Tuesday 17 September 2019

Old rivalry between Goodbody and Davy takes a fresh twist

Davy has the number-one position in Ireland
Davy has the number-one position in Ireland
Samantha McCaughren

Samantha McCaughren

On the face of it, the biggest hurdle in the way of a Davy buyout of its old rival Goodbody would be competition issues. Broker Davy is the clear number-one in the Irish market, with Goodbody in second place, although quite a bit behind in terms of market share.

However, Davy, never an organisation to doubt its own ability, is confident that it would be able to jump any regulatory hurdles that would come its way.

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A hurdle that may well complicate the sale, however, is one which is all about people, and which might be harder to iron out.

The rivalry between Goodbody and Davy goes back decades, long before NCB, Investec, Bloxham, Merrion and other smaller rivals were on the pitch.

Goodbody, founded in 1876, would see itself as a more traditional stockbroker, with generations of clients from the same families availing of its services.

The importance it places on its sense of tradition and heritage is evident in its own marketing bumpf.

"Of the original 19th century brokers' names, Goodbody is the only remaining one," boasts the firm.

"So, after more than 140 years of stockbroking, the Goodbody name has endured, as has its tradition of hard work and commitment, and serving the client."

Davy is hardly a newcomer, having been founded in 1926, but for many years, Goodbody would have regarded the company as an upstart.

Over the years, Davy has been viewed as a more aggressive, entrepreneurial and opportunistic firm than Goodbody - whether that is true or not is another matter, but it passed Goodbody in terms of size more than 30 years ago.

In recent decades, the likes of Brian Davy and Kyran McLaughlin have led a dynamic team, which ensured the gap between the two firms grew.

After a €150m sale of Goodbody to a Chinese group fell through in January, few doubted that the firm's main shareholder - Kerry-based Fexco which owns 51pc of the group - would remain fixed on getting a sale done. It is presumably indifferent as to who the new owner is once the price is right, with the buyer offering a straightforward exit.

Goodbody management and staff, who hold the remaining shares in the company, have a lot more at stake.

From a purely practical point of view, the rationale for Davy buying its competitor is compelling.

It has the financial firepower, as do the other interested parties: Irish Life, owned by Great-West Lifeco, and an unnamed Chinese bidder.

But Davy knows the company better than anyone, having competed with Goodbody in almost every aspect of its business.

The corporate finance side of Goodbody's operations is believed to make up around half of the firm's profits, but selling a corporate finance business is notoriously difficult.

This is because it is a relationships business and the transaction essentially boils down to the selling of people's service - and the assumption those people stick around.

At Goodbody, the stockbroking/wealth management side of the business is closely tied in with the corporate finance side, which could make a deal complex for Irish Life or the Chinese bidder.

As we saw with the previous agreement to buy Goodbody, it is not an insurmountable problem.

But Davy is undoubtedly better-placed than any other buyer to make this complex operation work because it closely mirrors Davy's business.

After any deal, many staff at Goodbody will have just received a sizeable windfall and won't be under any financial obligation to stay.

So a buyer other than Davy would need to roll out some incentives to ensure that key people would not just walk away. This must be an appealing prospect for staff shareholders.

Conversely, Davy would manage quite well without many of the Goodbody staffers. That is fine for the many people who want to retire or move on to something else in life.

But for those who wish to continue their career, they are unlikely to relish the potential of becoming dispensable in a newly enlarged Davy.

It would be far more appealing to be bought out by an entity that depends on the Goodbody staff in order to succeed.

And Davy would become pretty much the only show in town for many senior brokers and advisers - like it or not.

Given the depth of the old rivalries, a Davy deal would hardly be a prospect that everyone at Goodbody would welcome.

Goodbody got out of AIB ownership with the help of Fexco, while Davy bought itself out at great expense from Bank of Ireland.

Senior Goodbody executives may now feel that the path Davy has taken has proven to be the wiser. Not least of all because Davy management and senior staff have been able to control their own destiny, while Goodbody employees find they are not in such a strong position.

Sunday Indo Business

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