DISSECTING THE DEAL FOR DAVY

THE €100m Goodbody sale price being mooted would, along with the €42m it stands to receive from the Irish Stock Exchange sale, value the stockbroker at up to €142m. Unfortunately, we have no way of relating this price to Goodbody’s profitability as the broker is controlled by a British Virgin Islands-registered company and doesn’t file accounts with the Companies Registration Office.

Goodbody is the second-largest Irish stockbroker after Davy. While we have no way of knowing for sure the two brokerages’ relative size, their shareholdings in the Irish Stock Exchange do provide a rough-and-ready indicator.

While Goodbody had a 26.7pc stake, Davy’s shareholding was 38pc, almost one-and-a-half times as large. If we use this as our yardstick then Davy should be worth about €150m, plus the €60m it stands to receive from the sale of the Irish Stock Exchange, a total of €210m.

So far so good. Davy is significantly larger than Goodbody and is almost certainly worth considerably more. The value of Davy would also have risen in line with the recovery in Irish share prices and trading volumes since the crash.

However, even on the basis of the kind of figures being speculated upon for Goodbody, Davy is still worth considerably less than its managers paid Bank of Ireland for it in 2006.

In the autumn of that year, when it still seemed as if the Celtic Tiger would roar forever Davy’s senior executives made Bank of Ireland, which then owned 90pc of Davy, an offer they couldn’t refuse. The Davy bosses agreed to pay €315m for the 90pc they didn’t own, valuing the company at €350m. Most of the purchase price was borrowing from Anglo Irish Bank.

A dozen years later it is clear that Bank of Ireland got by far the best of the deal. Even at the €210m suggested by the Goodbody deal speculation, Davy is still worth only 60pc of what its management team paid for it. Sometimes, rather than calling the top of the market, stockbrokers succumb to animal

spirits also.