A BIG WHEELER DEALER
NEWSMAKER OF THE WEEK
BARRY O'Callaghan's decision to move Riverdeep's corporate home to the Cayman Islands will further strengthen the former corporate financier's control over the educational publisher.
Following Riverdeep's highly-leveraged takeover of Houghton Mifflin last year, O'Callaghan is now going for double or quits in a bold move that could propel him into the ranks of Ireland's billionaire elite.
The rise and rise of Barry O'Callaghan has been one of the Irish business stories of the past decade.
Just eight years after he was first appointed chief executive of the online educational publisher, he has overseen the company's flotation on the Nasdaq in 2000, the management buyout three years later, a raft of major acquisitions, and last year the big one, the $3.4bn purchase of Riverdeep's much larger US competitor Houghton Mifflin.
Along the way, O'Callaghan has become seriously rich. He now effectively owns 45pc of the enlarged Riverdeep.
This puts him in line for a multi-billion dollar pay-day when the company returns to the public markets, probably around 2010. Not bad going for a 38-year-old.
Born in Mitchelstown in 1969, the son of a local doctor, he finished school in the elite Jesuit-run Clongowes Wood, and studied law in TCD where his two brothers, Tom and Gerry, were already studying medicine.
In TCD he met Geraldine McGeough, later his wife, and they live in Blackrock, Dublin, with three daughters.
After TCD he worked in London in the mergers & acquisitions department of Morgan Stanley, moved on to rival US investment bank Smith Barney before joining Credit Suisse First Boston's (CSFB) London office in 1997 to head up its telecoms and technology unit.
It was a case of being in the right place at the right time - the technology boom was taking off.
While at CSFB O'Callaghan caught the eye of Pat McDonagh, probably the most successful Irish software entrepreneur ever. It was McDonagh who founded Riverdeep in 1995. Then in 1999, as Riverdeep prepared to float on the US Nasdaq market, McDonagh drafted in the young corporate financier as chief executive.
Initially, the Riverdeep flotation was a great success. The share price more than trebled in the first days of trading in March 2000. In less than a year, his 7pc stake in Riverdeep was worth $126m.
Unfortunately, that was about as good as it got, and Riverdeep suffered in the tech downturn.
By end 2000, the share price was down almost 60pc on its post-flotation peak.
And it got worse. As the internet share boom turned to bust the Riverdeep share price fell to just €1.10, a third of the original flotation price. The company cancelled its Nasdaq quotation and switched its main listing to the Irish Stock Exchange.
Throughout its time as a quoted company, Riverdeep reported steadily improving results, belying its falling share price.
Matters finally came to a head on November 7, 2002 when, despite reporting a 92pc increase in sales and a near-quadrupling in profits, the Riverdeep share price tumbled by a further 23pc to just 85c. O'Callaghan had had enough.
When he announced his decision to take Riverdeep private, he was instantly accused of opportunistically seeking to buy the company on the cheap by the very same investors who had so scandalously under-valued the company only a few days earlier.
He brilliantly called his critics' bluff by saying he would withdraw his bid for the company if another buyer was prepared to pay 10pc more for Riverdeep. Of course, no one was.
He and McDonagh, along with a number of venture capital outfits, ended up paying just $1.51 (then worth €1.40) a share to take the company private in a deal which valued Riverdeep at just €349m
As events would quickly show, this was just a fraction of what the company was really worth.
Once again, O'Callaghan was a man in the right place at the right time. He caught the bottom of the post-crash blues, and in the process increased his own Riverdeep shareholding to 21pc. This put him in line to become seriously rich if and when the value of the company recovered.
And recover it very quickly did. Within a year of the take-private, O'Callaghan and McDonagh had bought out the 32.9pc of Riverdeep held by the venture capitalist shareholders for €157m.
Word on the street was that the venture capitalists, realising Riverdeep's potential, were reluctant sellers.
Unfortunately for them, O'Callaghan and McDonagh had a cast-iron option agreement, which was reputedly the work of Niall McFadden who advised Riverdeep on the 2003 take-private, to buy their shares. Job done, thank you very much, good bye.
McFadden helped give O'Callaghan his start. Back in 1990 McFadden sat on Morgan Stanley's London recruitment panel with his then housemate and current NTR chief Jim Barry. O'Callaghan only persuaded McFadden and Barry to give him a job and a place in their bachelor pad.Then in 2005 O'Callaghan and McDonagh took €45m each out of the company.
This allowed them to pay off the personal borrowings they had taken on board for the take-private.
However, what happened next raised eyebrows. Last year, O'Callaghan bought out McDonagh for €95m to raise his stake in Riverdeep to over 60pc.
Whatever happened, O'Callaghan is adamant that the departure of McDonagh from Riverdeep was amicable and that the two men remain friends.
Having consolidated his grip on Riverdeep, O'Callaghan then unveiled his biggest deal so far.
Last October, Riverdeep agreed to take over its much larger US rival, Houghton Mifflin.
In a complex deal a new company, HM Rivergroup, took over both Riverdeep and Houghton Mifflin.
The deal valued Houghton Mifflin, which had been acquired by a venture capitalist consortium in 2002 for $1.6bn, at $3.4bn and Riverdeep at $1.2bn, three-and-a-half times what O'Callaghan had paid for it just four years earlier.
The merged company would have had annual sales of $1.42bn and Ebidta (earnings before interest, depreciation, taxation and amortisation) of $392m in the year to September 2006.
O'Callaghan is very much the boss at the expanded Riverdeep with a near-45pc stake, with other managers bringing the total management shareholding to just over 50pc.
To describe the new Riverdeep as highly-leveraged would be an understatement. Bankers Credit Suisse and Citigroup advanced $3.14bn in debt. There is also $350m in preferred equity and $660m in straight equity.
Despite this Davy Stockbrokers had no difficulty persuading over 100 of its wealthiest clients stumping up a minimum of €1m each when it raised $200m to help fund the takeover.
O'Callaghan rolled over his existing Riverdeep shareholding and invested a further $200m in new money in return for a 25pc stake.
He is also the main beneficiary of a 'promoter and management incentive' which will give senior managers a further 20pc of the company's shares for free if performance targets are met.
It is still too early to judge how the merged Riverdeep/Houghton Mifflin is performing but the group could have done without last February's controversy when accountants Ernst & Young abruptly resigned as auditor to Riverdeep alleging that the company had made "incorrect representations" about "a material contract".
O'Callaghan responded by stating the contract in question had resulted in an "immaterial adjustment" to the company's accounts.
Those who backed O'Callaghan will be hoping that he can repeat his earlier successes at Houghton Mifflin.
If he does, he will make them an absolute fortune and turn himself into Ireland's youngest-ever billionaire.