Simon Carswell - Anglo Republic- Inside The Bank That Broke Ireland

Inside the bank that broke Ireland

For Vanessa and Amy Rose

Close to midnight on Friday, 8 June 2007, the Georgian terraces and modern office blocks that house the many large professional firms south of the Liffey had long since shut up shop for the weekend with one exception. The single biggest Irish business deal of the Celtic Tiger era was on the verge of being completed at the offices of William Fry Solicitors at Wilton Place near the Grand Canal.

The financial and legal teams gathered by the vendor, Crownway Investments, and by the bidders had been negotiating for many hours. John Gallagher, the head of Crownway, led the negotiations. This was the culmination of months of work for him and the other shareholders in the Jurys Doyle Hotel Group the Gallagher, Monahan and Roche families whom he represented in the negotiations to sell the groups budget hotel chain Jurys Inns.

Gallagher and the families he represented all related to the legendary hotelier P. V. Doyle, who had built the Jurys Doyle group had been through a great deal of drama over the previous two years. In two separate deals in July and November 2005, the most sought-after properties in the group Jurys Hotel in Ballsbridge and the adjacent five-star Berkeley Court were sold to the property developer Sean Dunne for a combined total of 379 million. At that stage, the Jurys Doyle group was still listed on the stock market, and Dunne and other developers had made moves towards a possible takeover of the company. The Gallaghers, Monahans and Roches had been reluctant to see the Ballsbridge hotels sold, and wanted a greater say in what happened to the other key properties in the group. To this end, they borrowed 1.6 billion from Allied Irish Banks (AIB) to take the business off the stock market and into their own hands.

The sale of the Ballsbridge hotels at 54 million an acre had set a new price record for land purchased in Ireland, but the frenzy was not over yet. Property was changing hands in Dublin at higher prices than in Londons upmarket Chelsea. The families thought it was time to sell up and reduce their exposure to Irish property, which they felt was unlikely to rise much further in value, and in March 2007 the Burlington Hotel was sold for 288 million to the developer Bernard McNamara.

The families wanted to hold on to the Westbury, just off Grafton Street in the centre of Dublin, and their hotels in the US and the UK, but they had no emotional ties to Jurys Inns. There were twenty hotels in the chain, fourteen in the UK and six in Ireland, with 4,835 bedrooms in all.

By the summer of 2007 it was the groups last big asset on the block, and the proceeds of its sale could be used to pay down most of the outstanding AIB loan that had funded their purchase of the wider group. The families were risk-averse and uncomfortable holding such large levels of debt. Forget about the upside, John Gallagher would often warn; protect the downside and the upside will take care of itself.

By 8 June 2007, three players were in the running for Jurys Inns: Quinlan Private; Lydian Capital, the investment company owned by horseracing tycoons J. P. McManus and John Magnier; and the European private equity fund Orion Capital. From the perspective of the families operating for the purposes of this deal as Crownway the key to securing the highest price possible was to keep each bidder in the race until the very end.

Based on the earnings of 60 million a year at Jurys Inns and the potential to expand the business, the chain was worth at best 700 million, according to industry estimates. But in a frenzied market, the price could rocket upwards if the sellers could get the right bidders into the mix and the right bidding process in place. Credit was cheap and plentiful, and the Irish property market had created huge fortunes, so any number of potential Irish buyers could afford to pay over the odds for the hotel chain. The continued involvement of both Quinlan Private and Lydian Capital could result in a very high sale price indeed.

Crownway was particularly keen to keep Quinlan involved. He was an aggressive bidder when it came to big-ticket deals. His investment firm had outbid Alwaleed Bin Talal, a cash-rich Arab prince who was the worlds fourth wealthiest man, to buy the five-star Savoy Hotel Group in London for 750 million (1.1 billion).

Quinlans strategy was always to be holding the biggest cheque in the room it was all about scaring off other bidders. A deal junkie, Quinlan lived for the kind of atmosphere that Crownway, together with their investment bankers from Merrill Lynch and their legal team, had created in William Frys office that Friday night. Perhaps most importantly, he had the backing of Anglo Irish Bank, Irelands most aggressive property lender.

Quinlan, with his usual pre-auction posturing, had been putting it about that Jurys Inns was going to be an Irish deal; but it was also believed that Quinlan was only willing to bid a little more than 1 billion and was insistent that he would go no higher. If Quinlans price was to be pushed up, other bidders had to be kept involved.

All the due diligence the research that needed to be done and the paperwork that had to be drafted for the sale of such a large business had been completed. A detailed buyers pack had been drawn up. Each of the bidders had sight of everything they required. The key was to keep everyone Quinlan, Lydian and Orion in the race.

The sellers organized an unorthodox auction. The bidders were all in the William Fry building, each on a different floor. The investment bankers ran between the floors with details of the latest offer. Quinlan Private had completed many deals during the boom but had rarely, if ever, found itself in this position.

Despite Quinlans presence, the outcome was not a foregone conclusion. Lydian had not just the backing of two of Irelands wealthiest businessmen in McManus and Magnier; it also had the legendary deal-maker Denis Brosnan, the former chief executive of food business Kerry Group, leading their negotiations.

Buoyed by Anglos lending firepower and with senior executives at the bank, waiting at the end of a telephone, ready to back the bid, Quinlan made his final offer: a staggering 1.165 billion. Crownway, however, had concerns about Quinlans capacity to conclude the deal and were leaning towards Lydian, even though they had submitted a bid that was below Quinlans. Quinlan Private knew that Lydian had bid lower, but not by much.

For a transaction of this scale Quinlan would need something like 400 million in equity ready to fund the deal, with a loan from Anglo to cover the rest. Crownway wanted the deal concluded that night. It was put to Quinlans team that if they wanted to win the bid, they had to show a commitment from Anglo to bankroll the transaction before anyone left the building.

In the meantime, Lydians negotiator Brosnan had run out of patience with the Merrill Lynch bankers who were running up and down the stairs with the latest updates. At one point, according to people close to the bidders, he put down his papers and walked out of the building with his team. Crownway put legal staff on the stairs as sentries to prevent Quinlan and his advisers discovering that the Lydian team had gone home.

Not long after midnight, Quinlan signed the contract.

He was like a coiled spring, said one party close to the negotiations. At that moment Derek would have signed anything. He was so coiled that he was going to compete. This was high-octane stuff there were lots of lawyers and there was lots of pressure to agree a deal.