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Saturday, 17th November 2018
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Deals of the Year 2018: Success of AIB's IPO marks a milestone in Ireland’s economic recovery    
The winning 'Deal of the Year' in the 'Equity Capital Markets' category is AIB's €3.4 billion re-Initial Public Offering last June. This was the largest IPO in Europe in 2017 and the largest by a financial institution since the financial crisis in 2008.

Accepting the award, AIB CEO Bernard Byrne said he was delighted to do so 'on behalf of the thousands of people working at the bank who are crucial to the continued momentum and success of the organisation.' The transaction, he added, was a milestone for AIB and very significant for Ireland.’


It was indeed a milestone, providing the pillar bank with a platform from which to diversify its shareholder base within Europe and beyond. Between 2009 and 2011 the Minister for Finance had acquired 99 per cent of AIB’s issued share capital by way of recapitalisation transactions.
But after more than seven years of near total State ownership, all of AIB's shares are once again listed on the primary listing segment of the Official List of the Irish Stock Exchange (Euronext Dublin, since March 2018) and the premium listed segment of the official list of the FCA.

The offer by the Minister for Finance, including both institutional and intermediaries retail offerings, was of 679 million ordinary shares at €4.40 per ordinary share, representing 29 per cent of the entire issued share capital of AIB. The State raised approximately €3.4 billion through the sale. Oversubscribed 4.5 times, the IPO represents AIB’s first step towards a full return to private ownership.

The deal was unique in terms of size, structure, the number of key stakeholders involved, economic importance and its economic and political background. The inclusion of an intermediaries’ retail offer as well as the more customary institutional offer reflected the State's desire to allow AIB’s 85,000 existing retail shareholders the opportunity to participate in the IPO. Retail investors were allocated 10 per cent of the IPO shares, with the remainder sold to institutional investors. The last Irish IPO to include a retail offer was the Aer Lingus IPO in 2006 and, as demonstrated by the UK Royal Mail's recent IPO, such retail offers can increase both the deal execution risk and level of public scrutiny.

The IPO was systemically important for the Irish Government and the Irish economy and involved and large number of key stakeholders. These included existing retail and institutional shareholders, the AIB board, Government, 10 investment banks, employees, unions, prudential and supervisory Irish and EU regulators, listing authorities, media and a large number of advisers (including eight law firms).

McCann FitzGerald was the main legal coordinator on the project, which involved numerous stakeholders across multiple jurisdictions.

Aidan Lawlor, a partner at McCann FitzGerald, said: 'This was a large, important and public transaction for AIB and for the Irish State undertaken against a backdrop of market volatility.' Subsequent to the IPO, he added, his firm advised AIB Group in relation to the establishment of AIB Group plc as the new listed holding company.

Paul White, a partner and Head of Equity Capital Markets at A&L Goodbody, which advised the joint global coordinators and bookrunners to the IPO, described the offering as 'a transformational step for AIB that facilitates the ongoing recoupment by the Irish State of its crisis capitalisation of the Irish banking sector.'

William Fry partner Mark Talbot recalled that initially two 'windows' had been identified for the flotation - May/June and the autumn. 'Following positive investor feedback and against favourable market conditions, the Shareholding and Financial Advisory Division of the Department of Finance began working towards a deal in early May. However, Theresa May’s decision in April to call an election on June 8th put paid to that,' he said.

'The announcement of the deal was notionally put back until the end of May, meaning it would price towards the end of June, leaving investors plenty of time to digest the UK vote,' Talbot added. 'However, there was a second surprise from the UK when it became clear that Theresa May had failed to secure a parliamentary majority. Although there were some initial jitters in the market on the back of the election result, these did not spread to European banking stocks and so it was possible to launch, price and close the IPO before the June window closed.'

The success of the deal reflects the depth of preparatory work undertaken over a number of years to position the bank for a successful IPO, including its December 2015 capital restructuring designed to simplify its capital structure.

At pricing, AIB had a market capitalisation of €12 billion, which represented a higher market capitalisation for AIB compared to Bank of Ireland. This was partly based on a market view that AIB has a higher level of 'excess' capital on its balance sheet, which analysts at US investment bank Keefe, Bruyette & Woods had estimated would exceed €3 billion by 2019. The expectation is that much of this can be returned to shareholders by way of special dividends or share buy backs in time, subject to regulatory approval.

The higher valuation also reflected AIB's near €3 billion losses accumulated during the financial crisis that can be used to reduce its tax bill for up to three decades. Bank of Ireland, on the other hand, had just €1.3 billion of 'deferred tax assets' on its books as of end December last.

Legal advisers on the IPO included: McCann FitzGerald as lead counsel and Linklaters as international counsel to AIB; Allen & Overy as international counsel and William Fry as Irish counsel to the Minister for Finance; Herbert Smith Freehills as international counsel and A&L Goodbody as Irish counsel to the underwriting syndicate; and Freshfields Bruckhaus Deringer as international and Irish counsel to the sponsors.

The underwriting syndicate comprised: joint bookrunners - Deutsche Bank AG, London Branch, Merrill Lynch International, Davy, Citibank Global Markets Limited, Goldman Sachs International, Goodbody Stockbrokers UC, J.P. Morgan Securities plc and UBS Ltd; co-lead manager - Investec Bank plc (Irish branch); and joint brokers, joint sponsors and joint financial advisors - Morgan Stanley & Co International and Goodbody Stockbrokers UC. Other advisers included Arthur Cox; Ashurst; Rothschild, Goldman Sachs, JP Morgan Cazenove, and Deloitte.

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