Mergers and acquisitions activity involving Irish firms fell last year as high inflation, rising interest rates and the war in Ukraine presented "significant challenges".

William Fry's 2023 M&A Review recorded 300 deals in 2022, down 2% on the number in 2021.

The combined value of those deals stood at €14.8 billion, down 38% on the previous year.

Of the deals recorded last year, 216 were inbound from overseas-based firms. Those deals were worth a combined €12.5 billion.

According to William Fry part of the reason for the fall in activity year-on-year was the fact that 2021 was a "bumper year", as companies played catch-up following pandemic lockdowns.

"We have to remember that the prior year, 2021, was an absolute record year, not just in Ireland but all around the world for M&A activity," said Stephen Keogh, head of corporate/M&A at William Fry. "2022 was always going to be a challenging year in terms of trying to match those numbers."

However he said the year remained relatively strong, in part because of the boom in deals in 2021 continued into last year.

"The post-pandemic boom just lasted longer than a lot of people expected, so it wasn't just a 12 month thing, it lasted well into the middle of 2022," he said. "It was only towards the end of last year that we began to see the M&A numbers start to to drop."

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The 2022 figures also exclude the $28 billion offer by Amgen for Horizon Therapeutics, which was announced late last year but set to close in the coming months.

As a result, Sumitomo Mitsui Financial Group's €6.4 billion acquisition of Goshawk Management was the biggest Irish deal recorded last year.

In its outlook for 2023, William Fry says high interest rates and slower economic growth are likely to weigh on M&A activity.

"High interest rates are not conducive to high levels of M&A activity," said Mr Keogh. "Having said that, one of the most important things for the market is stability and having a sense of the direction of travel.

"Once people get a feel that the interest rates have possibly topped out then I think that will be helpful to Irish M&A activity."

It also expects greater regulatory scrutiny of deals, particularly due to the Screening of Third Country Investments Bill, which is currently before the Dáil.

This is part of an EU-wide push to pay closer attention to deals, in order to ensure that important technologies and infrastructures do not end up in the hands of potentially hostile countries.

"[The bill] is going to have an impact on deal time-lines and also deal certainty, particularly while we get used to the new regime and see how it functions," said Mr Keogh.

However William Fry says there are still reasons to be positive about the outlook, particularly due to expectations of strong growth here this year.

It also sees potential for increased activity in areas like renewable energy and financial services.