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DB&G gets Eagle Unit Trust

The investment bank, Dehring, Bunting & Golding has won the bid for Eagle Unit Trust, edging out a dozen other groupings which had made written offers for the highly liquid institution.

"There was an open bid and as you know we were selected two weeks ago," Garfield Sinclair, DB&G's vice president confirmed yesterday.

DB&G which bid $115 million for the management company that runs the two funds that make up the unit trust, has been undertaking a due diligence study to ensure the integrity of the Eagle preliminary numbers on which it had based its bid.

"We are now undertaking the due diligence process. They are fairly straight forward assets and hence we should get to the bottom fairly quickly," said Sinclair.

Eagle Unit Trust, was one of three diamonds left in Paul Chen Young's empire that crumbled in March 1997. The other was the commercial bank.

At the end of September, the unit trust's premium and growth fund had $91 million, and the money market fund $1.68 billion. The unit trust had 7,000 clients, and reported profit of $13 million for the year to June 30, 1999.

While DB&G will be able to consolidate the huge portfolio of business under one management to create a more efficient operation for the trust, Sinclair believes that the 7,000 customers will add a new dimension to the D&G family.

"We plan to add Eagle Unit Trust to our family of financial institutions, and it will enable us to add a very attractive product to a market of a more retail clientele. It is not our traditional market."

It is the possibility for synergy that Sinclair believes will enable DB&G to eke out more profit from EUT than it now currently makes just by creating a better spread on its overhead.

"The synergy is the fact that we are pretty much doing the same thing. We will enjoy economies of scale from spreading the overhead, and will have 7,000 clients to whom we can cross-sell our other products," explained Sinclair.

Bullish about what is his second major acquisition within a year, Sinclair stressed that the EUT portfolio would provide DB&G with a launch pad for a renewed attack on the mass end of the market.

"We will crank up the market. Our plan is to aggressively grow the fund. We want to double the size within 12 to 18 months."

Last year DB&G consummated the acquisition of 51 per cent of Billy Craig Merchant Bank, which it now operates as a wholly owned subsidiary called DB&G Merchant Bank.

If there is any lesson to be learned from the Billy Craig acquisition, it is the importance of due diligence study. At the time when DB&G decided to acquire Billy Craig, the merchant bank reported a small positive shareholders' equity. But on closer examination, DB&G discovered that there was a huge capital deficiency at the institution. It required the intervention of FINSAC to make the takeover feasible. FINSAC is now a 49 per cent partner in the merchant bank.

DB&G plans to leverage its branch network to deepen its foray in the money market business. In fact, Sinclair believes that the company's presence in Montego Bay, Ocho Rios, Sav-la-mar, Mandeville, and Kingston gave it a competitive advantage in the bidding process - over giants like Jamaica Money Market Brokers.

"The vast majority of the clients are in the rural area," said Sinclair. "We are the only ones that bid who had a branch network."

DB&G currently has $8.1 billion under management with roughly 2,000 clients, and total balance sheet assets of $8.5 billion. For the nine months to September 1999, the company reported net profit of $32.7 million, compared with $20.2 million the similar period last year. At the end of September, shareholders equity stood at $227 million.

Sinclair could not be definitive about how the new asset would be structured into the group, though the most likely outcome, he said, would be as a wholly owned subsidiary of DB&G Limited.

Eagle Unit Trust was initially acquired by a consortium of Pan Jamaican Group and Seprod, when it was first auctioned by the government. But after the tax authorities decided that the gains earned by the investors in unit trust products were subject to tax, the consortium said it was no longer interested in the firm at that price.

The consortium recommended that the government ask for new bids, but apparently that request was not accommodated. DB&G was among the next two highest bidders.

Pan Caribbean and Seprod did not bid again.

 November 3, 1999

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