So, goodbye DBS and goodbye Towry Law. It would be charitable to say it
has been nice to know you but people would accuse me of lying if I did.
The deals and circumstances that have seen these former stalwarts of the
IFA community relinquish their longheld and cherished independence appear
Look closer, however, and there are a number of striking similarities.
Both DBS and Towry have been under the weather for some time, suffering
from bombed-out share prices and reporting poor results while younger and
more aggressive rivals have been grabbing their markets.
Both were also sitting with huge albatrosses around their necks. In the
case of DBS, it is the hole that Assuresoft has been burning in its
pockets. How its management must regret not taking the chance to float or
sell it off at the height of the dotcom boom last year. In the case of
Towry, it is that £40m worth of extra pension misselling liabilities
it only discovered after it had paid Hogg Robinson for Advizas.
The lawyers will no doubt make lots of cash as the recriminations fly
between Towry, Hogg and their respective advisers. In retrospect, however,
Towry's acquisition strategy – gambling on buying a company with big
liabilities while lacking deep pockets to cope with the unexpected – looks
So DBS and Towry cried for help and were rescued by Misys and AMP
The other common point between the two deals is that, while they are great
news for the long-suffering shareholders in both companies, their impact on
the IFA marketplace is altogether less welcome.
Let us first look at Towry Law, which is arguably the more controversial
of the two. It is understandable why IFAs struggling under the weight of
the pension misselling review and frowning as demands for their ICS levies
come through the door may not look kindly on this deal. AMP is taking on a
fraction of Towry's liabilities, leaving the ICS to pick up the rest – the
first time I can remember the ICS picking up the tab for a trading firm. At
the same time, Towry's shareholders walk away with 180p a share, a
substantial discount to the 200p they were suspended at a couple of months
ago but better than the kick in the teeth they would have got had Towry
tried to carry on alone.
Because there is the rub. Towry had breached its banking covenants and
admitted in its results that, if the AMP deal failed and it could not find
funding from another source, it would be insolvent.
It is a bitter pill to swallow but, without AMP, the full weight of
Towry's liabilities would have fallen on the ICS and, therefore, partlyon
the IFA community. Unpleasant it may be but this is the least worst option.
The DBS deal, on the other hand, could be seen as good for everyone. DBS
shareholders get about twice what the company's closing price had been
before the deal was announced.
Ken Davy walks away with a hefty wad in his back pocket while the
fractious DBS membership will find their network being run by a company
which has a highly rated and professional management.
But there are some serious competition implications in this deal. Unlike
the luckless Towry, Misys has proved itself an astute acquisitor and the
fact that the analysts who watch its activities bore the price it paid for
DBS – a whopping 100 per cent premium on the DBS share price prior to the
announcement of its takeover proposal – without screaming blue murder ought
to tell us something.
Misys has pointed out that it only controls 20 per cent or so of the IFA
channel but that is not the whole story. It totally dominates the provision
of network services to IFAs.
The power it has in that marketplace is unprecedented and unwelcome. It
makes the competition all but irrelevant.
If you are an IFA, or a direct salesman who wants to become an IFA, and
you feel you need the services a network provides, the chances are you will
find you way to the Misys doorstep. There is a very strong case for the
competition authorities to take more than a careful look at this deal.
It will be hard on DBS if the men from the competition authorities veto
the deal. Davy may have to leave his golf clubs in the closet for a while
DBS, unlike Towry Law, can carry on, even thrive, on its own and Misys is
not the only predator with its eyes on what was once Britain's biggest
network. While the structure of Towry Law's takeover by AMP is a bitter
pill to swallow, the takeover of DBS by Misys looks like an overdose.
James Moore is a finance reporter at The Times