Coup by McCarthy
Crisis in banking sector has proved fertile ground for shrewd Kerry-based entrepreneur
This week's purchase of Goodbody Stockbrokers from AIB for just €24m represents the latest coup for Fexco founder Brian McCarthy, probably the shrewdest player in Ireland's devastated financial services sector.
On Monday it was announced that Fexco, the Killorglin-based financial services firm founded and still controlled by Brian McCarthy, had agreed to pay AIB €24m for its stockbroking arm Goodbody. Once again the quietly spoken McCarthy had shown Dublin's smarty-pants financiers how it was done.
Fexco is acquiring Ireland's second-biggest stockbroking firm for just a fraction of the €316m that Davy management and staff paid Bank of Ireland for its 90pc stake in Davy Stockbrokers four years ago.
In finance, timing is everything. If the Davy management bought at the top of the market, Fexco is almost certainly buying at or close to the bottom of the market.
Even allowing for the fact that Davy is a bigger firm than Goodbody, Fexco is still probably paying the equivalent of no more than a sixth or even a seventh of what the Davy management paid in 2006.
Of course, it's not the first time that McCarthy has demonstrated remarkable dealmaking talent.
In 1990, Fexco acquired its first Western Union money transmission franchise. Over the years it gradually grew its money transmission business, eventually becoming the largest Western Union franchisee in Europe, servicing over 10,000 outlets and with the national franchises for Ireland, the UK, Norway, Sweden, Denmark, Finland and Spain.
So important had Fexco become to the global Western Union network that in 2001 its then parent, First Data Corporation, agreed to pay about €60m for a 25pc shareholding in Fexco. Then, in February 2009, Western Union bought out Fexco's franchises for €123m. What made the deal even sweeter is that Western Union also agreed to cancel its Fexco shareholding.
What this meant is that, when both the 2001 and 2009 transactions are taken into account, the other Fexco shareholders, of whom McCarthy is the largest with an estimated 52pc stake, pocketed over €180m from the sale of the company's Western Union franchises.
Goodbody is not Fexco's first venture into stockbroking. In 1996, the company founded its own execution-only stockbroking firm, Fexco Stockbrokers. Over the past 14 years Fexco Stockbrokers has had a chequered history.
In 2000, the Central Bank temporarily banned the company from taking on new customers until it had upgraded its systems, while in 2008 it was fined €80,000 by the Financial Regulator after it was found to have inadequately monitored client credit risk. However, despite these embarrassing regulatory glitches, customers weren't left out of pocket on either occasion.
A far bigger threat to Fexco Stockbrokers has been the collapse in both the value and volume of share transactions over the past three years. With bank shares -- traditionally Irish stockbrokers' bread and butter -- having been vapourised, there are now far too many stockbrokers chasing a diminishing pool of business.
Fexco Stockbrokers, which is now a full-service brokerage, never made it to the front ranks of the Irish stockbroking business. With the market rapidly contracting, Fexco faced a stark choice: either acquire another, larger stockbroking firm or get out of the stockbroking business altogether.
Still, it's an ill wind that blows no good. While the collapse in the value of bank shares is one of the main reason Irish stockbroking firms have fallen on such hard times, that same collapse has forced AIB -- which desperately needs to raise €7.4bn of fresh capital by the end of the year to stay out of majority state ownership -- to offload Goodbody, Ireland's second-largest stockbroker, for a bargain basement price.
It gets better. While Davy, Ireland's largest stockbroker, is weighed down with acquisition debt following the 2006 buyout, Fexco is cash-rich following last year's Western Union deal. Davy's long reign as the unchallenged numero uno of Irish stockbroking may be drawing to a close.
But who is Brian McCarthy and how has he consistently managed to show the big boys a clean pair of heels?
Born in Dublin 66 years ago, Brian McCarthy was brought up in Cork city, where he was educated at Presentation College, or 'Pres' as it is known to all Corkonians. After leaving school in 1963, he joined the old Munster & Leinster Bank, the precursor to the AIB. He spent his early years working in the foreign exchange department in both Cork and Dublin before being appointed assistant manager of AIB's branch in Killorglin, Co Kerry, in 1976.
While it may seem incredible in today's world of automated 24-hour banking, bank strikes were a regular occurrence in the 1960s and 1970s, with three national bank strikes between 1966 and 1976. And these weren't genteel, namby-pamby affairs. The 1970 bank strike dragged on for six months, while the other two bank strikes also lasted several months.
During the 1976 bank strike, with a young family to support, McCarthy temporarily earned a living changing money for American tourists visiting Kerry's beauty spots. Although he returned to AIB after the strike, the entrepreneurial bug had bitten. In 1981, he left the bank and founded his own business, the Foreign Exchange Company of Ireland (Fexco).
The fledgling Fexco started out by operating bureau de change, catering mainly to overseas visitors. McCarthy's timing was good. The Irish pound had broken from sterling in 1979, meaning that British tourists, by far the most numerous overseas visitors to Ireland, needed to change their money.
However, it was in 1985 that McCarthy took Fexco into the business that would transform it from also-ran into a global player -- the offering of a VAT refund service to foreign tourists. In 1987, he teamed up with Bank of Scotland to offer a similar service in the UK. Fexco is now one of the leading providers of VAT-refund and bureau-de-change services worldwide.
In 1989, Fexco added another feather to its cap when it took over the running of the prize bonds scheme on behalf of the State. It has retained the contract for more than two decades during which the fund has grown progressively larger with its value exceeding €1bn for the first time in 2009.
Throughout its 29-year history Fexco has shunned the bright lights of the metropolis, preferring to operate under the radar in McCarthy's adopted Kerry. He is widely respected in the Kingdom where Fexco provides more than 800 well-paid jobs in Killorglin and Cahirciveen.
Fexco shunned the IFSC, reckoning that any taxation advantage would be wiped out by the high rents being demanded in Dublin's docklands.
As well as its Irish operations, Fexco also has offices in the UK, the United States, Australia, New Zealand, Hong Kong and the Middle East. It employs a total of over 1,300 people and had revenues of €191m and operating (pre-interest) profits of €18.9m in 2008.
Now that he has gobbled up Goodbody, what does McCarthy do for encore? Although several of his adult children work for Fexco, at 66 he shows no inclination to retire and remains executive chairman. All of the Irish-owned banks are in rag order and they are desperate to offload non-core operations. With his keen eye for value, don't be surprised if McCarthy picks up a few more bargains before the banking crisis is over.