Friday 17 August 2018

Former Davy high-fliers sell off long-term stakes in €25m deal

Davy declined to comment on the deal
Davy declined to comment on the deal

Gretchen Friemann

Davy, the county's largest stockbroker, has bought back 10pc of its register in a €25m deal aimed at enlarging payouts for existing shareholders.

According to sources, the firm snapped up the shares at €2.40 to €2.50 apiece, marking a substantial premium to the grey market value of close to €1.50.

The trade reflects an equity valuation of €250m although its enterprise value (meaning a combination of debt and equity) ranges from €400m to €500m.

However, it is understood a number of prominent high-fliers who exited Davy in the past 10 years, agreed to trade out their stakes, despite an anticipated uplift in the stockbroker's value as it pursues an ambitious growth strategy and capitalises on the rebounding economy.

The firm underwent a management buyout in 2006, when it was valued at €350m.

Since then the number of shareholders in Davy, which remains under the control of management and staff, has burgeoned to more than 200 from 50 a decade ago.

But the significant presence of ex-employees on the register has become a bone of contention for some current staff, who are reluctant to pass on the fruits of their labours to former, and in many cases, long-gone, colleagues. The recent share buyback, flagged last month by this newspaper, has cut that executive overhang in half, according to sources.

Davy declined to comment on the deal. But a spokesperson said the firm "is performing strongly with increasing levels of share participation by staff and mechanisms to provide for a natural and ongoing evolution of the shareholder base over time".

News of the share buyback at Davy comes as Goodbody Stockbrokers continues to thrash out negotiations with its Chinese state-owned suitors, Zhong Ze Culture Investment Holdings, a subsidiary of the Aviation Industry Corporation of China.

It is understood the proposed acquisition, which values the business at €150m, has yet to reach the contract stage and therefore remains unassessed by the Irish regulator.

Goodbody's management are predicted to make about €60m in cash and earn-outs from the Chinese investors' buyout deal, but sources said the talks, now in the final phase, have taken longer than anticipated. The hiatus in the Goodbody takeover follows AIB's aborted discussions on a possible buyout of Investec.

The State-backed lender had held the South African bank in its sights for months but the talks foundered, in part reportedly, over AIB's straitened remuneration conditions.

Under an evergreen piece of legislation passed during the crash, bankers' bonuses at bailed-out institutions are subject to an 89pc super tax, eliminating performance-related incentives at these institutions. Reforms dating back to that time also resulted in banker salary restrictions of €500,000.

Yesterday Finance Minister Paschal Donohoe pledged to carry out a review on pay at the State-backed lenders, although he vowed to reject a proposal to introduce a deferred share scheme at AIB at next week's annual general meeting. He intends to abstain on a remuneration resolution at today's Bank of Ireland AGM.

According to sources, Investec has been on the block for some time and it is understood other offshore financial institutions and private equity firms have sized up a possible acquisition.

It's €1bn to €2bn wealth management business remains the chief attraction for suitors

A sale of Investec will likely result in its investment banking principals, led by Liam Booth and Conor McCarthy, establishing a new advisory boutique that would compete with the likes of IBI Corporate Finance, which detached from Bank of Ireland last year via a management buyout deal.

The cascade of possible tie-ups in the sector emerged after the Irish Stock Exchange, owned by five Dublin-based stockbrokers, agreed to be acquired by Euronext, the pan-European stock exchange, for €137m. The windfall delivered about €70m to Davy and close to €50m to Goodbody, while Investec stands to gain €30m.

While Goodbody's stakeholders, made up of majority owner Fexco, as well as the stockbroker's management, are hoping to cash in their chips, Davy's owners are pinning their fortunes on future growth.

Irish Independent

Business Newsletter

Read the leading stories from the world of Business.

Also in Business