In the corner of the boardroom in Pegasus Capital is a bronze bull. It is one of a pair bought to mark the 2018 closing of Kepak Group’s acquisition of the red meat business of 2 Sisters Food Group from Boparan Holdings.

It was a hefty deal, with Kepak acquiring a business with annual revenues of more than €500 million. I’m sitting down with two of the partners in Pegasus – Donal O’Connell and Mark Metcalfe – to talk about the growth of their business.

Before the interview began, David Lawrence, another partner, popped his head in but had to leave as he was working on a deal. Michael Hussey, a talented dealmaker who has just joined the firm as a fourth partner, will join me later.

Our conversation starts in the early days of Pegasus, but it is a wide-ranging discussion, covering everything from their most recent public deal – a $13 million debt funding round for Newswhip – to where they see the mergers and acquisitions market going in Ireland.

It is the story of a firm. But it is also, in its own way, a story of corporate Ireland after the crash.

Launched in a time of crisis

Donal O’Connell and Mark Metcalfe

Pegasus Capital was founded in 2011 by David Lawrence and Donal O’Connell at a time when the few deals that were happening in Ireland could be charitably described as “distressed”. It was just a year after Ireland entered an EU/IMF economic bailout. Ireland’s banks were either bust or requiring billions in state life support. Confidence in Irish business was at an all-time low.

It was an inauspicious time to start any business, let alone an independent corporate advisory firm. Lawrence and O’Connell were both IBI corporate finance alumni. Lawrence had worked with IBI from 1998 until 2004 when he left to join Lioncourt Capital, while O’Connell had worked there from 2003 until 2011.

“I think when you’re an early-stage company, it takes a bit of time to get up and running so you might as well do it when the market is difficult,” O’Connell said. “We had a desire to do our own thing. We wanted to bring big bank advice to midsize companies.”

Pegasus started off in a serviced office in Hamilton House in Dublin 2, before moving into their current location seven years ago on nearby Leeson Close. The firm prides itself on being long term advisors. “We think long term and we very much try to be a trusted advisor,” O’Connell said. “We’re not brokers trying to sell a business by offering it to 50 buyers. We try to be more analytical and strategic.”

Pegasus, he said, typically would first try to understand a business and its market: “Once we do that, we can say here are the two or three companies you should deal with”.

About 70 per cent of Pegasus’s work is sell-side, 15 per cent is buy-side with the remainder being other work such as raising new investment. “That’s the mix,” O’Connell said. “We particularly focused on trying to help Irish companies who wanted to sell to a global corporation in the early years and that remains a big part of our business.

“When we set up, the private equity community wasn’t as sophisticated as it is now,” he added. “The landscape has changed quite significantly since but our approach at the start was to advise well managed expert-focused Irish companies on trying to find an international partner.”

Pegasus advises on deals in the range of €20 million to €150 million in size; €50 million is its sweet spot. “There are few privately-owned Irish companies worth more than €150 million,” he said. “But in the €50 million there’s a lot more companies. If you are a big corporation trying to get a foothold in Europe, that’s very digestible.”

O’Connell said Pegasus usually worked with companies for years prior to a transaction: “It is rare enough that we’d be brought on board on a Monday to sell a company on a Tuesday.”

He added: “We’d often have worked with a company for seven, eight or even ten years beforehand.”

Advise local, sell global

David Lawrence, Michael Hussey, Donal O’Connell, and Mark Metcalfe. Photo: Shane Lynam

All new firms need some momentum and an early win for Pegasus was advising the Cullen family on the sale of Aran Candy Ltd, which trades as The Jelly Bean Factory, to Swedish confectionery firm Cloetta. The deal saw Cloetta buy 75 per cent of the business in 2014, with the remaining 25 per cent acquired in 2016.

“In that case we had a buyer who was a really good fit and we only spoke to that buyer,” O’Connell said. “It was a good outcome for a good business.”

Another early deal that Pegasus advised on was the €100 million-plus sale of Xtratherm, an insulation business based in Ireland, England and Belgium to a subsidiary of the American carpet giant Mohawk Industries.

A scan through publicly available deals advised on by Pegasus reveals a bias towards advising Irish companies being acquired by big global companies.

“The counterparties in our deals are often big-name companies,” O’Connell said. “We advise well run Irish companies and try to find buyers or investors that fit well.”

At the start Pegasus was tiny with Lawrence and O’Connell taking the lead on all their deals. 

In late 2017, Mark Metcalfe joined Pegasus, after previously being head of origination in the corporate team in Bank of Ireland. He’d been in the same graduate programme in the bank as O’Connell in the early noughties.

“I was aware of what Pegasus was doing, and what it was building,” Metcalfe said. “I wanted to do something different, and I felt very aligned with the plan and vision of David and Donal and the cornerstones of integrity, confidentiality and best in class advice.”

Metcalfe said he felt the focus in Pegasus on sector knowledge and finding international buyers or investors differentiated the firm.

“We get a lot of referrals from clients we’ve worked with previously,” Metcalfe said. “We have deep knowledge of certain sectors like tech, life sciences and financial services. But that said as a business we are sector agnostic. Any sector we operate in we build up detailed knowledge about what are the drivers of value and who are the active acquirers in that space.”

Metcalfe added: “The vast majority of our transactions have an international angle, and we don’t see that changing going forward. We know the buyers and who is active. We know what they’re looking for and how to make it easier for an acquirer to understand how a company operates.” 

O’Connell specialises in healthcare and food, while Lawrence tends to advise more on technology firms.

Metcalfe’s banking experience gave him insights into financial services deals, as well as debt. Michael Hussey who is joining the business has a speciality in manufacturing and general industry. 

Hussey has joined the firm as director, the same title as the other three. “For all intents and purposes, we’re four equal partners,” O’Connell said.

All of the partners work closely together, as deals can often require cooperation to deliver the best outcomes for the clients. 

 “There is a lot of competition, but I’ve been in Pegasus for ten years and I’ve never come across Goodbody, Capnua, Davy on the other side of the deal… and they haven’t come across us,” O’Connell said. “It’s very infrequent that we come across another Irish advisor. In a lot of cases the buyers we are talking to have their own corporate development arm.”

O’Connell said Pegasus had crossed paths with Rothschild and IBI in recent years. “But there’s not always two (advisory) firms in the mix,” he said, adding that Pegasus was more likely to be dealing with in-house M&A teams in larger international companies.

“Larger trade buyers are probably doing most of their commercial acquisitions themselves,” Metcalfe said. “They know what they’re looking for.”

Recovering from Covid

In March 2020 Donal O’Connell was working on three deals in the week before the pandemic arrived in Ireland. All three fell apart when the world changed.

“Everyone thought they were never going to come back but all three came back. They all got done on better terms, and two of them at a higher price,” O’Connell said.

One of the deals that came back was advising food safety business Identigen on its sale to the animal health division of drug giant MSD.

Pegasus also advised on the sale of Tullamore-based Carroll Cuisine to CapVest-backed Eight Fifty Food Group, and worked with the Brendan O’Farrell co-founded rapid diagnostics company DCN Dx on a significant growth equity raise from Martis Capital, a $1.2 billion fund. The three deals closed in August 2020, December 2020, and February 2021 respectively. 

“Carroll Cuisine was three days from closing when it fell over,” O’Connell said. “It didn’t fall over because of its operations or the terms, it was just because of the pandemic. In each deal we had to run harder and push harder to get it done but they all got there because they are good companies.”

Metcalfe said that Pegasus’ team closed the deals while working from home, but the nature of corporate finance work makes working together in an office their preferred choice. Pegasus has worked on a diverse range of deals, including playing its part in the big consolidation of the insurance broking market in Ireland.

In August 2022, it advised Sparrow Insurances Limited on its sale to Aston Lark Ireland.

“A lot of the consolidation (in Irish insurance broking) is done now,” Metcalfe said. “There’s probably not too many brokers of scale – real scale left.”

Other similar recurring revenue-based services companies in different sectors may also be consolidated, he said.

Earlier this year Pegasus advised Twomey Moran & Partners, one of Ireland’s largest independent advisors on tax matters, on its sale to PWC. “Accounting, law, consulting firms, there’s a lot more activity in that space and that’s an area we know,” O’Connell said. “Ireland has great engineering, consultancy and project management businesses that have grown internationally. In my view there’s likely to continue to be more M&A activity in those types of people businesses.”

Has Pegasus ever been approached by potential buyers? “It wouldn’t be of interest to us for a variety of reasons,” O’Connell said. “We came out of other firms to be independent.”

“Between the four of us there is an entrepreneurial spirit,” Metcalfe said. “We’ve a great team of people, it’s very flat. It is performance driven but the rewards are there without that corporate hierarchy of decision-making and layers. 

“We have a very clear plan as to what we are and what we want to be and what are the building stones to do that. That, for us to achieve that, we don’t have to become 100 people. We don’t need layers of people and committees to decide what’s best for the business and what’s best for our clients.”

The impact of interest rates

Will rising interest rates impact valuations for these kinds of deals? “The underlying metrics and drivers of value in that sector are far outweighing the impact of an interest rate increase on some of the debt,” Metcalfe said.

“Obviously, interest rates have an impact, but I don’t think it’s going to be the biggest driver.”

O’Connell said: “Where interest rates could have a really big impact is asset-based companies like a wind farm where the cost of capital is so tight to start with. Interest rates will have a big impact on those types of companies.”

“In general companies are a lot less leveraged than they were in the last crisis,” Metcalfe said. “Company balance sheets look very different today (versus 2007). We also have a more mature private equity market prepared to fund deals. There are more tools available to companies who want to scale up in terms of financing.” 

“I think there’s probably going to be more consolidation too in financial services in areas like wealth advice,” O’Connell said.

Tech valuations and debt versus equity

David Lawrence often takes the lead on technology deals or advice for Pegasus.

Another area Pegasus has proven itself in is advising technology firms.

In January 2023 Pegasus advised StitcherAds on its $64 million sale to Kargo Global. I’d followed the Irish firm’s founder Declan Kennedy since he launched the business in 2013, so I knew how hard he’d worked to pivot his business and make it a success. 

“We’d known Declan a long time,” Metcalfe said. “It was a really good sale to a strategic trade buyer.”

David Lawrence usually takes the lead on technology deals or advice for Pegasus. I ask O’Connell how he sees valuations in a sector that has been under pressure in the last year. “Technology valuations in general are back 25 per cent, 30 per cent, perhaps more,” O’Connell said. “But that said, technology valuations were probably too high in many cases. 

“If you went back to the early 2010s, you had really good companies which had to accept mediocre prices as Ireland Inc was not perceived as being a really valuable market.” 

Metcalfe added:We’re still seeing good activity in the tech space. Funding has probably become difficult in tech, but we are seeing strong appetite from an M&A perspective in the tech space (for good companies).

In general, I would say tech companies are becoming more focused on unit economics and profitability. Nobody wants to be burning loads of money anymore, that’s just a fundamental change. In Covid there was more appetite for loss-making and investing heavily in growth.” 

In February Newswhip, a social media analytics firm, raised $13 million debt funding from Ashgrove Capital, a London-based technology focused credit fund. Pegasus advised the board of Newswhip on its debt and equity options before the company decided on Ashgrove. Newswhip chief executive Paul Quigley said afterwards the finance would allow the Dublin-based start-up double its headcount from its current 71-strong team in the next two years as it ramps up its product, sales, and marketing spend to win more customers like Google, Samsung, and the BBC. “David (Lawrence) had been talking to Paul (Quigley) for quite a while,” O’Connell said. “We spoke about what’s happening in technology, what are the valuation drivers, here’s some interested parties. Gradually you build up a relationship until they want to do something.”

Will inflation impact the price paid for companies?

“It is quite sector specific,” Metcalfe said. “Some companies can pass on cost increases, but inflation is undoubtedly impacting companies’ ability to grow and making buyers look carefully at the true level of profitability and trading.

“The type of counterparties we are often dealing with are large cash-rich companies who are not overly relying on bank debt. 

“We’re seeing more evidence of the private debt market being used to fund M&A. Certainly two or three of the transactions I’ve been involved with, with big counterparties, their funding tends to be private equity, but usually coupled with private debt. Clearly if the cost of debt has increased that could impact things.

“I think buyers are probably getting a bit more creative in terms of structure and how they get there in terms of valuation. You’re not going to sell a great business you thought was worth €100 million, 12 months ago, for €50 million. I think buyers understand that and try to bridge the gap.”

O’Connell added: “It depends on the deal. When a company’s being sold to a major strategic buyer, they are not really making a decision on financial metrics. They might be pricing a business based on financial metrics but they’re making their decision based on product, team, markets.”

However, O’Connell said other deals were much more sensitive to higher interest rates. “A deal that is led by financing has certainly been hit,” he said. “It’s not just a cost of capital issue…but also because of the global macro situation, banks are a bit more cautious. The quantum of capital and the quantum of debt available is less. For financial led deals values have definitely been hit by 10 or 12 per cent.”

“But we’re not talking 30 per cent (declines),” Metcalfe added. “A lot of companies are growing well. Interest rates are having an impact on valuations, but I don’t see it as a major negative as it is balancing out.

“The Irish economy is performing very well at the minute, growth is good, so there is a lot going right,” Metcalfe said. “Our business reflects the economy.”

A fourth partner who likes the gritty deals

Michael Hussey, the newest partner in Pegasus

Michael Hussey is 43 and the newest partner in Pegasus Capital. Hussey trained in Mazars and then spent five years with Deloitte. He worked in London for several years before joining Investec in Dublin where he worked in corporate finance. One of the big deals he worked on was, working with Liam Booth and Conor McCarthy, advising the management of BWG on its successful restructuring.

“It was a great business but it had a bad balance sheet,” Hussey recalled. “It was heavily leveraged from the boom. It was a brilliant deal to work on with a great outcome for management.”

Davy’s Ronan Godfrey and Brian Ross were on the other side of the deal advising BWG’s banks. “We were advising the management team for probably a year and a half,” he said. “And at the end of that Davy approached me.”

Hussey joined Davy as associate director in early 2014. “The appeal was that Davy had come through the financial crisis pretty well,” he said. 

“The wealth management business was on a great trajectory under Brian McKiernan’s leadership. The bond business had done really well too. The IPO markets were reopening and Ronan and Brian were leading the charge with Green Reit (which floated in 2013).” Hussey was attracted to Davy as it wanted to build-up its private company advisory work. 

“I was brought in to work with private companies but at the start IPOs dominated activity in Davy. I did ok, but the big fees were being generated advising successful IPOs.”

In his early years in Davy, Hussey ended up working on the stockbroker’s internal M&A deals as it bought up other wealth managers: “It was a good experience, but it was only really in 2017 that I was doing my own deals that were a combination of referrals and generating new deals.” 

Hussey recalls all deal-making grinding to a halt in the first months of 2020 when the pandemic hit until mid-June when mid-market private equity firm Livingbridge acquired Chill Insurance. “I wasn’t involved in that deal but after it everybody’s phone started ringing again,” Hussey said. “The Chill sale started pre-Covid but when that deal went through it gave the market confidence again.” 

In July 2020 Hussey started working with Eir Business on its acquisition of Irish IT services provider Evros for €80 million creating a merged entity employing 600 people. “The deal was announced in January 2021 but we got it signed in the early hours of Christmas Eve 2020,” Hussey said. “Covid-19 had shut everything down for three months so it was an important deal to do.”

On the sell-side, Hussey was also busy. He advised Irish pharma labeller Perigord on the sale of a 70 per stake for €21 million to Indian multinational Tech Mahindra. 

He then worked for Davy on selling Irish print and packaging company Colorman to Patrick Doran-led investors Woodberry Capital for an undisclosed sum. Hussey likes gritty businesses that are quietly successful rather than high-profile.

Selling EDPAC, an Irish maker of data centre cooling equipment and air handling units, to Stockholm stock market listed Munters Group for €29 million in January 2022 is an example of these type deals. Hussey was on a good run of deals with Davy. “I love what I do. What’s that in reality? It is developing relationships with entrepreneurs early so you become an advisor,” he said. 

“It’s not necessarily a paid advisor or even an exclusive one but you’re a source of insight, challenge, ideas. Nine out of ten things you might say to an entrepreneur or CEO are just kind of interesting, but the odd thing resonates. Have you looked at this deal? Have you thought about doing this?

“The deals you get the most personal satisfaction are generally the ones where you’ve been there through the cycle,” Hussey said. “You’re rolled up your sleeves, when there isn’t an obvious overnight payday, and maybe a transaction is a year or two away. That’s the bit I enjoy.” 

Hussey’s former employer Davy went through a lot in the last three years as it was first fined by the Central Bank in relation to a deal done by its bond desk, before being put up for sale and acquired by Bank of Ireland. “These things probably focused my mind,” Hussey said. “I felt there was a like mindedness.” 

Did joining Pegasus give you a chance to be more entrepreneurial? “It does,” Hussey said. “We don’t get a lot of referrals from the big machine, but at the same time we’re not distracted. Eight years ago independent advisors got the odd deal. Whereas now independent advisory houses are the mainstay. Being independent means we don’t need to feed the machine revenue every year from a particular client…we can develop good relationships that lead to proper deals. We want to be really trusted that we know (our clients) sector…what’s going to drive value. What is going to make a business more attractive.” 

What type of companies will Hussey advise? “My bread and butter is probably more old economy, more industrial,” he said. “I’ve advised packaging companies, manufacturers, HVAC (heating, ventilation, air conditioning) companies. I usually advise Ireland located European businesses.” 

“We’re in a good place (in Ireland), and hopefully in terms of the inflation interest rate cycle we’re on the back end of the mountain, but not off the top,” Hussey said. “Luckily we’re not reliant on debt to do deals. Irish private equity firms don’t really put much debt in. They are making growth led investments where the financial engineering is fairly limited as they’re sensitive to the cost of debt.”

“It is about growing enterprise value through Ebitda or investment…not loading a business up with debt,” he added. “Businesses may be getting slightly less than they would have in 2021 but not enough to stop deals. A €50 million deal was big seven or eight years ago, but now it might not get an article in The Currency unless it’s €100 million at least,” he added. “There was some sort of correction coming inevitably post Covid-19 and the era of low interest rates. If you were selling for a seven times multiple (of ebitda) it hasn’t gone to four. It might be a six and a half to seven spread so there’s a way to do it. Overall I’m very positive and I’m very excited to join the Pegasus team.”

Deal volume

Pegasus has advised on between 60 and 70 transactions since it began. It aims to do between eight and twelve deals a year, many of which go unreported. 

“Our MBO activity and our buy side actively tends to be very under the radar,” Metcalfe said. “Our buy-side work tends to be longstanding, large clients (who don’t seek publicity.) MBOs are also often very low key.”

What is it like to close a successful sale? “At the end of a deal, everyone’s tired and it’s been hard work,” Metcalfe said. “But it is really good to see a great outcome. If you don’t enjoy the human aspect of the deal you probably won’t enjoy working in corporate finance as you will spend so much time with people over the course of six months.”