20 June 2016

Supporting Irish medium sized businesses as well as plcs

Having focused on the larger plcs for almost ten years, HSBC Ireland also supports smaller business markets.

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Last year saw the highest level of M&A activity recorded in Ireland since 2008 and word from HSBC Ireland is that acquisition activity remains strong for Irish businesses in 2016.

According to Michael Lalor, head of corporate banking, HSBC Ireland, "CRH is a notable leader following acquisitions of assets coming from the Lafarge Holcim merger and its acquisition of CR Laurence. Generally, for Irish companies, building materials has been particularly active as evidenced not just by CRH's Lafarge Holcim and CR Laurence deals, but also Kingspan's acquisition of the Joris Ide Group and Grafton Group's purchase of Dutch tool distributor Isero.

"Meanwhile, Fyffes acquisition of Highline in Canada shows a move towards increasing deal values rather than bolt-ons over the last number of years."

Lalor reported that in terms of multinationals the technology and pharmaceutical sectors are leading the way.

The recent burst of M&A activity has been aided by favourable economic conditions. "Lending conditions are particularly benign following action by the ECB and the LTRO program,"

He observed that Irish corporates have maintained balance sheet discipline and have come out of the recession in a good position with access to favourably priced liquidity from a variety of sources including the bank debt market and debt capital markets.

"Activity has picked up in the last number of years with an increased confidence among Irish corporates to target international businesses for growth and further expand beyond their home markets," he said.

Asked where further growth in M&A activity might sprint from, Lalor said, "Certainly the larger corporates are more active and it's likely that deal sizes will increase during 2016 and 2017. We could see some significant transactions emerge for Ireland's largest Plcs who have not leveraged their balance sheets to date. Also, in our conversation with customers we are seeing medium sized business - with a turnover of circa €100m - looking at international markets for growth through M&A activity, whether that's developing their customer base and revenue streams, new products lines or developing their supply chain."

On the other side of that coin we still see many Irish companies disposing of non-core assets. "Certainly some businesses are rationalising their operations. Take CRH for example which has completed a review of its global business to recycle capital in order to support acquisitions. Other examples of disposals include UDG's disposal of its distribution business to McKesson to support international opportunities," said Lalor.

He added, "In recent years we have seen an unprecedented change in ownership of Irish assets, particularly in the real estate and retail sectors, from an historical position of very little foreign activity or ownership in the past. However, for Irish corporates few have become takeover targets and instead have been growing their businesses significantly, for example Kingspan who has grown its revenue significantly over the last number of years."

With talk of improved access to finance, there's a chance that the volume of deals can be sustained, and perhaps grown in value in 2016.

Lalor argued that while finance has become more accessible, access to finance was never an issue for large corporates with strong balance sheets and internationally diverse revenue streams. "However, for small to medium sized businesses the picture was very different as access to funding was restricted. Bespoke players are entering the market to fill this gap."

He confirmed that while HSBC has to date focused on large corporates it will now move into the medium sized business markets continuing to support their international expansion plans but also what they're doing back home. "For example, the food and agri market is an important market for HSBC both at home and abroad."

HSBC is one of the few international banks still trading in Ireland and Lalor confirmed it operates a number of business lines here, from structured banking including aviation finance to international subsidiary banking servicing the world's largest multinationals, to the corporate banking market.

"In the corporate market we have supported businesses expanding overseas for nearly 10 years and have focused on the large Plcs. In the last year we have also supported medium sized businesses and we are seeing increased activity in this area as they move beyond their home markets, and we have also increased our focus on working capital finance solutions."

Activity has picked up in the last number of years with an increased confidence among Irish corporates to target international businesses for growth and further expand beyond their home markets

Michael Lalor, Head of Corporate Banking, HSBC Ireland

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