1. Tell us about the Growth Team within Goodbody Corporate Advisory?

The Goodbody Growth Team offers a wide range of services to private companies who are seeking to grow quickly, whether through acquisition or organically. Our advisory services include equity and debt fundraising and buy side and sell side M&A advisory. We cover a broad spectrum of transaction sizes – everything from late-stage series A funding of approx. €10m, buy and sell side M&A and private equity capitalisation, right through to companies who are planning to list on the stock market.

We advise strategic trade buyers and private equity buyers of growth companies across the UK and Ireland, who are looking to deploy large pools of capital. Our role is to identify or position potential investment opportunities in the market and then seek to bring capital to the table to effect a transaction. Ireland has a strong domestic private equity ecosystem with well established managers now deploying their 2nd generation funds.

We have recently added to our senior team - David O’Flynn joined us in March 2023. David brings over 20 years of healthcare business development and corporate finance experience focussed mainly on the medical device and pharma sectors, advising on capital funding, M&A and strategic development.

2. What sectors do you think will see the most activity in 2023?

We expect to see activity this year in Healthcare, Business Services and Support Services, Technology and Financial Services sectors. Logistics, for example, as a sub sector of support services has seen an increase in M&A activity, which is a function of the supply chain disruptions that happened during COVID-19. There is also the political dimension driving consolidation in this space where companies who previously outsourced to China/ Southeast Asia are now looking to nearshore some of these activities to shorten lead times for customers and to reduce dependency on China/Southeast Asia.

We also expect to see strong interest in renewables and engineering, while businesses that support utility and infrastructure investment in water, power and data centres will also require investment.

Within Technology, Cyber Security will continue to see a lot of activity, driven by the ever-increasing number of cyber-attacks, increasing demand for specialty managed IT services companies and cyber security products.

3. What is the capital raising outlook for growth companies and key trends you and the team are seeing?

During 2020/2021 we saw a lot of companies focused on driving top line growth, often at the expense of the bottom line. We are seeing a reversal of that trend now and loss making companies are focused on getting to cash flow breakeven very quickly as investors are no longer prepared to support growth at any cost. The outlook remains strong with significant capital still available for growth companies with strong unit economics who are within sight of profitability. These companies will remain very attractive to acquirers and investors.

Notwithstanding the significant contraction in the debt market since last summer there is both equity and debt capital available for companies if they have sensible growth plans and valuations. The increased cost of funding is impacting company valuations and also slowing the pace of M&A buy and build activities for some of these companies.

There was a significant amount of hiring ahead of the curve in 2020 and 2021 with companies expanding quite rapidly and now there is a reversal of that, especially in the tech sector. 2023 so far has been a year for steadying the ship.

It’ll be interesting to see what markets will look like in H2. There was an expectation that we would see capital markets open in H2 with some IPOs. The London Stock Exchange has flagged a pipeline of companies waiting to IPO, however the more recent banking crisis sparked by Silicon Valley Bank, Credit Suisse, First Republic and others will push some IPO timelines into 2024.

4. What are investors/buyers currently focussing on? Can you see any themes emerging?

It is a good market for trade buyers to acquire businesses right now. There is less competition and private equity are more cautious in pricing deals at the moment.

For earlier stage growth companies, we are seeing a lot of internal rounds and down rounds happening this year. Companies are looking to shore up their balance sheets and raise more capital from existing investors or raise debt instead of raising more equity where they can, to try and avoid dilution and give them more time to hit certain key commercial milestones.

We have also seen the level of activity from later stage investors dialing right back. VC investors have been re-focusing on earlier-stage investing, backing companies who are building their teams, building their revenue base, and expanding their businesses at a more measured pace.

Overall, there continues to be strong appetite for deals from the private equity community in Ireland and overseas. While deal flow has certainly receded slightly, transactions are still coming to market, but the bar is higher to get through investment committees.

5. What is your view on the current outlook for mid-market M&A in Ireland for 2023?

We are cautiously optimistic about the outlook for mid-market M&A in Ireland. Well-funded corporates with strong balance sheets are positioned to capitalise in this market. Private equity firms who don’t have any problem cases in their portfolio and invested strategically over the last couple of years, will likely maintain a similar investment approach.

Investors are being realistic in this market and are not expecting the same level of growth that they would have previously. Companies who can demonstrate some level of growth compared to the market and show expansion within their customer base will capture investors’ attention.