Merrion Capital's seven Irish directors stand to receive at least €31 million for their stake in the financial services group after its takeover yesterday by Landsbanki, the Icelandic bank.
In a deal that puts an initial valuation of €55.3 million on Merrion Capital only six years after it was set up by former executives of NCB Stockbrokers, Landsbanki will acquire 50 per cent of the group immediately at a cost of €27.65 million and buy the other 50 per cent by 2008.
Beneficiaries of the deal include about 55 of Merrion's 75 staff, who between them hold minor stakes totalling 14 per cent of the firm and worth €7.74 million yesterday.
Landsbanki recently spent some €156 million acquiring the London stockbroker Teather & Greenwood and Kepler Equities, a firm with offices in each of the big financial centres on the Continent.
The bank will - at least in the short term - concentrate on the investment in Merrion, which will be able to use Landsbanki's strong balance sheet to become involved at an earlier stage in big corporate finance transactions.
While Landsbanki will integrate Merrion into its European network, it is also considered a likely suitor of Irish Nationwide or IIB Bank should either of those institutions come on the market.
The deal is subject to due diligence, regulatory approval and the finalisation of the contracts with Merrion, which is projecting revenues of more than €24 million this year and pretax profits of €7milion-€7.5 million.
New York investment bank Allen & Co, which bought 30 per cent of Merrion for some €3 million in 1999, will sell 17 per cent of the company to Landsbanki for €9.4 million. It retains 13 per cent of the Irish firm. Merrion chief executive John Conroy said Allen & Co was likely to sell its remaining stake but could not say so for definite.
The final valuation on Merrion will be determined by its profits over the next three years. Some sources close to the transaction believe it could ultimately be worth more than €70 million.
Mr Conroy told journalists in Dublin that the earn-out arrangement could increase or decrease the deal's value, but said the contracts gave "protection on the downside" to the existing management. "If we perform as projected, I think we'll be looking at the upside," he said.
As the driving force behind group of seven executives that walked out of NCB in mid-1999 to form Merrion, Mr Conroy is the firm's biggest individual shareholder. He will receive some €4.15 million initially on the basis of his estimated shareholding of 15 per cent and yesterday's valuation means he will receive at least that much again if Merrion grows its profits in each of the next three years.
Merrion chairman Ray Curran, broker of the Landsbanki deal, owns some 3 per cent of the firm. The other Irish directors are: Shane Nolan and Adrian O'Carroll, each estimated to own about 9 per cent; Rory Gillen, 8 per cent; Barry Connell, 7 per cent; and Michael Hodson 5 per cent. Former NCB executive Kevin Kilthy is estimated to own some 3 per cent of Merrion.
