Davy race narrows as Goodbody deal clears hurdle

The list of parties still in the race for Davy narrowed ahead of a deadline for firm bids on Friday, as the sale of the stockbroking and wealth management firm's rival Goodbody Stockbrokers to AIB cleared a key regulatory hurdle.

US private equity firm Carlyle and Irish group Melior Equity Partners, which had been among parties circling Davy in an earlier bidding round that attracted indicative offers of more than €475 million, are no longer in the running, according to sources.

Irish Life and Investec, who came together in recent weeks with an eye to mounting a joint offer, are understood not to have submitted a proposal by the mid-afternoon bid deadline. However, it is not clear whether they have exited the process entirely.

Bank of Ireland, Davy's one-time owner, submitted a proposal. It is widely seen by financial sector observers in Dublin as the most likely buyer, having made an initial approach to Davy's board in early March as the firm grappled with the fallout of a bond-trade scandal.

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US financial services giant Stifel, and Tilney Smith & Williamson, a UK-based wealth management and professional services company backed by private equity firm Permira, are also said to have been running the rule over Davy.

The largest securities firm in the State 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. Investment bank Rothchild is handling the process.

The Central Bank fined Davy €4.1 million that month, saying it breached market rules by failing to identify whether a conflict of interest existed as 16 employees 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.

Davy has hired Alvarez & Marsal, an international professional services firm, to look forensically at staff trading over the past seven years as part of a review of matters arising from a Central Bank investigation. The outcome of the review is not expected before a preferred bidder to be selected in the coming weeks.

Goodbody deal

A buyer is likely to protect itself from potential issues emerging from the review through standard warranties and by holding back a certain amount of the consideration for a period. It could also insist on the sellers signing a letter highlighting potential liabilities that, if not disclosed, would reduce final payments on the deal.

Meanwhile, AIB’s planned €138 million takeover of Goodbody Stockbrokers passed a key stage on Friday as the Competition and Consumer Protection Commission (CCPC) approved the deal.

The transaction, announced in early March, remains subject to approval from the Central Bank.

AIB, which previously owned Goodbody for 21 years, was forced to sell the firm a decade ago for €24 million as the bank went through a European Union restructuring plan tied to its taxpayer bailout. That deal involved Fexco taking a controlling stake in the business, with management and certain employees ultimately left with a 49 per cent interest.

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

Spokesmen for Davy, Irish Life and Bank of Ireland and a spokeswoman for Melior declined to comment. Spokesmen for Stifel, and Tilney Smith & Williamson did not respond to requests for comment.