AIB joins race to fund €310m Davy buyout

Bank of Ireland's arch-rival AIB is one of five institutions in talks to fund the €310 million management buyout of Davy, the bank's stockbroking arm.

Anglo Irish Bank is seen by many close observers as the favourite to fund the transaction. But AIB, which owns Davy's biggest competitor Goodbody Stockbrokers, entered the frame this week as a potential backer.

It also emerged yesterday that Bank of Scotland (Ireland) and an unnamed British institution have approached Davy with offers to fund the deal. The management team, led by chief executive Tony Garry and director Kyran McLaughlin, is already known to have discussed funding with Ulster Bank.

The transaction will be highly-leaveraged, sources said. While certain figures in Davy are likely to provide some equity for the deal, the sources believe that the management team will take out bank debt for more than 90 per cent of the transaction cost.

A small group of long-standing Davy managers already holds 9.56 per cent of the broker and they are proposing to pay about €310 million for the 90.44 per cent held by Bank of Ireland. Such a price values the entire Davy business at some €344 million. The Bank of Ireland court, as its board of directors is known, gave the go-ahead for the transaction last Tuesday week.

Although the due diligence process is under way, the deal itself might not close until the second half of October.

The broker employs about 400 people and the deal will significantly broaden its shareholder base to around 100 of its most valued staff.

Internal discussions at the broker are said to centre on the scale of share allocations to individual staff members.

The current management shareholders include Mr Garry, Mr McLaughlin and Davy chairman Brian Davy, whose father James Davy co-founded the business in 1926. Others include economic consultant and former Dublin footballer Robbie Kelleher, former Davy director David Shubotham and private client head Brian McKiernan.

The deal has the potential to provide a platform for the handover of the company to a new generation of managers when the current management retires.

Some senior employees have long been frustrated at their inability to gain equity in the company, so the buyout has been presented as providing an opportunity for management to incentivise staff.

It is unclear whether the risk of staff defections from Davy was considered by the Bank of Ireland court when it was discussing the deal. The Davy sale comes after the bank's asset management unit lost numerous valuable mandates following a spate of defections from its staff.