Is 2020 a year of consolidation for the Irish market?
Towards the end of last year, Arkphire acquired Trilogy Technologies in a deal which was described as “the first major move of significant scale towards industry consolidation in the Irish ICT managed services sector,” by Arkphire’s CEO Pascal Naylor. While many were still digesting the news and considering its implications, it was announced early in 2020 that Calligo had acquired Dublin-based MSP DC Networks.
Having two acquisitions so close together was bound to lead some people to ask whether this presaged the start of renewed enthusiasm for mergers and acquisitions. It’s interesting to note that, according to analysis by Refinitiv, Irish involvement in technology M&A deals in 2019 was up 16% on 2018 by value to nearly $5.8 billion, although the number of deals was down 22% to 68.
At the announcement of the acquisition of Trilogy, Naylor claimed the acquisition “strengthens and deepens our people and leadership resources to deliver critical scale for the business”. Intriguingly, the company being bought in this instance had previously been an acquirer, snapping up Zinopy in September 2018, in a deal which Creely described as “transformational” for the company. Trilogy also bought B2Lateral in 2014 to gain a presence in the UK market.
As for Calligo’s purchase of Irish MSP DC Networks, CEO Julian Box said as a country “populated by a high proportion of ambitious, data-driven businesses eager to explore how they can make the fullest use of their data and make it work harder for them, Ireland was clearly the logical next step for Calligo’s international expansion.” But it was also “a strategic target,” he added, because it bolstered the company’s “ability to provide local, European and international businesses with a full suite of data-centric managed services that satisfy all requirements in data residency, data privacy and data ethics”.
In light of these two deals, should we expect significant consolidation in the Irish market over the next 12 months? If so, what trends will drive it? Could the UK’s exit from the EU lead to more acquisitions? Or might there be factors at play this year which serve to inhibit further consolidation?
“From our perspective, we think there will be further consolidation,” says Paul Richmond, business development manager with TEKenable. “Cloud has impacted on traditional MSPs and they are trying to diversify away from their traditional market and offer a wider range of services. We would have been approached a number of times over the years by MSPs interested in acquiring us to complement their service offering.”
He agrees that the funding is available for acquisitions. “There’s lots of money around,” he says, “and it always creates a favourable context when it’s possible to raise funding to do acquisitions.” It’s also true that valuations are higher so “people may be more inclined to sell. Everybody wants to cash out at the top of the market. Somebody selling their business now will be getting a much better price than in 2012/2013. There are more people willing to sell. Five years ago, there weren’t because they wouldn’t get much for their business.”
As for Brexit, he says it’s hard to know exactly what effect it might have because there is still uncertainty over what type of Brexit it will be. “The spectre of hard Brexit is still there, but I don’t see the UK’s exit from the EU having a huge impact one way or the other. The overall state of the economy is probably the biggest factor,” Richmond adds, noting that Davy recently upgraded its GDP growth forecast for Ireland to 5.5%.
As for businesses from abroad acquiring Irish businesses, he comments that “there has been a little bit of that”, citing Google’s intention to buy Pointy. “You will always have interest from abroad in Irish companies growing rapidly. Would the fact the UK is out of the EU mean there is likely to be interest from US companies buying here to get a base into Europe? Possibly.”
When it comes to Irish companies buying into the UK market, it’s a possibility. “Could the prices be good because there’s a lot of uncertainty?,” he asks. “Might companies want a base over there so they are less worried about restrictions and tariffs if the UK is outside the EU? We wouldn’t have huge exposure to the UK because 90% of our business is in Ireland.”
He remarks that “over the last 25 years, there hasn’t been consolidation necessarily, because there’s a steady supply of new companies always coming up, technology changes and new areas are opened up, like artificial intelligence and machine learning. Companies exist in that space that didn’t exist a few years ago.”
The above text excerpts reproduced here first appeared in TechCentral.ie penned by Billy MacInnes, on February 10, 2020.