When Maoilíosa Ó Culacháin left Eircom, now Eir, in 2004, after seven years managing its 14,000-member employee share ownership trust (Esot), he was intent on doing two things: starting his own business and moving out of Dublin.
Ó Culacháin wanted to set up a third-party administrator of share ownership plans for large corporations, using the expertise he had gained at Eircom. He owned a holiday home in Clonakilty, west Cork, and was keen to move to the area full-time.
In 2006 Ó Culacháin convinced his business partner, Carine Schneider, an American former benefits consultant at Towers Watson, to locate Global Shares at the West Cork Technology Park. By happenstance John Fleming, a Cork property mogul, developed the park in boom-time Ireland, offering modern offices with good broadband service.
Fleming offered the office space on a month-to-month basis. Ó Culacháin reckoned that, if based at Clonakilty, a small town with few competing employers, the company could attract and retain loyal workers. In Dublin, fund administrators would bid up wages and poach staff. The base was also relatively close to Cork city, a rich source of qualified graduates.
From such unlikely beginnings a thriving business grew. Last week the Wall Street investment bank JP Morgan, one of the world’s biggest financial institutions, confirmed it was to buy Global Shares for a reported $730 million (€665 million).
Advertisement
A number of local people, some investors and others who work in the business, will share in the sale proceeds. Motive Partners, an American private equity investor, which paid a reported $25 million for a 40 per cent stake less than four years ago, will make a return of close to 1,000 per cent.
Early backers Richard Hayes, a former chief executive of quoted financial service group IFG, the Wicklow-based property developer Robert Neill, and the IT entrepreneur Pearse Mee will between them reap more than €80 million.
Five partners from the accountant KPMG, past and present, will make €55 million. Munster businessmen Gerry Wrixon and Brian McCarthy of Fexco stand to make seven-figure returns.
Writing to the company’s close on 400 shareholders last week, Hayes told them they would receive “a very substantial and much deserved return on your investment and from your faith in backing the business”. Global Shares has never made a profit. Over its 16-year existence it has skirted with insolvency a number of times. On two occasions it leant on shareholders to stump up cash for wages. Yet it has emerged as one of the country’s biggest fintech success stories.
Ó Culacháin, who left the business in 2016, no longer owns shares in the company. Yet in many ways he set the foundations for future success. This was no glorified call centre. Team leaders had to be financially literate enough to hold proper conversations with its corporate clients.
Advertisement
Its first four employees were all UCC economics graduates. One, Mark Purcell, is Global Shares’ chief product officer and stands to earn about €6 million from the sale. Ó Culacháin tapped Ron Bolger, a former KPMG managing partner and Eircom chairman, to chair the fledgling company.
It aimed big from the start. Its first client was TNT Logistics, a Dutch company that had just been taken over by private equity firm Apollo Capital Management. Apollo needed to put in place a stock plan for 330 managers. Global Shares had the scheme set up within a matter of months. Other early clients included ING, a Dutch bank; Unicredit, an Italian bank; and Cargill, a Canadian commodities trader and one of the world’s largest private companies.
Global Shares raised seed funding in July 2007. Apart from the state agency Enterprise Ireland, the two largest investors were Hayes, then chief executive of IFG, a quoted pension and mortgage broker and trustee company, and Hayes’s property developer friend Neill. Other investors included Victor Quigley, who had sold his business to IFG.
Bolger meanwhile leant on former KPMG colleagues, including Gerard Flood, the firm’s long-time corporate finance partner, and Michele Connolly, Eoghan Quigley and Richard Whelan. In total the company raised €2.7 million in convertible preference shares.
Although modest, Global Shares did well to raise the capital before the financial crisis. Yet the ensuing recession would take a toll on the business. In its early days much of the administration was done manually. As the business grew, and added clients, it needed to invest in its own proprietary software. In a country teetering towards bankruptcy, it was difficult to raise funds.
Advertisement
In 2012 the company restructured. The original preference shares were converted into equity, diluting the founders substantially. Schneider left and was replaced by Tim Houstoun, a Briton who settled in nearby Timoleague with his Irish wife. Houstoun, who had made a fortune with Business Direct, a UK logistics company, joined Global Shares as an interim chief financial officer in 2008 as maternity cover.
A further €1.2 million was also raised, through existing investors and new backers, including Mee, founder of the hugely profitable AMT-Sybex. Enterprise Ireland stumped up, and the company raised a small amount of debt to fund software development. “We thought it would take a year or two with four or five developers; it has actually taken almost six years with an IT team that is now more than 40 people,” Houstoun told The Sunday Times in 2017. “It was a bigger project than we ever thought.”
It tapped shareholders on several occasions. Hayes recalled last week how Mee lent “money when funding was only available at penal rates of interest and when it was most needed”. By 2017 it had grown to 100 clients, including multinationals such as the Italian insurer Generali. Now with its own technology, Global Shares was growing much faster than its competitors, and operating out of ten offices across the globe.
Yet it was still subscale. The company posted turnover of just $9.5 million in 2017 and made losses of $3.5 million.
It had also exhausted its local backers, who had by this stage supported it to the tune of $14 million. Global Shares needed a private equity backer. Hayes spoke to Robert Hussey, an EY corporate financier, who suggested Motive Partners. Backed by Warburg Pincus, an American investment company, Motive supported growth-stage technology companies and had just set up a fund with the Ireland Strategic Investment Fund (Isif).
Advertisement
Motive agreed to pay $25 million for a 40 per cent stake in 2018. It was, Hayes said last week, “a seminal moment”. He stood down as chairman to make way for Andy Stewart, a Motive partner.
Hayes said that it was “one of the best business decisions of my life as well as being the one that has been the most financially rewarding”. Motive brought more than the requisite cash to recruit more sales staff to break into new markets and fast-track software development. It parachuted Belgian Christophe Bouhon into the company as chief technology officer. “Their [Motive’s] approach from the first meeting was to look to build a great business together,” Hayes wrote in his letter to shareholders.
Motive’s arrival heralded a shift in thinking as to where the real value in the business lay. According to sources close to the company, for all its progress the business model at the time was “completely unsustainable”. Foreign exchange was a big revenue driver. Global Shares pockets a generous margin when overseas employees of American client companies sell shares in dollars but receive the proceeds in euros and other foreign currencies. This currency differential, which accounted for as much as 30 per cent of earnings, would soon come under threat as digital disruptors muscled in on cross-border payments.
Less than a year after Motive Partners came on board, however, Global Shares would have its eureka moment. In 2019 a Canadian competitor, Solium Capital, was acquired by Morgan Stanley for $900 million. It showed that stock plan administrators could be much more valuable sitting within wealth managers such as Morgan Stanley. There was “a realisation of the real drivers of value in the business”, one source said. It was not technology, nor expertise in managing plans — it was the underlying customer base. Yet one needed both the technology and the expertise to get the client base.
Morgan Stanley refers to retention rate, which is the proportion of employees who hand the share sale proceeds to the bank to manage when they cash in their options. Morgan Stanley recently reported a 24 per cent “retention rate” at Solium last year — up from 21 per cent in 2020. “Our longer-term goal is to reach 30 per cent retention,” James Gorman, Morgan Stanley’s chief executive, said. The bank also collects administration fees, some forex charges and broker fees when shares are sold. Yet the real honeypot is retaining the mass affluent.
Advertisement
Global Shares has almost $200 billion in assets under administration. “Even a 10 per cent retention rate would unlock considerable underlying value,” one source said. Yet on a standalone basis this was “useless” to Global Shares as it could not be “monetised”. Bank of America was hired to flush out potential suitors before it tied the knot with JP Morgan. “This is a fantastic deal for JP Morgan as well as for Global Shares,” the source said.
In total Global Shares administers stock plans for 650,000 employees and clients including Saudi Aramco, L’Oreal, Krispy Kreme, Bosch and Bose.
One observer said stock plan administrators Solium and Global Shares give the investment banks “extraordinary visibility on new emerging wealth, not just who has it but when it is going to crystallise”.
While Houstoun, who will earn €15 million from the sale, spoke of an initial public offering as recently as last September, at a unicorn valuation, Global Shares was always going to be more valuable sitting inside an investment bank.
As Global Share was one of the few remaining stock plan administrators left on the block, if JP Morgan wanted to tap this trend in wealth management, sources said it almost had to pounce.
It all led to the sort of outcome that would have been unimaginable for most of the company’s history. It should also be good for 275 staff based in Ireland, with 160 in Clonakilty and 100 at the company’s Cork city offices on Penrose Wharf. There are also 15 staff working remotely from other locations in Ireland.
Since leaving his executive role in 2016, Ó Culacháin has moved on to new ventures, including helping growth companies access capital. He may not benefit from the sale financially but, as start-ups go, Global Shares is not a bad one for his CV.
