Stockbroker Davy has formally put itself up for sale, as its board seeks to rebuild trust in the business and address concerns about former senior executives involved in a bond-deal scandal remaining as major shareholders.
The embattled firm said in a short statement that it has hired international investment bank Rothschild to find a buyer.
Minister for Finance Paschal Donohoe said in a statement that he was “supportive” of the move because it is “important to have a stable, well managed, local stockbroking community to support indigenous companies”.
The Irish Times reported on Wednesday that Bank of Ireland had made an exploratory approach to Davy about the possibility of doing a deal, as the firm grapples with the fallout from a €4.1 million Central Bank fine and rebuke last week over market rules breaches dating back to 2014.
A sale process is likely to flush out further interest and take months. Swiss wealth management group Julius Baer has been reported as being interested in looking at a deal, while industry sources expect Cantor Fitzgerald, which acquired Irish stockbroker Dolmen in 2012, the Irish unit of UK wealth manager Brewin Dolphin, and London-based investment house Permira to express an interest.
Davy has been in crisis since the Central Bank revealed last week that the firm breached market rules by failing to identify whether a conflict of interest existed as 16 of its employees, including top executives, bought junior bonds in Anglo Irish Bank from a client in November 2014 without disclosing that they were the buyers. The regulator also found that Davy kept its own compliance officials in the dark on the deal.
On board
Sources have said that former executives and major shareholders at Davy, who were at the heart of a bond-trading scandal that has rattled the firm, were on board with the plan to sell the business.
Five former senior executives and directors at the business, including former chief executive Brian McKiernan, former deputy chairman Kyran McLaughlin, former head of bonds Barry Nangle as well as one-time cheif executive Tony Garry and former head of head of institutional equities David Smith, are estimated to own about a third of the business between them. The bond deal was brought to the firm by one of its then bond specialists Tony O’Connor.
A shake-up of the shareholder structure is seen as key to the board, led by John Corrigan, and management, led by interim chief executive Bernard Byrne, rebuilding trust in the business.
Davy was estimated to be worth about €400 million before the scandal damaged the brand and resulted in the National Treasury Management Agency (NTMA) taking the unprecedented step of pulling its authorisation as a primary dealer in Government bonds.
A €1.5 billion bond auction by the NTMA on Thursday was the first such sale that Davy was not involved in since the State debt agency was set up in 1990.
Bank of Ireland previously owned 90 per cent of Davy before selling the firm in a 2006 deal that valued the business at €350 million.
Industry sources say that a deal with the bank would be the most likely avenue for keeping the stockbroking, corporate finance and wealth management businesses intact.
A sale of Davy would have to have the support of at least 75 per cent of shareholders. Almost a third of the stock is said to be in the hands of other former staff who left the business over the past 15 or so years. The remainder is held by a group number of employees within the firm’s 700-strong workforce.
Sources have said that a buyer of the firm would be expected to carry out a thorough due diligence investigation to make sure that there are no other potential issues. It may also hold back some of the purchase consideration for a period of years as another layer of insurance.
