Bank of Ireland said on Thursday it has agreed to buy most of stockbrokers J&E Davy for an enterprise value of €440 million.
The deal comes about four months after a record €4.1 million Central Bank of Ireland fine forced Davy, the country’s largest stockbroker, to put itself up for sale.
The central bank fined Davy after an investigation into a group of 16 of its staff, who the regulator said sought to profit personally by taking the opposite side of a deal in 2014 with a client — while failing to tell either the client or its own compliance officials.
Bloomberg News called the affair the “worst scandal to hit Dublin’s stockbroking community in decades.”
Ireland’s National Treasury Management Agency (NTMA) dropped Davy as a primary dealer in Irish government bonds following the fine.
The move resulted in Davy shutting its bond desk.
Bank of Ireland said on Thursday that 25% of the €440 million enterprise value will be paid two years after completion subject to Davy shareholders meeting a number of agreed criteria.
“The balance will be paid as cash consideration on completion, which is expected in 2022,” said Bank of Ireland.
“In addition, further payments of up to €40 million will be payable from 2025, contingent on future business model performance.
“Davy has separately announced today that it is selling Davy Global Fund Management (DGFM) and its shareholding in Rize ETF to separate third parties.
“As a result, Davy is expected to have a significant excess cash position at completion over and above that which is required to run the business.
“Bank of Ireland will also pay for such excess cash, due to be finalised at completion, which will be largely comprised of the proceeds from these disposals, currently estimated to be c.€125 million.”
Founded in 1926, Davy manages in excess of €16 billion of client assets and employs over 800 people. The company has offices in Dublin, Cork, Galway, Belfast and London.
Bank of Ireland CEO Francesca McDonagh said: “When we look at any acquisition, we consider two key things – if it offers value to our shareholders, and if it is a good fit for our business.
“Davy scores very highly on both.
“Wealth management and capital markets are important parts of our business.
“Bringing Davy into the group represents a significant milestone which will considerably enhance our customer offerings and growth outlook for the group.
“It is our ambition to build on Davy’s unrivalled leadership position in these businesses, while also enabling it to benefit from a range of comprehensive culture, risk and governance programmes that we have successfully introduced in recent years.
“Accordingly, we see a continuation of the Davy brand and structure, under the Bank of Ireland umbrella.
“We welcome the Davy team and all of Davy’s clients to Bank of Ireland.
“We look forward to growing our business and enhancing customer propositions across the entire group in the years ahead.”
Davy interim chief executive Bernard Byrne said: “Our view throughout this sales process has been that the right owner for Davy is the owner that is right for our client base and people.
“We are confident that in Bank of Ireland we are joining a group that supports our vision for the business and presents significant opportunity for all stakeholders, particularly for our clients in supporting their growth ambitions.”
Completion of the acquisition is conditional on the satisfaction of customary conditions including approval by the Central Bank of Ireland and the Competition and Consumer Protection Commission.
Bank of Ireland was advised by IBI Corporate Finance and Credit Suisse International.