Big plans for the future of financial services in Ireland
During the COVID-19 pandemic, the financial services sector in Ireland was one of the more resilient. With its digitalisation during the past few years, the sector could carry on and continue to be a major contributor to Ireland’s economy.
Now pandemic restrictions are easing and the economy is opening back up, the sector is well placed to grow strongly.
The government has backed the financial services sector domestically and internationally for many years, latterly with strategies such as the five-year IFS 2020, which sought to develop the sector globally. This was followed by a new five-year plan, Finance for Ireland [www.skillnetireland.ie/wp-content/uploads/2019/04/Ireland-for-Finance-2025.pdf], which aims for Ireland to become a top-tier destination of choice for overseas financial services companies and increase how many people are employed in the sector to 50,000 by 2025.
In February, the government also announced the Ireland for Finance Action Plan 2021. This dynamic-sounding document had four focus areas: sustainable finance, diversity, regionalisation and digital finance, and 16 measures to help the IFS sector grow.
“The International Financial Services sector in Ireland will play a major role in not only the global economic recovery but the twin transitions to a digital and sustainable future,” said Minister for Finance Paschal Donohoe. “The 2021 Action Plan, drawn up in partnership with industry, sets out clearly how we intend to build on our strengths and successes in recent years in this dynamic and growing sector.”
Long established expertise
Ireland’s strength in financial services – international and domestic – has been long established. More than 250 global leaders in financial services – including half of the world’s top 50 banks – have a base in Ireland.
Today, more than €1.8 trillion of funds are administered from Ireland, according to Enterprise Ireland. [www.enterprise-ireland.com/en/Start-a-Business-in-Ireland/Startups-from-Outside-Ireland/Key-Sectors-and-Companies-in-Ireland/Financial-Services-sector-profile.html] In addition, the Irish Stock Exchange is a world-renowned place to list fund and structured debt products.
The sector is also a major employer for Ireland, with international financial services businesses alone employing 25,000 people.
This continuing state backing helps to create a positive climate for the sector and builds confidence in its future. As a result, there is plenty of confidence for M&A deals. One of the bigger deals in the sector came in March when the long-established firm Goodbody was acquired by AIB Group plc for €82 million. [https://group.aib.ie/content/dam/aib/group/Docs/Press%20Releases/2021/aib-group-plc-announces-acquisition-of-leading-irish-financial-services-provider-goodbody.pdf]
Goodbody manages assets of about €8 billion and employs 300 people in offices in Ireland and the UK. It provides financial services in three core segments – wealth management, asset management and investment banking – to private and corporate clients.
The deal is part of AIB’s recently announced strategy to make acquisitions that address gaps in its customer offering and to diversify its income streams.
Post-deal, Goodbody will retain its own brand and board and remain as a separately regulated entity.
“With AIB, Goodbody is aligning with the market leader and could not be better positioned to compete in the financial services sector over time,” said Goodbody’s managing director, Roy Barrett. “This is now the beginning of an exciting new phase of the company’s development as this partnership has the potential to offer our business, our clients and our staff many opportunities for growth as we start the next chapter of Goodbody’s history.”
Irish businesses have also been attractive to overseas rivals. In March, US-based SS&C Technologies Holdings, Inc acquired Capita Life & Pensions Services (Ireland) Ltd (CLPSI) and certain related businesses for an undisclosed sum.
CLPSI, which employs about 370 people in offices in Dublin, Belfast and Craigforth, provides business process management, technology and consultancy services to the international life and pensions sector. Its services include financial and back-office administration, claims management, actuarial and financial reporting, investment administration, product and IT development and business transformation services.
Post-deal, CLPSI operates as part of SS&C’s Global Investor and Distribution Solutions business.
The rationale for the deal was to extend SS&C’s business process outsourcing offering internationally. “This acquisition increases not only our footprint, but our depth across multi-jurisdictional servicing, life and pensions expertise, and technology to support for products throughout their lifecycle,” said Bill Stone, chairman and chief executive officer of SS&C Technologies. “Retirement assets are becoming increasingly complex and our Global Investor and Distribution Solutions provide a variety of capabilities from accumulation through distribution.”
Why invest in an Irish financial services business
As these examples show, international financial services businesses are attractive targets for investment or acquisition.
There are many reasons why Irish businesses are looked on so favourably, other than the quality of the services they provide and revenue they generate. Ireland is known for its expertise in the administration and management of funds, cross-border insurance and specialist finance, such as aviation leasing.
There are many highly qualified and experienced people in the country with in-depth knowledge of the sector and many affiliated businesses that assist these companies – something that’s not found in every country. In addition, more than half of school leavers go on to university in Ireland – and with a wealth of finance and business-related courses on offer, there is a steady stream of young people with relevant qualifications joining the labour market each year.
The tax regime in Ireland is also favourable with corporate tax set at 12.5% and double tax agreements in place with 62 countries, making it a very tax efficient location – which is of course a plus for financial services businesses.
As the Irish economy – and the European and world economies more widely – continues to bounce back from the effects of the COVID-19 pandemic and numerous lockdowns, businesses in the financial services sector look set to enjoy a sustained period of growth.
With continuing government support underpinning the growth of the sector, there is no reason why Ireland cannot become a top 20 global financial centre within the next five years. Financial services companies are already attractive to international investors, and the country itself is often chosen as a European base by overseas companies.
All this also means there will be plenty of opportunities for acquisitions and investment in the sector in the coming years. Many businesses are growing and will be looking for outside cash or to partner with another player to achieve their growth ambitions.
Likewise, conditions are still good to start up a financial services business as barriers to entry remain small, although it is a competitive market so getting a foothold will require hard work and high-quality services to be offered.
Of course, those looking to set up a financial services business in Ireland, or invest in or acquire an existing company, will need to get the right advice to have the best chance of realising the potential of the venture.
Malone & Co Accountants https://www.maloneaccountants.ie/ can assist on all the relevant aspects from setting up a company to providing diligence services as part of an M&A deal or funding round in the sector. We can also provide in-depth information to ensure any deal achieves the value hoped for at the outset. Remember, while Ireland may share a land border with the UK, the regulatory regimes can be quite different, which can trip up unwary investors.