A year of rising interest rates, sticky inflation and soaring energy prices has resulted in a notable decline in Irish merger and acquisition activity which has fallen by 12% compared to the same period last year.

In a report published by private equity firm, Renatus, it found that despite growing interest in Irish firms by foreign multinationals, less than 200 deals were completed in the first six months of 2023, compared with 226 in the first half of 2022.

However, Renatus noted that a "positive outlook" remains for the year, citing rising business confidence and increased appetite for acquisitions, driven primarily by international firms.

Of the 198 deals completed in the first half of this year, 90 involved foreign multinationals acquiring Irish businesses, which is unchanged from the previous year. 

Outlining a number of factors contributing to the attractiveness of Irish firms, the report cited access to EU markets in a post-Brexit landscape, a multinational presence with a strong SME sector, a highly-skilled workforce, a favourable tax environment for companies and business-friendly supports including the IDA and Enterprise Ireland.

The financial services sector saw the most M&A activity, with a number of professional services currently experiencing consolidation across the country. 

Renatus also noted insurance broker consolidation to be a recurring theme, with a number of private equity-backed insurance firms implementing a strategy to acquire small brokers as a way to grow the business and drive market share.

Furthermore, in market transactions accounted for 50 deals, with 34 deals involving an Irish company acquiring an international firm, and management buyouts and foreign private equity both accounting for 9 deals each. 

Telecoms, tech services and software also saw an increase in M&A activity, despite 84% of publicly listed software companies seeing their valuations drop in the last year following the pandemic.

In the tech space, the report noted attempts by companies to take advantage of cloud and other new communication technologies as they continue to replace traditional non-digital systems.

Looking forward, the report noted signs of optimism for the remainder of 2023, with completed deals globally up 23% compared with the first quarter.

Reporting: The Irish Examiner