Stories
The board of Davy is poised to pull the trigger on the sale of the broker in the wake of the Anglo bonds scandal.
An announcement is expected tomorrow morning and follows an approach in recent days by Bank of Ireland, according to sources within the broker.
Bank of Ireland is seen as a likely suitor, although it is likely a number of international players and existing Irish-based firms such as Brewin Dolphin might be tempted to bid.
Large private equity bidders could also be interested in unlocking value by acquiring the entire business and then breaking it up. Davy’s large and successful wealth and investment arms would be attractive to many potential bidders over its more bespoke broking, research, and investment banking divisions. Keeping the business together, however, is the preference of its current staff.
Before last week, Davy, which has about 700 staff, was valued at between €350 million and €400 million. That figure has been reduced since then, particularly in light of the NTMA’s hard-line stance. A buyer would get access to its roster of corporate and individual clients at a steep discount in light of the scandal.
Such a move would also facilitate a solution to its complex ownership structure. Even before last week’s departure, some 30 per cent of the broker was held by executives who no longer worked with the business. As a result of the recent departures, that number is pushing towards 50 per cent, if not higher.
Bank of Ireland is the frontrunner and has made a tentative approach to Davy in recent days saying it would be willing to buy the broker if it came on the market. A deal with the Bank of Ireland has been made all the easier by AIB’s recent purchase of rival broker Goodbody. This deal set out how the bank could deal with the vexed issue of pay and bonuses.
Under that deal, 30 AIB corporate finance and wealth management staff will transfer to Goodbody Stockbrokers by the end of next year and benefit from the brokerage’s variable pay policy. However, the government said safeguards are being built into the transaction to ensure that it does not otherwise become a way of getting around bonus restrictions that apply to AIB and other bailed-out banks.
Davy to be sold by whom?
A takeover deal would likely result in the acquisition of J&E Davy Holdings, the common parent to the main stockbroking firm and multiple subsidiaries covering ancillary markets and services. This would definitively sever the firm’s links with the 16 members of the consortium behind the 2014 Anglo bond transaction, who have resigned from executive and board positions at J&E Davy but remain among the shareholders and directors of the group’s holding structure.
Any consideration paid for the business will benefit the upper echelons of this structure, which takes the form of a dozen companies in Ireland, the Isle of Man and Gibraltar, ultimately owned by past and present management staff.
Shareholdings reported in the three jurisdictions at the end of 2020 show that distributions and liabilities arising from the disposal of J&E Davy would land in White Note, a company registered in the Isle of Man.
Click on the image below to view the corporate map.
Some proceeds – but also unlimited liability, should this arise – are attached to A shares and flow from White Note through a network of further Manx companies to a Gibraltar trust structure where resigned chief executive Brian McKiernan is understood to hold a significant shareholding. McKiernan is a director of intermediary holding entities, alongside Davy’s interim chief executive Bernard Byrne and Caitriona O’Kelly, the firm’s chief financial officer recently turned chief risk and regulatory officer. Both Byrne and O’Kelly joined Davy only in 2019 and took over on those boards from Peter Newman, who was Davy’s finance director from 2000 to 2018.
Meanwhile, White Note’s B shares carry all voting rights in the election of its directors, their own share of dividends or distributions and a limited liability recourse only. These shares are owned by Amber Note and, ultimately, Ailmount Investments, a vehicle for 30 past and present Davy senior staff members.
The decision on any distributions to A and B shareholders rests with White Note directors Brian McKiernan, Kyran McLaughlin and David Smith, all three members of the Davy 16 consortium, joined more recently by O’Kelly. They ultimately report to the 30 shareholders of Ailmount Investments under the allocation of voting rights.
Further reading
Revealed: How resigned executives retain power in Davy’s offshore empire.
