The sluggish property market has led to a new breed of risk-takers, writes Robert Cave.  Growth by acquisition is an excellent business development tool. It can provide the acquirer with immediate scale advantage and immediate cost savings. Take-overs also allow companies to overcome market entry barriers, gain technical skills, or bring them to a market position which would otherwise take years to achieve.

Over the last three years, the appetite among a new generation of Irish businesses and financial investors to acquire companies in overseas markets has grown sharply.  We would expect this momentum to continue to grow in 2007 and 2008 as the M&A landscape and its characteristics shift. This change is being driven by several key factors, both domestic and overseas. We see traditional Irish players in fragmented markets, such as distribution and old family businesses that do not have the required economies of scale, consolidating rapidly. This will leave only a dwindling availability of attractive acquisition targets for ambitious domestic purchasers.

Irish-based investors now have a greater ability to raise significant amounts of debt in their home market, in a currency and at rates that they are familiar with, leveraging off assets in Ireland rather than the assets of the overseas target. A new tier of entrepreneurs, characterised by an air of confidence, aggression, and perhaps a more professional approach to risk mitigation, is emerging in Ireland.

Those who have seen the success of Irish business leaders in closing major deals worldwide, such as that of Liam O'Mahony of CRH, now feel confident in replicating that success. Whereas growth by serial acquisition was once the preserve of a select group of large, corporate multinationals, Irish businesses now have an appetite, and are demonstrating an increased ability, to grow by acquisition.

The current stage of the property market means that investors are no longer able to make the large short-term returns that have prevailed over the past number of years. Yields on many property investments are in low single digits; this contrasts markedly with the potential returns of circa 20 per cent on investing in a commercial company within a growth sector. Serial entrepreneurs now perceive business acquisition as a means of creating wealth, and have accordingly set about acquiring medium-sized companies as a distinct asset class. A notable trend in recent years has been the emergence of a new type of acquirer on the international Irish M&A scene.

Traditionally, companies made acquisitions primarily to gain critical mass, improve market share, or benefit from operational synergies. New acquirers now increasingly include large private companies that are making acquisitions in growth sectors both in Ireland and overseas, unrelated to their core business, for diversification purposes. These companies, and a small number of investment houses, are acting as quasi-private equity investors, providing management teams with backing to complete MBOs in growth areas. Frequently, the apparent strategy is to roll up a number of companies within fragmented sectors where growth potential exists. M&A would not be possible without the changes that have become evident in the banking sector over the last number of years. There is now increased availability of debt financing, enhanced by creative lending options and favourable funding terms, which has enabled this high level of growth in acquisition activity.

Growth in cashflow-based lending has facilitated organic growth, and creative lending options, such as combined debt and equity packages, have allowed companies to execute ambitious acquisition strategies. Increased liquidity has been driven by high levels of competition within the corporate banking sector, increased exposure and tightening of margins on property deals, as well as the performance of AIM and IEX-listed companies, as investors diversify their wealth into emerging, high-growth companies. In addition, executives are now able to gain regular access to areas such as central and eastern Europe that only five years ago were seen as remote and inaccessible.

I worked in the early part of the decade for eTel, which was one of the first strategic Irish investors in the 'old' CEE states of the Czech Republic, Hungary and Poland. Back then the only way to travel to these states from Dublin was via Frankfurt and the flight would cost upwards of €400 and take the best part of a day. Now there are up to 6 direct flights per day and it takes two and a half hours and costs under €100. These states have therefore become accessible to a new wave of potential investors looking to take advantage of the countries' accessibility, recent accession credentials, skilled workforce and high growth rates.

The environment for doing cross-border deals has probably never been as favourable, and we have seen increased demand for transaction assistance outside of Ireland. However, as a recent survey by Merger Market discovered, the sense is that the cross-border M&A market will move away from congested and somewhat overvalued territories towards Central and Eastern Europe and neighbouring economies such as Turkey.

There are always local twists in transacting across Europe but even the deal documentation and deal structures have now become radically homogenised, with all the normal elements you would expect in an Irish M&A transaction occurring in an overseas deal, such as heads of terms, share purchase agreements, disclosure letters and tax deeds. Even though few of the world's top businesses have achieved success without carrying out cross-border acquisitions, it is perhaps worth remembering that numerous surveys have shown that over 50 per cent of acquisitions fail to meet original expectations.

As is always the case: let the buyer beware.

Robert Cave is director of corporate finance at CFM Capital