Strong expected profits at Merrion Capital in 2006 will mean that the value put on the firm last year when it was acquired by Icelandic bank, Landsbanki, is likely to be revised upwards.
At the time of the deal, in late 2005, Landsbanki agreed to buy Merrion for €55.3 million, with 50 per cent paid up front in cash, and the remaining 50 per cent being paid on an earn-out arrangement over the next three years. At the time managing director John Conroy said, ‘the eventual price paid will be well north of €55.3m if we deliver on our profit targets’.
An earn-out is a common feature of merger and acquisition deals, and is a contractual arrangement in which the purchase price is stated in terms of a minimum, but the seller will be entitled to more money if the business reaches certain financial goals in the future. From an acquirer’s perspective it is an attractive arrangement, as it keeps management focused on maximising corporate performance, even after the company is sold.
After another strong year of growth in the Irish stockbroking sector, Merrion’s profits look set to top €20 million for 2006. If the firm was to achieve similar profits over the next two years, under the earn-out arrangement, the total paid for Merrion would substantially exceed €100 million.
With a valuation as high as this for Merrion, a relative new-comer on the stockbroking block, with 75 employees, the €368 million price put on Davy at the time of Bank of Ireland’s disposal of 90 per cent of the firm to its management, looks like a good deal. The largest stockbroking firm in Ireland, with 450 employees, in the 2005 FINANCE Stockbroking Survey Davy dominated many of the categories, winning six of the firm titles, and five of the analyst titles. |
