Ireland’s mid-market attracts investors seeking resilient growth and scale with minimum risk
Ireland’s mid-market is a strong proposition, particularly businesses that have built up significant knowledge in highly specialised areas.
Ireland has a sweet spot and it is proving increasingly alluring to investment. The mid-market is an area that investors increasingly have their eyes on with businesses in this space no longer perceived as speculative bets.
With companies of this scale often having a solid customer base along with specialised skills, they are increasingly focused on international growth and have founders open to taking on the investment needed to enable that.
“In many cases Irish mid-market businesses are attractive because they have built up significant knowledge in highly specialised areas such as manufacturing processes for medtech and life sciences,” says Gillian Keating, corporate and commercial partner at RDJ.
“They have a very strong core business often with blue chip clients and an existing international footprint. International buyers see real opportunities for growth and increased profitability with the business supports and capital they can bring.”
While buyers will obviously look at the balance sheet before making a purchase, they don’t stop once they are happy with the revenue numbers. They are interested in acquiring market expertise that has real growth potential.
“Ireland’s mid-market is a strong proposition because buyers can still find businesses with demonstrably resilient performance, repeatable margins, strong cash conversion and defensible customer relationships,” says Ronan Murray, corporate finance partner in EY Ireland.
“Those attributes are being valued more highly in a higher-cost-of-capital environment. Inbound interest also remains strong, particularly from UK, US, and European sponsors.”
This is where Irish companies can really stand out to buyers and investors. They want to see real and sustainable momentum far more than highly ambitious forecasts. They also want to know why founders want to bring them in.
“In practice it’s rarely a single motivation, and founders tend to focus less on the label (growth capital vs. exit) and more on certainty and partnering with the right buyer or investor,” says Murray.
“Succession planning and personal de-risking remain major drivers, particularly for owner-managed businesses where a transaction can crystallise value, diversify personal wealth and reduce concentration risk after several years of cost and supply chain volatility.”
The founder side of the equation is rarely simple. There tends to be a blend of motivations, ranging from a desire for capital to a preference to de-risk through to being open to an exit.
“Founders are either looking for growth capital or an exit depending on the stage of their business. Many strong businesses we deal with have never taken on third-party capital before and only consider an exit when approached by the market,” says Keating.
“Not all founders complete a 100 per cent exit. Many are open to re-invest in the acquiring business once they have had the opportunity to take some money off the table.”
There has been a trend towards sectoral consolidation over the past few years, with professional services amongst the areas seeing the most activity in this regard.
“The last 24 months has seen significant consolidation in the professional services sector,” says Keating, noting that with many accountancy firms have built out their footprint with significant acquisitions.
“We have also seen similar consolidation in the insurance and wealth management sectors.”
Last year, RDJ advised MC2 Accountants, a leading Cork-based audit, tax, and advisory firm on its acquisition by UK accountancy group S&W, which was looking to strengthen its position in the Irish market.
In March LSMQ in Carlow was the most recent of four Irish firms acquired by another UK group, the Goldman Sachs Alternatives-backed AAB. Beyond the professional services, there has also been an increased amount of activity in other specialised sectors.
“We have also seen consolidation in the specialised engineering and manufacturing sectors; many firms in these sectors are attractive because of their core blue chip customer base which can be leveraged by an acquirer across its other pre-existing business streams,” says Keating.
These all have one common element running through them, external investment or acquisition increases the potential for scaling.
“Consolidation is most evident in sectors where scale directly improves economics, resilience and capabilities. This is due to an increased appetite for strategic fit acquisitions, and lower risk growth, often driven by scale and clear operational efficiencies,” says Murray.
Much like the sellers, buyers are mindful of risk and are looking to keep it low. The potential to scale helps in that regard.
“In technology, data, cyber and broader digital services, consolidation and acquisition activity is being driven by capability – buyers are seeking specialist talent and platforms to accelerate product roadmaps and widen capabilities,” says Murray.
The Cork and wider Munster region has been heavily involved in such activity, with international investors taking this mindful approach towards buying or investing in businesses in the region.
“The sale of Cork-based occupational health business Cognate Health Limited to UK-listed Optima Health Plc is a good example of a few of the wider trends we are seeing in the Irish mid-market,” says Murray.
“It highlights continued inbound interest from UK buyers in Irish specialist services, particularly where revenue is underpinned by recurring demand and a regulated, high-trust service offering.”
This impact is being found across sectors with the tech industry in the Munster region also proving attractive.
“A local example is the sale of Cork-based DataLogiX Solutions Ltd to Ekco (backed by Corten Capital). It speaks directly to two of the themes in the market: capability-led acquisitions in areas like technology and private equity-backed consolidation through targeted bolt-on deals.”
Fundamentally, the issue for founders is keeping their business heads on when thinking about an asset that they have moulded from the start.
“Irish founders are emotionally attached to their business and their people and will spend a lot of time ensuring they have a partner they can work with for the long term and who will respect and grow the culture they have developed,” says Keating.
“There is plenty of capital out there for the right businesses so they can afford to be and are choosy when deciding to take on investment.”
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