1.1 M&A Market
M&A activity in Ireland in 2015 was at its strongest in terms of deal value since 2008, with pharmaceutical and biotech-led deals accounting for the vast majority of transactions. Whilst overall EU economic performance has remained sluggish, the Irish economy has undoubtedly turned a corner. Ireland's early exit from the bailout in late 2013 instilled confidence internationally in relation to the country's future growth prospects, which has in turn driven growth in M&A activity.
Deal values increased significantly in 2015, which saw a rise of 316% from EUR45 billion in 2014, to EUR189 billion in 2015. These figures include two mega-value transactions, namely Medtronic's EUR33.9 billion acquisition of Covidien, the largest European deal of 2014, and Pfizer's (unsuccessful) EUR172.6 billion bid for Allergan, announced in November 2015. Excluding these transactions, deal values increased by 41%, from EUR11.4 billion in 2014 to EUR16.1 billion in 2015. In contrast, deal volume decreased by 13% during the same period, from 120 deals in 2014 to 104 deals in 2015.
Inbound M&A continued to be responsible for the highest value deals, with nine of the ten largest deals by value in 2015 involving non-Irish bidders. Ireland has become one of the most targeted countries by US companies, with 36 deals worth USD190.7 billion in 2015, representing an 8th consecutive annual increase in US investment in Ireland.
Outbound activity also featured strongly, with outbound deals accounting for half of all M&A activity in 2015, comprising a 42% increase from 2014.
1.2 Key Trends
The mid-market sector was particularly active in terms of domestic buyers, some of which were funded by private equity rather than traditional bank finance. There was also an increase in alternative capital providers, primarily in the area of property financing. It is expected that mezzanine finance providers will also look to expand into other areas in 2016. Consistent with this trend is the fact that larger Irish companies are increasingly turning to the bond market as a means of raising capital.
Ireland continued to be one of the busiest loan sales markets in Europe in 2015, which was a key factor in driving M&A activity. Whilst there is likely to be a smaller number of loan portfolio sales during 2016, given that many of the key players in the banking sector have largely completed their deleveraging processes, it is also expected that 2016 will see an increase in the number of secondary loan sales.
It is also expected that private equity firms and international funds invested in Irish assets will be active sellers in 2016, whilst continuing to target acquisitions.
1.3 Key Industries
The sectors which have traditionally seen strong levels of investment in Ireland, such as TMT (29% of deal volume in 2015), pharma, medical and biotech (12% of deal volume in 2015), agri-food and financial services, continue to see high levels of activity and are expected to do so in 2016. A significant strengthening of domestic-facing mid-market transactions is now beginning to be seen in sectors which have, up to now, lagged behind the Irish economic recovery, such as retail and leisure (13% of deal volume in 2015). There was also strong activity in the business services sector (13% of deal volume in 2015), including the USD18 billion "merger of equals" of Willis, the third-largest insurance broker in the world, and financial management services provider, Towers Watson.
2. Overview of Regulatory Field
2.1 Acquiring a Company
The primary acquisition structures for private M&A in Ireland are as follows:
- a private purchase of shares in a target company, which is typically documented by means of a share purchase agreement; and
- a private purchase of a target company's underlying assets and, if applicable, liabilities, which is typically documented by means of an asset and business transfer agreement.
A purchaser may pay in cash, securities or a combination of both.
The Irish Takeover Panel Act 1997, Takeover Rules 2013 (the "Irish Takeover Rules") provide the main regulatory framework for the conduct of public M&A takeovers of Irish incorporated public listed companies. A takeover may be structured as a tender offer, a court-approved scheme of arrangement or a merger. On a tender offer, the bidder makes an offer directly to target shareholders to accept or reject the offer. In contrast to a tender offer, which is controlled by the bidder, a scheme of arrangement is driven primarily by the target company. Most of the Irish Takeover Rules apply in an equivalent manner to a scheme of arrangement, as they would to a tender offer, although there are some changes required by virtue of the different procedures and timeframes. Consequently, there is more flexibility around the timing of a scheme of arrangement. Structured properly, a scheme of arrangement also allows the bidder to avoid stamp duty (1%).
A reverse takeover under the Irish Takeover Rules may also be used to acquire control of an Irish incorporated public listed company. This structure has been used in a number of the more recent "inversion" transactions.
A public M&A takeover may be either a voluntary offer, which the bidder elects to launch, or a mandatory offer, which the bidder is required to make under the Irish Takeover Rules. In either case, the views of the target board will determine whether the takeover is recommended or hostile.
A new domestic statutory merger regime was recently introduced in Ireland. A merger can be effected between two or more Irish companies where at least one of the companies is a simplified form of Irish private company limited by shares. The following types of mergers are possible and, in each case, the transferor company is dissolved without going into liquidation:
- merger by acquisition: an operation in which a company acquires all the assets and liabilities of one or more transferor companies in exchange for the issue by that company of shares to the member(s) of the transferor companies;
- merger by absorption: an operation whereby a wholly owned subsidiary transfers all of its assets and liabilities to its holding company; and
- merger by formation of a new company: an operation in which one or more transferor companies transfer all of their respective assets and liabilities to a new company in exchange for the issue by that company of shares to the member(s) of the transferor company.
Such mergers can be carried out either by way of application to the Irish High Court for a confirmation order, or by using a summary approval procedure under Irish company law. In each case, the directors of the merging companies must draw up and approve common draft terms that must contain prescribed information. Except in the case of a merger by absorption, an explanatory report must also be prepared and approved with respect to each merging company (but this requirement may be dispensed with where all the holders of voting shares in the merging companies so agree). Subject to some exceptions, an expert's (auditor's) report is required, opining on the share exchange ratio involved in the merger. There are also specific requirements concerning the registration, publication and inspection of specified merger documents.
The European Communities (Cross-Border Mergers) Regulations 2008 (as amended), upon which the new domestic statutory merger regime is based, continue to govern cross-border mergers between Irish limited liability companies and companies from different states within the European Economic Area.
2.2 Primary Regulators
The Irish Takeover Panel (the "Panel") is the regulator of public takeovers in Ireland. The Panel administers the Irish Takeover Rules and is designated as the competent authority to undertake certain regulatory functions pursuant to the Directive on Takeover Bids (2004/25/EC). The Panel operates principally to ensure fair and equal treatment of all target shareholders in relation to public takeovers (whether structured by way of tender offer or a court-approved scheme of arrangement). The Panel works on a day-to-day basis through an executive Director General; the current Director General is Miceal Ryan.
The Panel has a statutory right, on its own initiative, or at the request of certain specified parties, to enquire into the conduct of any person where it has reasonable grounds for believing that a contravention of the general principles on which the Irish Takeover Rules are based, or the Irish Takeover Rules, has occurred or may occur. The Panel may, following an enquiry into the conduct of any person, advise, admonish or censure that person in relation to such conduct and may publish the fact that it has done so. A party who has been so advised, admonished or censured has a right to appeal to the Irish High Court.
The Central Bank of Ireland is the competent authority in Ireland for the purposes of the Prospectus (Directive 2003/71/EC) Regulations 2005 and the Transparency (Directive 2004/109/EC) Regulations 2007, as amended.
The Competition and Consumer Protection Commission (CCPC) is primarily responsible for the enforcement of the Irish merger control regime. The CCPC shares responsibility for media mergers with the Minister for Communications, Energy and Natural Resources.
The Office of the Director of Corporate Enforcement, Ireland's corporate watchdog, carries out a number of functions, including encouraging compliance with the Companies Act, carrying out investigations and enforcing the Companies Act by the prosecution of offences.
Depending on the relevant industry of the undertakings involved (for example, airlines and financial institutions), an M&A transaction may also trigger the involvement of additional regulators.
2.3 Restrictions on Foreign Investment
There are no restrictions on foreign investment in Ireland. In some regulated industries in Ireland, regulatory consent and clearances may be required to effect an M&A transaction, for example media mergers, airlines and financial services.
2.4 Antitrust Regulations
The Irish Competition Acts 2002 to 2014 (the "Competition Act") govern various aspects of the Irish merger control regime. Business combinations that do not meet the financial thresholds set out in Article 1 of the EU Merger Regulation (Council Regulation (EC) 139/2004) (EUMR) fall to be assessed under the Competition Act.
The Competition Act established the CCPC, which is primarily responsible for the enforcement of the Irish merger control regime. The CCPC shares responsibility for regulating media mergers with the Minister for Communications, Energy and Natural Resources. The Irish courts have jurisdiction to adjudicate on any allegation of breach of the Competition Act and on any appeal against a merger decision by the CCPC.
Business combinations require prior notification to the CCPC where the aggregate turnover in Ireland of the undertakings involved is not less than EUR50 million, and the turnover in Ireland of each of at least two of the undertakings involved is not less than EUR3 million.
The CCPC is responsible for carrying out a substantive competition review to determine whether the merger is likely to give rise to a substantial lessening of competition. The CCPC has 30 working days to reach a Phase I determination of whether the merger or acquisition gives rise to a substantial lessening of competition concern. If the CCPC is unable to form a view in this time, it may open a Phase II review of the merger or acquisition whereby it has 120 working days to reach a determination of whether the merger or acquisition gives rise to a substantial lessening of competition concern. Alternatively, it may request further information from the undertakings involved in the merger or acquisition.
Furthermore, "full-function" joint ventures are also caught by the Competition Act. The relevant definition is included in section 16(4) of the Competition Act: "The creation of a joint venture to perform, on a lasting basis, all the functions of an autonomous economic entity shall constitute a merger." The wording is closely based on the EUMR. The CCPC and the European Commission adopt similar approaches in identifying whether joint ventures are subject to merger control law.
Following its review, the CCPC must (i) determine that the merger or acquisition may be put into effect, (ii) determine that it may be put into effect subject to conditions, or (iii) determine it may not be put into effect.
All media mergers must be notified to the CCPC and the Minister for Communications, Energy and Natural Resources, regardless of whether the financial thresholds set out above are met. Following a CCPC review, the Minister for Communications has responsibility for consideration of whether the media merger gives rise to a media plurality concern: namely, "whether the result of the media merger will not be contrary to the public interest in protecting the plurality of the media" in Ireland and this includes a review of "diversity of ownership and diversity of content."
A notification must be submitted to the CCPC prior to the implementation of the business combination, and may be made if the undertakings involved demonstrate a good-faith intention to conclude an agreement. This approach is in line with practice under the EUMR. It is a criminal offence wilfully and knowingly to fail to notify of a merger that is caught by the jurisdictional thresholds, which is punishable by fines of up to EUR250,000.
2.5 Labour Law Regulations
The European Communities (Protection of Employees on Transfer of Undertakings) Regulations 2003 (the "Transfer Regulations") apply to an asset purchase if there is a transfer of an undertaking, in which case the employees of the target company will transfer to the acquirer. Where the Transfer Regulations apply, there are certain information and consultation obligations imposed on both the purchaser and the seller, which must take place, where reasonably practicable, not later than 30 days before the transfer is carried out, and otherwise in good time before the transfer is carried out.
The purchaser will require considerable information from the seller in order to enable it adequately to match the transferring employees' terms and conditions and incorporate them into its workforce. Under the Employees (Provision of Information and Consultation) Act 2006, a seller is required to notify a purchaser of all the rights and obligations arising from a contract of employment existing on the date of transfer which will be transferred to the purchaser, on receipt of a written notice from the purchaser to the seller setting out what information the purchaser believes may be in the possession of the seller and requesting that information. Furthermore, where the Transfer Regulations apply, it is not permissible for the new employer (the purchaser) to vary the terms and conditions of the transferred employees where the reason for the variation is the transfer itself. The Transfer Regulations also prohibit the dismissal of an employee where the grounds for the dismissal are the transfer itself, unless the employee is dismissed for "economic, technical or organisational reasons which entail changes in the workforce."
Unlike an acquisition of assets, a share acquisition will not generally trigger a duty to inform and consult employee representatives, or the automatic transfer of contracts of employment under the Transfer Regulations. However, there may be broader obligations to inform and consult with trade unions or other employee representative bodies (including any works councils that may exist) about a proposed takeover, for example under the terms of any separate information and consultation agreement, collective agreement, or agreement with a works' council or other employee representative body.
Further, subsequent business restructuring or rationalisation measures could trigger a requirement for the relevant employing entity to make redundancies, in turn possibly triggering collective redundancy consultation obligations under the Protection of Employment Act 1977, as amended (the "Collective Redundancies Legislation"), and exposure to potential liability for employment-related claims, including unfair dismissal, discriminatory dismissal, etc. Failure to comply with the appropriate notification and consultation obligations under the Collective Redundancies Legislation (where applicable) may result in a claim against the employer by any one of the employees. An adjudication officer of the Workplace Relations Commission can award compensation of up to four weeks' gross remuneration per employee. Criminal sanctions may also be imposed on an employer for failure to comply with the provisions of the Collective Redundancies Legislation, which include a potential fine of up to EUR250,000 where collective redundancies are effected by an employer before the expiry of the 30-day period.
2.6 National Security Review
There is no national security review of acquisitions in Ireland.
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