Chambers Global Practice Guide To Private Equity 2020: Ireland - Corporate and Company Law

1. Trends

1.1 M&A Transactions and Deals

M&A activity in Ireland has proved resilient in recent years. Increased activity from USA and UK private equity funds has been a driver of the market and has opened up liquidity opportunities for sellers that didn't previously exist. Private equity funds are increasingly turning their attention to small to medium sized enterprises which are scaling both at a domestic level and internationally

Recent trends in Irish M&A include the following:

private equity funds are increasingly active in the mid-market space (up to EUR250 million);
there is an increased focus by buyers on the environmental and social governance of the target entity;
US private equity funds in particular are increasingly focused on compliance with anti-bribery and anti-corruption legislation; and
there has been increased shareholder activism in Ireland (a jurisdiction which has traditionally lagged behind the US and UK in this respect) which is shaping the strategy of target entities.

The Impact of COVID-19

The full impact of the global COVID-19 pandemic on M&A activity in Ireland will not be clear for a number of months, and is likely to reshape the M&A landscape for some time to come. The immediate impact of COVID-19 has subsided and we have started to look towards the future and what it might mean for buyers and sellers alike. It is anticipated that there will be a change in the way buyers will look to structure their deals with a greater portion of the consideration likely to be deferred or subject to substantial earn-out provisions.

There is likely to be increased focus on due diligence by buyers and in particular greater scrutiny on a target entity's commercial arrangements and whether those contracts (in particular key customer contracts) are due for renewal in the short term.

1.2 Market Activity

In the last number of years M&A activity in Ireland has revolved around the areas of technology, healthcare, financial services and increasingly, the energy and infrastructure space. The outlook for these sectors remained strong at the start of 2020, notwithstanding the potential impact of Brexit and the uncertainty surrounding the US political landscape. However, the global COVID-19 pandemic has slowed M&A activity for the first half of this year.

2. Legal Developments

2.1 Impact on Private Equity

Following widespread anticipation in the Irish funds industry, the Irish Government published a draft bill in June of last year – the Investment Limited Partnership Bill 2019 – to amend the existing Investment Limited Partnership (ILP) law in Ireland. The Bill sought to introduce a number of important changes that aimed to position the ILP as a leading EU fund vehicle for private equity (PE), real assets and sustainable finance.

Despite a general election along with the impact of COVID-19, the political parties making up the recently formed new government have expressly added the ILP to the new programme for government and legislative schedule for 2020 as they acknowledge its importance to the Irish funds industry

The updated regime for ILPs will introduce a number of positive amendments incorporating best practice features from other leading PE jurisdictions. Once the regime is enacted into legislation in due course, it will open the Irish funds market further to global PE managers, particularly those looking to establish common law partnerships for distribution to European investors via the AIFMD passport.

In the meantime, PE asset managers continue to avail of the Irish collective asset management vehicle (ICAV), a corporate vehicle designed specifically for Irish investment funds. The ICAV is the default Irish funds vehicle and, owing to its structuring flexibility, the ICAV is able to accommodate many PE strategies and PE-centric features (such as capital commitment/drawdown mechanisms, distribution waterfalls and carried interest). Furthermore, the ICAV may be treated as a tax transparent partnership for US federal tax purposes.

3. Regulatory Framework

3.1 Primary Regulators and Regulatory Issues

Monitoring M&A Activity

The sale and purchase of private and public limited companies is governed, in the first instance, by certain provisions of the Companies Act 2014 (the "Act").

The key statutory bodies which monitor M&A activity in Ireland are as follows:

the Irish Takeover Panel (the "Panel") is the statutory body responsible for monitoring and supervising the takeover of relevant public companies in Ireland;
The Competition and Consumer Protection Commission regulates compliance with the Competition Acts (as defined below) and its approval is required for transactions in which the buyer and target operate in the same market and meet certain financial thresholds to ensure that the market remains competitive for consumers;
the Central Bank of Ireland (CBI) monitors compliance by certain regulated financial services companies whose shares are listed on the ISE (as defined below) with applicable EU legislation including, but not limited to, the Prospectus Regulation and the Transparency Directive (each as defined below);
the Irish Stock Exchange (ISE),trading as Euronext Dublin, has issued rules which any entity whose shares are listed on either its main securities market or enterprise securities market need to comply with; and
additional statutory bodies may be involved depending on the relevant industry in which the entities operate (ie, the Commission for Aviation Regulation in the aviation industry).

In addition to the Act, the following legislation applies to the sale and purchase of private and public limited companies (as applicable) in Ireland:

the Irish Takeover Panel Act 1997 and the Takeover Rules (the "Rules") provide the main regulatory framework for the takeover of Irish incorporated public limited companies;
the Substantial Acquisition Rules (SARs) are administered by the Panel and outline the ways in which certain types of acquisitions of shares in a relevant public limited company may be made;
the Competition Acts 2002 to 2014 (the "Competition Acts") determined when anti-trust approval is required for an acquisition or combination;
the European Communities (Cross-Border Mergers) Regulations 2008 (as amended) apply in the case of mergers of an Irish incorporated company with an entity from another EEA jurisdiction;
Regulation (EU) 2017/1129 (as may be amended, the "Prospectus Regulation"); and
the Transparency (Directive 2004/109/EC) Regulations 2007 (as amended) (as may be amended, the "Transparency Directive").

In addition to the above legislation there is, of course, a wide range of legislation that may apply depending on the nature of a specific transaction (ie, data protection, employment and tax legislation).

Regulating Financial Services and Funds

The CBI is Ireland's regulator for financial services and has responsibility for the authorisation and supervision of Irish regulated funds as well as for managers located in Ireland.

As noted above, the most popular investment fund structure in Ireland for PE asset managers continues to be the ICAV, structured as a qualifying investor alternative investment fund (QIAIF). The CBI approval process for the QIAIF is generally a 24-hour turnaround with no "pre-review" of the relevant fund documents. While PE asset managers regularly use the ICAV structure to accommodate their PE strategies, in due course, it is hoped that the ILP will become a leading fund vehicle for PE funds in Ireland. In terms of regulatory overlay, the EU Alternative Investment Fund Managers Directive (AIFMD) provides the framework for the regulation and oversight of alternative investment fund managers, ie, the manager of the QIAIF and the QIAIF itself is subject to the CBI's QIAIF regime which is detailed in the CBI's AIF Rulebook.

In addition to the foregoing regulated structures, it is also possible to set up an unregulated fund by establishing a limited partnership under the Irish Limited Partnerships Act, 1907 (the 1907 Act). While the 1907 Act has not yet been reformed like its English counterpart, these partnerships are being used more commonly as PE managers consider alternatives to the English limited partnership – in particular, it is hoped that, postBrexit, the interest in the 1907 Act partnerships may increase as UK limited partnerships will no longer be as attractive a legal structure for private equity and venture capital funds given that they will no longer constitute an EU AIF and therefore will not benefit from the marketing passport operating under AIFMD.

4. Due Diligence

4.1 General Information

Due diligence of a target is typically carried out on behalf of a private equity buyer by its legal and financial advisers. Legal due diligence will cover a wide number of areas including, but not limited to, employees, litigation, real estate, commercial contracts and IP/IT.

The level of due diligence undertaken will vary from transaction to transaction and will be driven by a risk assessment of the buyer. The buyer will typically be concerned with a number of specific areas which are relevant to the target entity (ie, intellectual property, property leases, etc). In Ireland there has been a recent trend towards the issuance of due diligence reports on a "red-flag" or exceptions only basis.

Data protection and GDPR issues have come into sharp focus for private equity buyers in recent years and we have seen increased concerns by US private equity sellers in particular, in relation to compliance with anti-corruption and bribery legislation. Due diligence reports are prepared by the buyer's advisers and these are commonly shared with the buyers lending institutions on a non-reliance basis. As mentioned in 4.2 Vendor Due Diligence, vendor due diligence reports may be prepared but are not common in Ireland.

4.2 Vendor Due Diligence

Vendor due diligence is relatively rare outside of an auction process sale. As part of an auction process, the seller's advisers may prepare a due diligence report which will be relied upon by the buyer.

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