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RBS’ surprise acquisition of First Active wins ‘Deal of the Year’ 2004 Back  
Of the deals nominated for this year’s ‘Deal of the Year’ competition, the acquisition of First Active in October, a deal which took the market by surprise, has been voted the top deal of the past year by Ireland’s leading corporates, followed by the management buy-out of Riverdeep, and the acquisition of the Telford Group by the Grafton Group.
As in last year’s poll, when Madison Dearborn’s €3.7 billion take private of the Jefferson Smurfit Group was voted ‘Deal of the Year’, the winner of this year’s ‘Deal of the Year’ award is also a take private, the €887 million acquisition of First Active, which saw the company dde-list from the Irish Stock Exchange in January 2004.

The winning deals were chosen by Ireland's top corporates from a list of deals nominated and profiled by corporate financiers in last month's FINANCE.

The results - Deal of the Year 2004
1 Royal Bank of Scotland’s acquisition of First Active
=2 Management buy-out of Riverdeep by Hertal
=2 Grafton Group’s acquisition of the Telford Group
4 eircom IPO
5 Acquisition of Gresham hotels by a consortium

This is Royal Bank of Scotland’s (RBS) second foray into the Irish market, having acquired Ulster Bank back in 2000, and the deal was seen as a valuable strengthening of the bank’s position in the Irish market.

Davy Corporate Finance, JP Morgan and Arthur Cox advised First Active on the deal, with Merill Lynch and A&L Goodbody advising the Royal Bank of Scotland.

The deal was announced on October 6th and closed on January 5th, 2004. The price of €6.20 offered per share represented a premium of approximately 33.3 per cent to the pre-announcement closing price, and combined with the capital distribution of €1.12 per share executed in June, 2003, represented a premium of 156.2 per cent over the IPO price.

First Active de-mutualised in 1998, and was protected from being taken over for five years. Thus, there was intense speculation as to the future of First Active when this period expired in September. However, the speed and level of secrecy which characterised the deal took the market by surprise.

This is one of the reasons why the deal was so remarkable, Eugenee Mulhern, a director with Davy Corporate Finance says, and the proof of this was the absence of any share price escalation in the preceding weeks.

According to Colm Duggan, lead partner from Arthur Cox, the deal was particularly interesting due to the way it was structured. A court-approved scheme of arrangement pursuant to Section 201 of the Companies Act was used, which, says Duggan, is a fairly unusual method of buying a company in Ireland. He says that this was used due to First Active’s enormous shareholder base of 140,000 shareholders.

A scheme of arrangement involves getting the majority of shareholders and 75 per cent of the value of those shareholders to agree to the acquisition, followed by the approval of the Irish Court.

John Given, head of M&A at A&L Goodbody, says that the trend of take privates seen in the past 12 months, and which includes the First Active and Riverdeep deals, is likely to feature strongly, alongside MBOs, amongst the profile transactions of 2004.

Speaking at the time of the acquisition, Fred Goodwin, group chief executive of the RBS said, ‘The combination of First Active and Ulster Bank will provide significant impetus to The Royal Bank of Scotland’s operations in the Irish financial services market. The combined business will focus on customer service, income growth and efficiency.’

Since the acquisition, both First Active and Ulster Bank have retained their own brands, bbranch networks and distinctive customer propositions. RBS say that cost savings will be achieved by combining funding, technology and processing activities and central functions.
RBS pursued this multi-brand distribution strategy, when it acquired NatWest in the United Kingdom.

The management buy-out of Riverdeep, the educational software company, for $376 million, also led to the company de-listing from the Irish Stock Exchange.

Davy Corporate Finance, CSFB, William Fry and Dewey Ballantine advised the company on the deal, with Goodbody Corrpoate Finance, JP Morgan, Matheson Ormbsy Prentice and White & Case advising the buy-out company, Hertal Acquisitions, which was set up by Riverdeep’s CEO Barry O’Callaghan, and founder, Patrick McDonagh.

The deal included a number of unusual features, says Des Carville, a director with Davy, including the appointment of a new independent director Paul D’Alton, who has since been appointed CFO at Waterford Wedgewood, to chair the Committee of Independent Directors, and the performance of an extensive market test exercise on behalf of the Committee prior to their approval of the terms of the MBO.

The cash/partial share offer of $1.51 per share was funded by a combination of senior debt facilities, mezzanine debt, management and founders rollover of shareholding, external equity investment by Alchemy Partners and MSD Capital and a partial share alternative offered to all existing shareholders.

According to Paul Higgins, a director of Goodbody Corporate Finance, a key challenge of the offer was reaching the 80 per cent acceptance threshold for squeeze out,as the CEO and founders holding could nott count towards the offer. To further complicate the acceptance process, as Bid-co already held more than 20 per cent of Riverdeep prior to the offer, an additional acceptance condition had to be met, in that 75 per cent of shareholders by number needed to accept the offer.

Grafton Group
The acquisition of the Telford Group, a builders merchanting and DIY business operating from outlets in Portlaoise, Mountrath and Athy, was completed in October 2003, for an undisclosed amount.

AIB Corporate Finance and Arthur Cox advised the Grafton Group on the acquisition, with Rollestons Solicitors advising the Telford Group.

Michael Chadwick, chairman of Grafton, said that the Telford acquisition is significant in strengthening our presence in the midlands.

Contributors to the directory are:
Eugen?e Mulhern, director, Davy Corporate Finance, Des Carville, director, Davy Corporate Finance, Paul Higgins, director, Goodbody Corporate Finance, Emer Finnan, director, NCB Corporate Finance, Jonathan Simmons, executive, NCB Corporate Finance, Leo Casey, associate director, IBI Corporate Finance, Liam Booth, managing director, NCB Corporate Finance, Ken Mintern, director, NCB Corporate Finance, Mon O’Driscoll, managing director, AIB Corporate Finance, Fergus McLoughlin, director, NCB Corporate Finance, Jonathan Simmons, executive, NCB Corporate Finance, Brian Flannery, director, Grant Thornton Corporate Finance, David Tynan, director, PwC Corporate Finance, Bryan Evans, partner in PwC Corporate Finance, Christian Dijkstra, associate director, KPMG Corporate Finance, Michael Neary, director, Grant Thornton Corporate Finance, and Sinead Munnelly, senior manager, Ernst & Young.

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