Comment: Irish investment opportunities looking good

3 Nov 2004

At a time when venture capital (VC) investment across Europe as a whole appears to be waning, the Irish investment market appears to be buoyant with indigenous technology players offering both good investment opportunities and a good return on investment (RoI) for exiting venture capitalists. Indications are that Ireland occupies the middle ground in European investment activity; halfway between the frenzy of investment in now-defunct tech plays during the dotcom boom and the slow trickle of investment characteristic of the past three years.

Investors are putting their hands up and saying “Yes, we are getting good return on investment from Irish technology companies.” Joe Devine, a director of Ion Equity, confirmed in recent weeks that international investors were enjoying good RoI in Irish technology firms, capitalising on a trend amongst US technology giants to acquire better European merging technology companies.

In Ion Equity’s quarterly merger and acquisition (M&A) tracker, technology M&As accounted for €162m — or around 10pc — of the €1.6bn worth of M&A transactions during the third quarter of this year, marked by such major deals as Avaya’s €85.7m acquisition of Spectel and BT’s acquisition of Belfast-based BIC Systems for €25m.

Despite the good returns claimed on Irish investments, however, Devine’s colleague, Ion Equity’s CEO Neil O’Leary highlighted a sharp fall in technology fund-raising in the third quarter, with the €23.2m investment in the period no more than a quarter of €87.9m invested in the second quarter of the year. That said, it is an increase on the same period last year, when only €18m was invested.
“The level of investment in the third period partly reflects the traditional seasonal lull in the summer period and we expect some pick-up in the level of investment in the coming quarters,” O’Leary continued.

He added, however, that investment in Irish companies is unlikely to reach the level of the second quarter of 2004 when a number of large deals, such as the €15m invested in e-Net, distorted the trend of a slow but gradual improvement in early-stage technology investment. “There is plenty of capital available but fewer good candidates are coming through for later-stage funding than was the case two or three years ago,” O’Leary added.

The third quarter figures show continued strength in the telecom software sectors with fundraisings for telecom rating firm Am-Beo and telecom operator middleware firm MobileAware.
The third quarter was also noteworthy for the increased level of investment in Irish life sciences and biotech companies with investments in the artery sealing devices firm Nova Science and also in Genable Technologies, which develops gene therapies for the treatment of inherited diseases.

The biggest single investments in the period were the €5m invested in Nova Science by ACT, Advent, Intel and Enterprise Ireland and a similar investment in Microsol by ICC Venture Capital and Anglo Irish Bank.

O’Leary’s assertion that Ireland is one of the better funded European economies was confirmed by the Irish Venture Capital Association (IVCA), which estimated that Irish venture capitalists alone have between €150m and €200m to invest and that some 90pc of this is likely to be invested in the technology sector.

Speaking at the IVCA’s recent annual dinner in Dublin, the association’s chairman Shay Garvey warned that Ireland can no longer rely on foreign direct investment where growth rates will inevitably decline.

To reverse this decline, Garvey offered: “We have got to increase export growth from the indigenous sector where the only area of growth in the past 10 years has been the export of internationally traded services and technology, particularly software.”

But he said that if the indigenous technology sector is to be a real motor for Irish growth then the number of start-ups needed to increase from the current 200 a year to 500.

Commenting on the health of the VC sector, he said it had negotiated the technology boom and bust of the past 10 years better than most European countries.

“The original VC funds set up in 1994 have generated good returns for their investors. Also in the first nine months of 2004 there have been several trade sales of Irish companies at high valuations,” commented Garvey. He added that aggregate investments made by Irish venture capitalists in the past decade now stands at close to €1bn spread across hundreds of companies.

Garvey welcomed the increased investment in third-level research and development by the Higher Education Authority and Science Foundation Ireland but said that this needs to be further increased to reach the levels of investment in other European countries.
He continued by saying that the desired 500 technology start-ups a year will also need increased VC investment to grow and to be successful. The VC industry itself therefore needs to grow both in people, capital under management and also in the skills it brings to bear in assisting companies to develop and be successful.

“The Irish VC industry itself needs to internationalise and strengthen investment links with international venture capitalists,” Garvey concluded.

By John Kennedy