Land of the giants
10 September 2012 | By Joanne Harris
Ireland has always prided itself on its innovation and two sectors attracting large-scale global investment as a result are technology and agriculture.
Last week, Irish law firm William Fry announced it was reopening its London office, over a decade after quietly withdrawing from the City. In relaunching the office, the firm is hoping to capitalise on the increasing amount of international work flowing in and out of Ireland, and build closer links with its foreign clients.
Two important strands of that international work are technology, and food and agriculture. Ireland’s economy has always been at least partially reliant on its agriculture sector, but these days things have moved on from the production of meat and vegetables to being a booming, hi-tech business encompassing supermarkets, alcohol and luxury brands.
Meanwhile, Ireland has managed to turn itself into one of the world’s technology capitals, enticing the biggest names in the sector to come and set up subsidiaries or European headquarters.
Both sectors have proved lucrative for lawyers, but making the most of them has also involved a lot of hard work.
“The reason we’re interested in these two sectors is that there are some similarities both in terms of the dynamics at play and the importance of them to Ireland. Both sectors are rooted in multinationals and are demonstrative of the innovation culture here in Ireland,” says Maples and Calder’s Irish corporate head, Edward Miller.
William Fry corporate partner Shane O’Donnell adds that the two sectors also share the characteristic of being insulated from the rest of the domestic Irish economy. Unlike property, which has failed to recover following the 2008 crash, and banking, which remains focused on restructuring, what is happening in the domestic market has little effect on technology and agriculture.
“There has been a repositioning in the marketplace. We all got very excited by banking and property,” O’Donnell adds. “I still think that agriculture and food and technology will continue to be just very consistent, stable, strong products for the firm, which is what they have always been, but they haven’t had perhaps the same emphasis.”
However, here the stories of the two sectors diverge. Technology has a number of different strands that have developed over time into the industry of today.
Mason Hayes & Curran commercial department head Philip Nolan explains that when the sector originally took off in the 1980s it was large companies setting up operations in Ireland to manufacture various components – an important part of the technology story, but not at its core.
“We have moved from being a provider of peripheral operations to be a provider of core and very central operations,” Nolan says.
Arthur Cox’s technology and life sciences head, John Menton, agrees with Nolan that in the past assembly was a key function of Ireland’s technology sector, with the catalyst originally being foreign direct investment from the US.
“There’s limited electronics assembly left,” he says of the modern sector. “We’ve moved up the value chain from assembly to cutting-edge R&D (research and development) projects.”
At Matheson Ormsby Prentice (MOP), international business group head Robert O’Shea says that while the nature of technology work being done in Ireland has changed, the reason for international companies being in the country has not.
“Ireland has always been about accessing the European market,” O’Shea says.
While the sector was kicked off by the entry of companies such as Dell, IBM and Cisco to manufacture products, it is now dominated by the biggest names in technology. Google opened its Europe, Middle East and Africa (EMEA) headquarters in 2003 and has steadily grown the size of its operations in Dublin since then. In 2010 the company added an operations centre in Dublin, with an extra 200 jobs on top of the 1,500 already generated by its presence in Ireland.
Facebook followed in Google’s footsteps by opening its EMEA headquarters in Dublin in October 2008.
Amazon is also a major presence in Ireland, with a development centre in Dublin and a customer service centre in Cork. Last year, Twitter announced that it too was opening a regional headquarters in Dublin. Collectively the technology companies now employ thousands of people and the information and communications technology sector accounts for 25 per cent of Ireland’s revenues, and a third of its exports.
“Looking at who isn’t in Ireland is more interesting,” O’Shea comments.
Lure of Europe
The attraction for the companies is driven by Ireland’s proximity to Europe, say lawyers. As well as being able to access the EU market, Ireland is still a draw for young people looking for career opportunities.
“The important point is that the jobs they have created here are European jobs. It has been key to a lot of multinationals coming to Ireland that the supply of labour is available because of the free movement of labour within the European Union,” says O’Shea.
After the crash, Ireland has become a less costly place to live. As Menton points out, it is “no accident” that the biggest technology companies have chosen to set up in the centre of Dublin.
Tax is also a draw. Ireland has maintained a corporate tax rate of 12.5 per cent and the government is committed to maintaining this.
“The real driver is Ireland’s favourable tax regime in terms of enabling multinationals to access the European market,” says O’Shea.
A&L Goodbody partner John Cahir thinks tax is only part of the story.
“The sector’s continued expansion is not just to do with tax, which remains a pull factor, but a cluster effect which has been created by having the successful players set up in Ireland,” he says.
Technology is not all about the Googles of the world setting up their headquarters in Ireland. Cahir divides the sector into three: the inward investment from multinationals; the development of indigenous, mid-sized Irish companies setting up both at home and abroad; and entrepreneurial start-ups looking for seed capital.
“There has never been a better time to be a small set-up coming into the technology sector in Ireland. In stark contrast to our macro economy it’s probably the healthiest,” says his colleague, Alan Johnston.
Johnston points to a growing venture capital sector in the country, helped by the government’s stated aim of making technology a core plank of Ireland’s economic recovery.
“The number of funds in Ireland has increased – the government has attracted various funds, such as those from Silicon Valley, which have set up incubator funds here,” he says.
O’Donnell says Enterprise Ireland’s recent $25m investment in healthcare venture capital fund Sofinnova is an example of the sort of commitment the government is making to the wider technology sector.
“It’s putting money to work – that’s one of the more important things the government has been promoting. We’re probably doing five or six venture capital deals a month,” he reveals.
There are a number of areas of growth in technology going forward. Top of the list is gaming, with several gaming companies having a presence in Ireland, but social media – with the likes of Twitter moving in – is also seen as a sector with potential for growth. Cloud computing also looks likely to be a big area for Ireland in the future.
Lawyers believe the chances of the technology sector crashing are slim and they are fairly confident that the current picture is not one of a bubble about to burst.
“There’s a danger that we could be facing another bubble in terms of valuations,” concedes Menton, looking at the public market in the US. However, he thinks the impact would be minimal given the nature of the technology companies that have chosen to establish in Ireland.
“These US companies are very lean – even though they have the big market capitalisations, they have the cash and a proven business model,” he adds.
Maples and Calder partner Colm Rafferty agrees. “US technology companies have a lot of cash on the balance sheet and they need to do something with it. We’re building a sector in Ireland that’s going to develop a lot of activity in terms of corporate transactions,” he says.
His colleague, Miller, says investors and others in the US West Coast technology capital of Silicon Valley have a “sanguine approach” to the bubble concept.
“There are bubbles, but when one bubble bursts other emerging alternative sectors start to attract capital. Finding the next big thing that the capital will ultimately end up chasing and driving up demand is what innovation is all about,” he asserts.
Firms are therefore confident that it is worth building up a sizeable practice in technology. All Ireland’s biggest full-service firms have grown their technology teams considerably in recent years. They say it is essential to have a team that can handle a number of aspects of technology transactions – from the pure corporate side, through to issues such as data protection and data privacy, regulation and copyright.
Nolan says a firm should not just try to deal with technology companies as any other corporate client.
“The approach one takes when advising a technology company is certainly different,” he says. “Every lawyer has to get used to the rapid pace at which new products are rolled out. Changes in the technology sector occur far more rapidly than in traditional sectors.”
He adds that lawyers should make an effort to understand the sector, “right down to platform and code level”.
“I’m not suggesting we all have to be engineers but we do have to understand the technology well. Lawyers really do have to have a deep knowledge and understanding. It percolates down to the manner in which one presents one’s advice,” Nolan says. He points out that technology companies move fast and so lawyers need to be fast in responding to a query.
Law firms advising food and agriculture companies have adopted a similar approach. Fewer large firms have formed a sector-specific team to act on food and agriculture matters, but those who have are keen to emphasise the importance of having the ability to advise on issues such as regulation as well as corporate matters.
“When our clients have product recall issues, we have a multidisciplinary team who can advise them,” says Arthur Cox managing partner Brian O’Gorman. “It’s not just about doing corporate deals for our food clients.”
At Maples and Calder, office managing partner Andrew Doyle thinks the June 2012 recruitment of food regulatory specialist Maree Gallagher as an of counsel demonstrates the firm’s commitment to the sector. “That has aided us in being able to distinguish our offering from the competition,” Doyle says.
Unlike technology, where there have been a number of sizeable corporate transactions recently, the activity in agriculture is more varied. Finance work is common as overseas investors look for places to put their money, and lawyers think advice on joint ventures, for example, is likely to increase. Irish food companies are also looking to expand abroad and several of the country’s biggest supermarket chains are genuine international businesses.
“Food and agriculture has historically represented a major part of Ireland’s economy. Frankly, before the arrival of significant numbers of multi-national companies from the 1980s, the food and agriculture and tourism sectors had the lion’s share of the Irish economy,” says Ciarán Bolger, a corporate partner at Arthur Cox.
Mason Hayes partner Justin McKenna says the activity in the food and agriculture sector is very different from the activity seen in previous decades.
“Ireland evolved from a rural agrarian economy with nothing to distinguish it from other rural agrarian economies,” he notes. “This is completely different. I think it’s a fundamental shift from where Ireland used to be.”
McKenna believes the key to Ireland’s success in the sector is down to its ability to produce quality food, tapping into the growing middle-class appetite for ‘premium’ products globally.
“The food Ireland brand isn’t necessarily about truffles and champagne – it’s more to do with good quality products,” he says. Others agree.
“It’s one of the few natural resources that Ireland has,” says A&L Goodbody inward investment head John Coman. He adds that the reputation for quality within Ireland helps to attract overseas players into the country.
“There’s no barrier to foreign businesses coming in and establishing their own presence in Ireland or acquiring Irish businesses. If you look at Ireland’s reputation, it hasn’t suffered in quite the same way in terms of ingredient difficulty as other countries have. It’s very closely controlled and highly regulated.”
As in the technology sector, Ireland’s closeness to the EU is an advantage, providing certainty over regulations in key areas such as food safety. Here the larger firms have an advantage, says William Fry’s O’Donnell.
“There’s a whole list of things that are important to food clients. A lot of them come down to labelling, product liability and food safety. That’s why it’s the big law firms that can provide that service to them,” he says.
There is also a crossover with technology in that areas such as food safety have spawned the development of high-tech products. These in turn can be exported.
“Because the standards are so high in Ireland for the production of food, the technology employed by Irish food producers is itself exportable. For emerging markets, where food safety is a very big issue, I predict that we’ll find there’s a demand for that technology,” says Maples and Calder’s Miller.
One country showing particular interest in agriculture worldwide is China. Chinese companies can be found investing in agricultural projects around the globe, and this interest could extend to Ireland. A recent trade trip to China has raised awareness of Ireland’s offering.
“The one thing the Chinese talk about quite a lot is the quality of food. There’s a huge premium put on European brands and, even within that, Ireland has a certain cachet,” adds O’Donnell.
“Don’t be surprised if in the future you see Chinese companies taking positions in this sector,” Bolger predicts. McKenna makes a similar prediction.
“There won’t be a similar spending spree here as individual holdings are very small but I wouldn’t be surprised to see some interesting agri-food businesses being targeted in the same way,” he says, comparing China’s investments in places such as Australia with the potential for investment in Ireland.
While nobody expects an avalanche of M&A activity, they do expect work to continue steadily in the food and agriculture sector.
“You will see more targets of opportunity coming up in terms of international cash-rich businesses buying,” says McKenna. “This sector is probably less affected by the sovereign debt issues than almost any other – it’s almost trite to say that. There’s always going to be a need to eat, for food to move across borders and for there to be payment mechanisms for it.”
Both the agriculture and technology sectors in Ireland have scope for continued growth, and it is recession-free industries like these that Irish firms are focusing on with the knowledge that, while they are currently lucrative, areas such as banking restructuring will eventually run out of steam. They think they are well set up to take advantage of the opportunities in these industries for some time to come.
Key figures: Ireland
|GDP (current US$, 2011)||217.3bn|
|Annual inflation (July 2012)||1.6 per cent|
|Life expectancy at birth||80|
|Unemployment rate (July 2012)||14.8 per cent|
Source: World Bank, Central Statistics Office Ireland