Irish Times – December 31st, 2023

Peter Garvey Co-Founder and Partner at Melior Equity Partners

Uncertainty led to market deal volumes decreasing by more than 10 per cent in 2023, a trend anticipated to continue into 2024. Business owners are hunkering down, with only the best companies in resilient sectors getting funded. Active sectors include healthcare, food and increasingly those in the ESG space. We expect private equity investment to remain strong, albeit with a greater reliance on Irish funds as overseas firms retrench. Melior Equity Partners has invested in five great Irish companies over the last couple of years and expects to add two or three new businesses during 2024.

Irish Times – November 13th, 2023

Melior Equity Partners, the Dublin-based private equity firm led by former Irish managers with US investment giant Carlyle Group, has taken a major stake in Monaghan-based NRG Panel (NRG), an installer of solar panels and heat pumps, that is targeting deals of its own.

A spokeswoman for Melior said the stake is in the 40-60 per cent range, but declined to say whether it is a majority or minority interest. It is understood that the investment is at the lower end of the typical amount of between €10 million to €30 million that the firm targets per transaction.

Jonathan Dalton, a managing director at Melior, said that NRG Panel aims to grow both organically and by “strategic” acquisitions.

“We are already in advanced discussions with several potential candidates,” he said.

Founded in 2015 by Conal O’Reilly and Ollie Hughes, NRG provides a range of services that allow residential and commercial customers to improve the energy efficiency of their homes and businesses, reducing costs and carbon emissions. It is on track to post about €20 million of revenues for 2023, having doubled in size in each of the last two years.

The NRG Panel co-founders will continue to be significant shareholders and senior leaders in the business. Conor Foley, an experienced industry executive, has joined the business as chief executive. Melior senior adviser and CEO of electrical goods group Glen Dimplex, Fergal Leamy, has become its chairman.

“This investment will enable us to accelerate our growth and to benefit from Melior’s strategic experience in scaling similar Irish businesses,” said Mr O’Reilly.

Melior was founded by Peter Garvey and Jonathan Cosgrave, former managing directors with Carlyle in the Republic, who co-managed a €290 million private equity fund with Dublin-based Cardinal Capital.

The Melior team is currently deploying capital out of Melior Equity Partners II, a fund which is backed by a pool of local and international blue-chip investors including The Carlyle Group, the European Investment Fund, Ireland Strategic Investment Fund, Bank of Ireland and AIB.

NRG is the fifth investment from the fund. Other investments include insurance brokerage BHP Insurance, treasury management software firm Salmon Software and sweet company Rose Confectionery.

Business Post – February 26st, 2023

Melior Equity Partners co-founders Peter Garvey and Jonny Cosgrave, two of the most experienced deal makers in Ireland, look at deal volume and business valuation trends over the past two years and give their forecast for the rest of 2023.

In December last year, Peter Garvey and Jonny Cosgrave said yes to an offer they couldn’t turn down. The co-founders of Melior Equity Partners, the Dublin-based private equity firm, had received a number of offers to buy BHP Insurance, a corporate insurance brokerage business they had bought themselves just over a year before, in August 2021.

It wasn’t part of the original plan to sell the insurance company so soon after acquiring it, but the offer on the table was simply too good to pass up.

“Normally we hold our investments for about five or six years. We acquired BHP as a buy and build play, thinking that we could build something to sell on to the consolidators in the insurance industry,” Garvey told the Business Post.

“We spent a lot of time trying to acquire other businesses in that space, but we were getting a little frustrated because we were getting outbid on acquisition opportunities. The market for insurance companies was just so hot.

“And then we got a tap on the shoulder from a number of players to see if we wanted to sell BHP. We got some very good offers and we decided to go ahead and sell. We made almost three times our money in under a year-and-a-half on that deal. We were pretty happy.”

Garvey and Cosgrave are two of the most experienced deal makers in Ireland. Having previously worked in M&A and corporate finance roles in London, the pair returned to Ireland in 2014 to lead the Carlyle Cardinal Ireland Fund (CCIF), which was a €292 million fund backed by Cardinal Capital, the Dublin-based alternative finance fund, and Carlyle, the US private equity giant.

Over a six-year period investing the CCIF fund, Garvey and Cosgrave oversaw 11 deals to acquire Irish businesses in a range of sectors, including well-known companies such as Carroll’s Cuisine, Lily O’Brien’s, McCauley Pharmacy and AA Ireland.

The pair went on to establish Melior in January 2020 and raised a new €160 million fund from a variety of backers, including Carlyle and three of the US fund’s original founders: Bill Conway, David Rubenstein and Daniel D’Aniello.

On top of its acquisition, and subsequent sale, of BHP Insurance, Melior has completed two further deals in the past year, acquiring majority stakes in Salmon Software, the Dublin-based treasury management software company, and Rose Confectionery, a sweets, snacks and freeze pops manufacturer in Co Offaly.

With around €100 million of the Melior fund still to be deployed, Garvey and Cosgrave said they are targeting six or seven more deals over the next three years. The M&A investment market has, however, seen enormous change and volatility in the two years since Garvey and Cosgrave first founded the firm.

An influx of international capital, coupled with a bull run in the technology space, drove business valuations to record levels in almost every sector over the last two years. Unsurprisingly, this saw deal volumes almost double in the same period as more and more business owners took the opportunity to de-risk and take some cash off the table.

An analysis carried out by Melior shows there were over 300 deals completed in Ireland during 2021 and again in 2022 – significantly higher than the previous three years, which averaged 180 deals a year between 2018 and 2020.

The last six months, however, have seen a significant readjustment in the corporate finance landscape as interest rates began to rise and Central Banks tightened monetary policy. According to Melior’s figures, the number of M&A deals completed in Ireland last year was down 5 per cent at just over 300 transactions.

Cosgrave said 2022 was a tale of two halves, with a significant slowdown in deal volumes in the final months of last year.

“In the first half of last year there was still a lot of optimism in the market. Deal volumes in the first six months of last year were up 8 per cent year on year, with over 150 transactions completed,” Cosgrave said.

“But the second half of the year was a completely different story due to the war in Ukraine, record energy prices, high inflation and rising interest rates. This combination saw deal volumes for the second half of last year fall 16 per cent on the same period in 2021, and I expect that trend to continue this year.

“There’s still a lot of strategic capital and private equity money out there in the market looking to be invested. But deals are taking longer to complete. I think deal volumes will probably fall to the low 200s this year, but will still remain above pre-pandemic levels.”

‘Equity is stuffed with cash’

Aside from the higher volume of deals, Garvey and Cosgrave said the rise in activity in the market drove company valuations to very expensive levels. The surge in business valuations during 2021 and early 2022 even prompted Denis O’Brien, the billionaire founder of the Digicel Group, to encourage business owners to sell up.

“Right now the markets are so hot, private equity is just so stuffed with cash, that they’re trying to buy businesses all over the world,” O’Brien said in December 2021.

“This is a time where people can sell their businesses at higher multiples than they ever, ever expected. I’m always a great believer that if somebody gives you a big valuation of your business, take it. In the space of a year, things can change, and you can spend the next five years with your business and not grow the value of it.”

The M&A market is quite different in the 12 months since O’Brien made those comments, and valuations are now starting to correct. That said, acquiring companies is still quite expensive when compared to the long-term average, according to the Melior co-founders.

“Valuations got quite frothy over recent years, but with all the volatility last year from the war, higher interest rates and all that stuff, we estimate valuations came back about 15 per cent on average in 2022,” Garvey said.

“But if you compare last year’s figures with 2020 or before the pandemic, valuations were still about 10 per cent higher. So valuations were quite frothy and now they’re coming down a bit, particularly in the second half of last year. But they’re still above long-term valuation averages.”

In the last 12 months, Garvey and Cosgrave said the valuations for tech companies alone had plunged 50 per cent from their peak, which underscores the uncertainty that continues to hang over the global tech industry.

“There were a lot of companies out there that had good underlying business models, but the founders drove their business way too fast such that the quality of people or revenue they added over that time was just lower. And so, the incremental return is lower,” Cosgrave said.

“Interest rates at zero created a massive misallocation of capital. How that will unwind itself should present opportunities.”

Garvey and Cosgrave said that Melior will likely complete two or three deals this year, with a number in the pipeline that are at an advanced stage. The firm typically invests €10 million to €35 million in equity into a company, depending on its size.

Garvey said the firm generally goes for businesses in any sector that are owner-founder led and are making at least €2 million in profits.

“The types of companies we like are recurring revenue technology businesses, healthcare businesses and, to a lesser extent, financial services firms. We’re also very comfortable buying what are classed as more traditional businesses in the food sector,” he said.

“Sometimes we will invest in businesses that are break-even but have really good growth stories, but in general we go for profitable companies. We don’t do distressed acquisitions. We don’t feel that’s a space that we’re properly resourced to do as it can be quite labour intensive.

“We’re very much growth capital investors. We want to sit down with management teams to create a plan with them that they will drive to double or triple the size of the business in a four- or five-year period. We’re really looking for four or five shots on goal to make that happen.”

The pair said their investment offer to business owners is both a means to help them take some cash off the table, and also help de-risk important business decisions for the future growth of the company.

“A lot of Irish entrepreneurs have an illiquid asset that is very valuable but very concentrated. If we come in, it allows the business owner to take some cash off the table, but we also want owners to roll in a big chunk of equity alongside us. We want them to be highly motivated,” Garvey said.

“We talk about creating the conditions for growth in a business. That’s fundamentally about getting a business owner to change their appetite for what they see as risk but what we see as sensible business decisions.

“We used to worry about business owners not coming into work the next Monday after we did a deal. But actually what we find is that they come to work the next week and they’re ready to go. It gives them the chance to take a good bit of money off the table and go again.”

February 1st, 2023

Jonathan Dalton spoke to Emmet Oliver on this morning’s Newstalk Breakfast Business show about the results of Melior’s Funding for Growth Survey and the broader SME environment.

January 29th, 2023

The majority of Irish small-to-medium sized enterprises are optimistic about the business environment in Ireland for 2023 despite the myriad challenges facing the economy, a new survey has found.

Despite difficulties including high inflation and falling consumer demand, 70 per cent of Irish SMEs said they were either “quite optimistic” or “very optimistic” when asked about their outlook for 2023 in a recent survey carried out by Melior Equity Partners, the Dublin-based private equity firm.

Almost a third of SMEs (30 per cent) said expansion into new export markets would be the main driver of growth this year, while just over 25 per cent expect to drive growth through increased sales to existing customers. Just 15 per cent of SMEs believe growth will be fuelled by acquisitions this year, suggesting a reluctance to pursue M&A given the high valuations for businesses over recent years.

“The optimistic outlook of Irish SMEs underlines their resilience despite current market challenges and is also a positive indication for the Irish economy going into 2023,” Jonathan Dalton, managing director of Melior, said.

“New market entry being the primary growth driver is no surprise. It reinforces our own first-hand experience that Irish entrepreneurs are hungry for international expansion, a factor that has led to many previous Irish success stories.”

The findings of the survey, which included responses from more than 50 business owners and senior executives across a range of sectors including consumer, business services, technology and healthcare, also found that inflation remained the greatest challenge for Irish companies this year.

A third of SMEs said inflation was the most pressing challenge facing their business today, while 31 per cent of respondents identified weakening consumer demand as their main concern. Just over 20 per cent said staff retention or recruitment would be the biggest challenge, while only 10 per cent said it would be rising interest rates.

January 12th, 2023

Esmond Greene discussing with Deirdre Morrison about how private equity works and why it can often be the right choice for motivated management teams and founders.

January 8th, 2023

Peter Garvey Co-Founder and Partner at Melior Equity Partners

“Private equity will comprise an increasing share of Irish M&A activity in 2023 as business owners look for experienced partners to help them accelerate their growth. Macroeconomic uncertainty, interest rate hikes and the resulting reduction in valuations led to declining deal volumes in 2022. That trend is expected to continue in 2023. Nevertheless, good companies will always attract capital. Melior Equity Partners was delighted to invest in three great Irish companies over the past 18 months. We will likely make a similar number of investments in 2023.”