Just 18% of businesses across Ireland are considering engaging in M&A activity in the next one to two years, with fewer than 10% considering it in the next six months, according to a new survey.

With a background of uncertainty, 69% of businesses cite rising inflation as the top risk for M&A in today’s economic climate, according to the data from Aon, the global professional services firm.

ESG and cyber-risk are areas of growing importance when it comes to due diligence, the survey also shows.

Aon’s M&A in Ireland report, which surveyed 290 businesses across Ireland between April and June, reveals that just 18% of businesses are considering engaging in a merger or acquisition in the next two years.

The short-term outlook is even more stark, with just 7% of business leaders saying they are more likely to engage in M&A activity in the next six months.

This number only marginally improves when the outlook is extended to 12 and 24 months, with only 11% saying they were more likely to engage in M&A activity during those periods.

The vast majority of business leaders, 70% and 71% respectively, say they don’t know, suggesting a wait-and-see attitude to any possible improvement in the current economic climate.

M&A risks and drivers  

Rising inflation, followed by high valuations (45%) and lack of sustainable investment options (43%), constitute the top three risks for business leaders across Ireland who are considering engaging in M&A activity.

The current geopolitical environment was also singled out as an area of concern, with 39% citing geopolitical unrest as a risk.

For those Irish organisations that are contemplating transactions, key drivers include a desire to increase business efficiencies (39%), and protecting and growing market share (33%). 

Other key motivators include accessing skilled talent (28%), highlighting the continued impact of ‘The Great Resignation’, followed by strengthening ability to navigate current volatility (20%). 

Due diligence 

In due diligence, financials have emerged as the top focus area, with human capital ranked second, ahead of legal (37%), and tax (32%). 

There is also a growing awareness of the importance of ESG and cyber security within the due-diligence process, with one-third of business leaders saying that ESG standards are extremely important during a transaction.

However, more than half of respondents say they have not considered ESG to date, showing many businesses across Ireland have yet to establish this link.

Karl Curran (head of M&A at Aon Ireland) said that, after a stellar year for global M&A activity in 2021, the landscape has changed again.

“The invasion of Ukraine has raised geopolitical tensions and the economic impacts are already being felt around the world.

“Inflation is rising and central banks have either started to increase rates or have signalled their intention to do so, while stock markets have gone into reverse in anticipation of a recession,” he said.