Why Ireland has become an attractive destination for foreign direct investment

In this article we look at some of the reasons why Ireland has become such an attractive destination for FDI, as well as a hotbed for transactions in the technology sector. We also consider the implications this has on the transactional risk market in Ireland and what clients and advisors should keep in mind when considering a placement.

Ireland as a key destination for investment

Ireland's low corporation tax rate of 12.5%* has been a great incentive for FDI and supports its strong reputation as an excellent place to do business. In comparison to other European countries like Portugal, Germany and France, Ireland offers a much lower rate.

*Subject to the OECD framework

Transactional risk market trends

• US in-bound investment – Over recent years, there has been increased inbound investment from the US, likely fuelled by the attractiveness of the Irish market following Brexit.^[2] Where a buyer/insured and/or the governing law of the transaction documents are US, it can make the Warranty and Indemnity (W&I) process more complex. This is because whilst the product is fundamentally the same in the UK and Europe and the US, premiums, underwriting processes and policy mechanics are very different. Seeking a broker with the requisite knowledge of this is key to a successful placement.
• Technology products – The W&I insurance market is constantly evolving and one of the ways in which some insurers have tried to differentiate themselves is by offering products/enhancements to cover specific Intellectual Property (IP) related risks. These products/enhancements aim to dovetail with the existing warranty package and specific indemnities contained in the transaction documents and can plug any gaps in coverage by providing coverage for either identified risks or unknown/disclosed risks where a seller has failed to offer adequate warranty protections. Coverage can be tailored further through the insurer conducting specific diligence on a target’s portfolio of IP. This offering has coincided with the increased number of transactions in the Technology, Media and Telecom sector in Ireland, therefore providing clients with an additional form of recourse for IP risks. ^[3]

• Small and medium sized enterprises (SME) and synthetic warranties – Smaller deals valued below EUR 10m have traditionally been considered “too small” for W&I insurance as they are not cost effective for an insurer to commit resources to. There is, however, an increasing interest in this lower end of the market and in 2022 and H1 2023 insurers have been looking at ways to access this market and to provide solutions for SME transactions. Three insurers have recently launched products designed to target these smaller deals by using technology to streamline the process, synthetic warranties and standardised policy wording to underwrite more efficiently and at a lower cost. With current trends in the M&A market and the inclination toward smaller deals, particularly in the Irish market, these products are likely to generate increasing interest.
• Internal due diligence – In our experience, internal due diligence is more commonplace on Irish transactions than in the UK. This is largely due to a greater weighting of corporates over private equity undertaking transactions than in the UK and the highly technical sectors in which Irish companies often operate. Where internal due diligence is commissioned, insurers typically want to see four conditions fulfilled:
  • the due diligence is carried out by persons with the requisite subject matter expertise/credentials;
  • the findings are memorialised in a report or memorandum, akin to what you would expect from a third-party report;
  • the report focuses on the historic operations of the target entity, rather than forward looking integration; and
  • the scope reflects that of a third-party report.
• Insurance premium tax (IPT) – Ireland has a modest rate of IPT for non-life insurance policies, currently at 5% (made up of a 3% Government Levy and a 2% Insurance Compensation Fund Levy) in addition to a €1.00 stamping fee. Whilst there are various European countries that offer IPT rates of less than 1% (for example Czechia, Latvia, Norway and Poland), when compared to the upper end of IPT rates which can be upwards of 19% of the premium (for example Finland, Germany, Italy and The Netherlands), Ireland’s IPT rate is widely perceived as favourably low.^[4]

Should you have transactional risk enquiries or wish to discuss any of these topics in greater detail, please do contact a member of the WTW team.

Sources

1. Why Ireland’s attractiveness to US FDI is a cause for celebration this 4th of July Return to article undo
2. The UK remains Europe’s most attractive destination for financial services investment, extending its lead Return to article undo
3. Digital Transformation Driving Change in the Profile of Irish Tech Deals Return to article undo
4. Stamp Duty insurance levies Return to article undo

Author

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Thomas Ievers

Director, Private Equity and M&A Practice

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Contact

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Alexander Keville

Practice Leader M&A and Private Equity, Global FINEX

email Email phone +44 20 3124 8187

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