise
Cyber security and Environmental, Social and Governance (ESG) factors continue to rise up the due diligence agenda for Irish firms.
The majority (62%) of Irish businesses consider cyber security and technology risks before concluding an M&A deal – a 7 percent increase on last year’s report. There are differences in the treatment of cyber risk among organisations of different sizes, with 41 percent of large businesses considering cyber security due diligence on every deal. In contrast, 31 percent of mid-sized businesses, do not consider cyber security at all in relation to M&A, suggesting smaller companies may not have the capabilities in place to effectively evaluate these risks.
35% of organisations in Ireland say ESG standards are extremely important pre-transaction, a modest gain (2 percent) on last year’s results. 43 percent of businesses have not considered ESG factors at all up until now. Irish firms are still significantly behind their global counterparts in their assessment of the importance of ESG risk. According to Aon’s Global M&A Risk in Review survey 72 percent of businesses expect ESG to be the most significant risk facing their organisations in the next 12 months.
The availability of sustainable investment (21 percent) is the top ESG factor for Irish firms when assessing a potential merger or acquisition, followed by the impact of the business on climate (19 percent) and diversity on company boards (19 percent).
Importance of human capital and taxation
Aon’s research shows other key factors considered by business leaders in due diligence include financials, legal, human capital, and taxation. Human capital was identified as a main area of focus for due diligence when considering M&A by 42 percent of businesses, reflecting the importance of talent in a labour market with unemployment near a historic low.
Taxation is cited by 42 percent of businesses as a key concern in determining whether to conduct an M&A transaction. 1 in 4 businesses stated that the tax rate that will apply to future profits following an acquisition or merger is their key tax concern, indicating the impact of continuing uncertainty regarding the OECD’s global minimum tax rate proposals.
Karl Curran, Head of M&A and Transaction Solutions at Aon Ireland, said: “Despite growth in the domestic economy, organisations continue to navigate a challenging business environment from a tight labour market, to rising operating costs and increasing levels of cyber-attacks.
“Aon’s latest M&A in Ireland Report shows that these challenges are creating uncertainty among businesses, with almost 90% of businesses either less likely or unsure of whether they will engage in M&A activity in the coming year. However, when broken down by sectors, there is stronger appetite for M&A activity among firms in the Technology, Media, and Telecom sector and the Financial and Professional Services sector.
“The risk landscape for Irish businesses continues to evolve at pace. Addressing emerging areas of risk such as cyber security will be critical to long-term success. The impact of potential cyber-attacks can be deeply damaging. According to the 2023 Aon Cyber Resilience Report, major cyber incidents typically result in a 9% decrease in shareholder value for businesses in the 12 months following an attack. In this context, we welcome the findings from today’s report that more firms in Ireland are prioritising cyber risk as part of M&A due diligence. However, with a significant number of businesses still not screening for cyber risk at all, many firms need to urgently put these capabilities in place.
“With firms in Ireland facing a growing set of new and evolving risks, the insights from Aon’s M&A in Ireland Report help shine a spotlight on the trends in this area but critically highlight the risks and due diligence that companies should be considering as part of any M&A activity. We hope that the data will be a useful tool in helping to guide Ireland’s business leaders towards making better-informed decisions to meet the challenges of an increasingly complex M&A environment.”