Gerry Beausang and Lisa Early

Given the volume of private equity (PE) deals in 2021 and 2022 a wave of secondary management buyouts is on the horizon in Ireland.

The question is whether we start to see these businesses come to market in the third and fourth quarters of this year or whether it will be 2025 before the wave hits and we see a year of significant market growth.

While 2023 was about resilience, deal volume is likely to increase during 2024 with justified optimism for PE in Ireland.

Generally, financial services, life sciences and technology continue to be standout sectors for PE in Ireland, with software, insurance brokerage consolidation, large pharma acquisitions and accountancy roll ups making up a large chunk of mergers and acquisitions during 2023. Healthcare and education are also becoming consistent areas of interest, with an increasing number of private equity deals in these sectors in the past year, in line with what we have seen in the UK market.

Despite a decrease in deals by value during 2023 on the previous 12 months, activity is expected to increase during 2024, with transaction activity increasing as trends continue to edge towards pre-Covid levels. While overall deal values decreased, the deal volume in 2023 was generally consistent with 2022 and still higher than pre-pandemic levels. The potential for a number of exits for PE backed businesses by the current fund selling to another fund is also a positive indicator of likely increased activity levels in the next 12 months.

Secondary buyouts have not been a common feature in the Irish market up until this point. It is only in the last three or four years that we have seen a significant uptick in mid-market private equity deals in Ireland with a greater number of funds investing significant amounts of time sourcing new deals. We expect this trend to continue in the next three to five years.

This poised wave of secondary sales adds to the changing landscape of the overall private equity market in Ireland, bringing a different dynamic to the market in terms of how deals are approached and run.

Continuation funds are also emerging as a new trend allowing shareholders to access some liquidity. This is likely to continue in the next year. This is an option for high performing businesses in the market where the investor is keen to continue to invest and benefit from expected future gains or a better exit down the line.

Continuation fund deals are not without their challenges and require the investor to engage two separate teams of advisers — buy-side and sell-side — to appropriately deal with conflicts of interest and ensure that the deal is negotiated on arm’s-length terms.

A general increase in competitiveness has also been noted in the Irish PE market. Trade has become a more attractive option in the past year, with new entrants to the market from the UK or US and other promising trends promoting competition. These overseas funds are investing in Ireland as businesses demonstrate good investment return potential, making the Irish market more attractive.

However, there are, of course, continuing challenges faced by the market causing some “stodginess” in deal volume.

Throughout 2023, and continuing into this year, processes are often being run more tentatively with potential challenges to deals in mind. For instance, businesses are sometimes avoiding an official sale process despite preparing for potential sale behind closed doors. This “off market sale” trend may seem unconventional, but offers some protection as businesses, investors or fund managers aim to avoid a failed sale process. A public, failed sale can be damaging down the line and instead a lot more prep work is being done on businesses to “future proof” them ahead of an official “on market” sale process being launched.

This can also offer some reputational protection within the business, such as with employees or customers, meaning the benefits can be two-fold, allowing for confidentiality and continued confidence across the business.

Additionally, the market trends during the last 12 months show a slowdown in pace of deals. The somewhat lethargic market conditions are largely down to finance being more difficult to secure due to costs and the influence of high inflation. Buyers are therefore carrying out more due diligence, spending more time on assets and investigating any potential issues.

The Screening of Third Country Transactions Act 2023, which implements the EU Screening Regulation, is anticipated to take effect in the second half of 2024. This may provide an additional challenge to some deals.

The new legislation means that more corporate transactions will be subject to increased screening measures. Transactions which affect certain core sectors including critical infrastructure, technology and the media involving third country investment. For instance investment from outside the EEA and Switzerland must be submitted to the Minister for Enterprise, Trade and Employment for review.

Notification must be made at least 10 days before the transaction is completed. It will be a criminal offence to conclude a transaction without minister clearance if the deal meets the outlined conditions.

Investors looking to conclude deals in Ireland will need to factor this legislation into their thinking when considering timings for completion of deals and potential delays.

• Gerry Beausang and Lisa Early are partners at Pinsent Masons in Dublin.