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MOORE&#39s CODE

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

very different.

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&#39s acquisition strategy – gambling on buying a company with big

liabilities while lacking deep pockets to cope with the unexpected – looks

spectacularly stupid.

So DBS and Towry cried for help and were rescued by Misys and AMP

respectively.

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&#39s 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&#39s 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&#39s 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&#39s 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

yet.

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&#39s biggest

network. While the structure of Towry Law&#39s 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

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