Bank of Ireland in advanced talks for €500m Davy buyout

Bank of Ireland is in advanced talks to buy stockbroker Davy for a higher-than-expected figure of more than €500 million, with negotiations now set to focus on on whether a forensic review being carried out at the firm in the wake of a bond-trade scandal has thrown up further issues.

The bid includes Davy's estimated excess cash pile of about €80 million, valuing the underlying business of the embattled stockbroking and wealth management firm at €420 million, according to sources. Bank of Ireland emerged as the leading bidder over the weekend.

Brian McKiernan, Davy's largest shareholder and former chief executive, who was part of the so-called Davy 16 involved in a 2014 bond deal that was the subject of a €4.1 million Central Bank of Ireland fine in March, stands to receive about €65 million for his 13 per cent stake under a deal worth €500 million.

Four other former senior figures who were key players in the trade, one-time chief executive Tony Garry, former deputy chairman Kyran McLaughlin, erstwhile head of institutional equities David Smith and ex-head of bonds Barry Nangle, are understood to own a further 20 per cent combined.

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However, the net proceeds from a sale will depend on the level of debt held by Davy companies as well as individuals’ personal borrowings.

The Business Post reported over the weekend that Bank of Ireland was close to agreeing a deal to buy Davy. Bank of Ireland and Davy both declined to comment.

Davy put itself up for sale in March in an effort to rebuild trust in the business and address concerns about former executives involved in the 2014 bond deal remaining as major shareholders. Bank of Ireland made a bid approach even before the for-sale sign was hoisted and has been regarded as the most likely acquirer.

Discounted price

Davy hired Alvarez & Marsal, an international professional services firm, around the same time to look forensically at staff trading over the past seven years as part of a review of matters arising from a Central Bank investigation.

Sources said that bidders received no indications on how the review was going before final offers were submitted. However, it is expected that Bank of Ireland will receive information on how the review is progressing before a deal is agreed.

All final offers, submitted by a deadline on June 25th, included conditions to protect bidders from potential issues emerging in future through standard warranties and by holding back a certain amount of the consideration for a period. US financial services giant Stifel is also believed to have been among final parties in the race.

Industry speculation that Davy would end up being sold for a deeply discounted price of below €300 million proved wide of the mark when proposals topped €470 million in an initial round of bids in May, sources said at the time.

Bank of Ireland previously owned Davy but the broker’s management bought it out in 2006 in a debt-laden deal that valued the business at about €350 million.

Davy has paid back debt at pace over the past decade, even as it spent millions on 11 acquisitions, focused mainly on building up its valuable wealth management and private clients business.