| Grafton Group’s long-awaited acquisition of Heiton Group comes out on top as the Deal of the Year 2005 |
Back |
| The expected takeover of the Heiton Group by the Grafton Group, which finally closed in January of this year, has won this year’s ‘Deal of the Year 2005’, pipping the acquisitions of the Barlo Group and the Savoy Group to the post. The deal continues the trend of take-privates which has marked the Deal of the Year survey over the past number of years, and which saw Madison Dearborn’s acquisition of Jefferson Smurfit take the award in 2003, and the take-private of First Active by Royal Bank of Scotland in 2004. |
Report sponsors:
One of the landmark deals of 2005, the €353 million acquisition of the Heiton Group by the Grafton Group, has been voted the FINANCE ‘Deal of the Year 2005’ by the finance directors of Ireland’s top corporates.
 | | M&A graphic |
The deal continues the trend of take-privates which has marked the Deal of the Year survey over the past number of years, and which saw Madison Dearborn’s acquisition of Jefferson Smurfit take the award in 2003, and the take-private of First Active by Royal Bank of Scotland in 2004.
The deal, about which one finance director remarked, ‘it was a necessary and exciting response to increased competition in the marketplace giving greater market presence and muscle’, was followed in the ratings by the €84 million takeover of the radiators and plastics firm, Barlo Group Plc, by Sarcon, and Quinlan Private’s high profile €1.1 billion acquisition of The Savoy Group.
The deal
After years of speculation as to when builders merchants and DIY group Grafton would acquire its competitor, the Heiton Group, which started back in 1999 when Grafton acquired its initial stake of 8 per cent, the deal was finally done in January 2005.
Alan Doherty, a director in AIB Corporate Finance, who advised the Grafton Group on the transaction, says that the deal was an excellent strategic fit for Grafton, as it enabled it to become an Irish builders merchant group of scale, allowing it to compete with international players.
Moreover, it was an unsual deal, he says, as it was an in-market consolidation deal, by two public companies, which is very rare in the Irish market.
Grafton Group is a major client of Arthur Cox where client partner, Ronan Walsh, has been looking after their corporate work since the 1980s. Ronan Walsh led the Arthur Cox team on Grafton’s takeover of Heiton.
 | | Ronan Walsh, Arthur Cox |
According to Walsh, the most important aspect of the transaction probably was the decision of the Irish Competition Authority to approve the takeover without imposing significant conditions.
It had been widely reported before the Competition Authority’s Decision that, as a minimum, the Competition Authority would be likely to require some disposals by Grafton as a condition for approval, particularly in relation to DIY stores. However, the Competition Authority accepted Grafton’s arguments that there was sufficient evidence of recent entry and likely expansion in the DIY market, and low barriers to entry in the builders’ supplies market, so that the transaction would not restrict competition. Consequently, no significant conditions were imposed by the Competition Authority.
Eithne FitzGerald , corporate finance partner with A & L Goodbody, has a longstanding relationship with Heitons and has undertaken many acquisitions for them over the years. Of the deal, she says, ‘This was a high profile demanding public takeover which was spread over a number of months. It presented significant competition law challenges , being subject to a full phase II investigation by the Competition Authority before being cleared. There were also interesting issues in the interplay between the Authority’s and the Takeover Panel’s timetables’.
 | | eithne fitzgerald, a&l goodbody |
In second place was the €84 million takeover of the radiators and plastics firm, Barlo Group Plc, by Sarcon, a vehicle backed by prominent businessman, Sean Quinn, in April 2004. Sarcon had to overcome a rival bid from Melgan Limited, a new company created by Dr Anthony Mullins, the then CEO of Barlo and other members of management, which offered to buy the company for €70 million.
One of the finance directors who voted for this deal did so because, ‘(it was a) small deal but recognised that someone was trying to buy a valuable asset at a knock down price’.
According to Jonathan Simmons, an associate director with NCB Corporate Finance, the deal was notable because of the following:
• Market purchase strategy before and after the announcement of a firm intention to make an offer
• A MBO ‘insider’ offer being out bid by an offer from a third party trade player which bucked the trend in previous take privates in the Irish market
• The announcement of a firm intention to make an offer and subsequently seeking a recommendation from the independent board of Barlo
 | | Mon O’Driscoll, managing director, AIB Corporate Finance |
Quinlan Private’s high profile €1.1 billion acquisition of The Savoy Group was voted into third place. The deal, which was led by former Revenue Commissioners inspector Derek Quinlan, who has become Ireland’s best known property investor, saw the company acquire some of London’s top hotels including The Savoy, The Connaught, The Berkeley and Claridge’s, to to add to its existing hotel portfolio which includes the Four Seasons in Dublin.
According to one finance director, the deal was a ‘fantastic strategic fit in terms of utilising Irish private funding to purchase a blue chip British property portfolio and brand. The deal seems to have been executed very rapidly and represents value for money for the investors and should be a platform to bolt on other companies to the Quinlan Group and also a model for other Irish groups to do something similar.’
Quinlan Private later divested the Savoy Hotel and Simpson’s-in-the Strand restaurant in a €330 million deal. The hotel was bought by a group of investors including Bank of Scotland Corporate; Fairmont Hotels & Resorts Inc and Kingdom Hotels International.
 | | Michael Chadwick, Chadwicks |
Other deals which polled strongly included food and drinks company C&C’s €726 million flotation on the Dublin and London stock exchanges, which one finance director said was notable because ‘greater access to capital should allow (the company) to grow brands’. Also, Select Retail Holding’s €450 million takeover of supermarket chain Superquinn polled well. One respondent said, The property portfolio of the group seems to fit with the buyers who have expertise in property and building management. The property assets seem to be where the hidden value is and if they can grow the brand but add value from a property perspective then this is a deal with with massive potential for added value’.
Danish bank, Danske Bank’s €1.4 billion acquisition of National Irish Bank, also featured strongly in the voting as did Tullow Oil plc’s €416 million takeover of Energy Africa Limited, which, according to one respondent, ‘opened up the company to the whole African market at just the right time’.
 | | Alan Doherty, AIB |
Contributors to this year's deal directory of Irish corporate finance deals are: Des Carville, director, Davy Corporate Finance, Leo Casey, associate director, IBI Corporate Finance, Emer Finnan,
director, NCB Corporate Finance, Finbarr Griff in, director, Goodbody Corporate Finance, Simon Howley, director, Goodbody Corporate Finance, Conor McCarthy, associate director, NCB Corporate Finance, Fe rg u s McLoughlin, director, NCB Corporate Finance, Sinead Munnelly, senior manager, Ernst & Young, Michael Neary, director, Grant Thornton Corporate Finance, Mon
O’Driscoll, managing director, AIB Corporate Finance, Garry O’Rourke, senior manager, Ernst & Young Corporate Finance, and Jonathan Simmons, associate director, NCB Corporate Finance. |
|
| Article appeared in the July 2005 issue.
|
|
