Interview:John Gallagher has executed one of the greatest business feats of the boom years. Architect of the strategy which made the Doyle and Beatty families a profit of some €950 million on the disposal of hotels in the Jurys Doyle chain, his low-key style seems at odds with that spectacular result.
Gallagher is not a man to court publicity or to engage in self-promotion, but he has five-star financial prowess. In the simplest of terms, the restructuring of Jurys Doyle implies a break-up value of some €2.62 billion on a business acquired for €1.6 billion less than two years ago. He doesn't need to boast. The figures do the talking.
He is married to Bernie Gallagher, a daughter of the late PV Doyle, founder of the eponymous hotel empire. When Jurys Doyle became embroiled in a takeover battle in 2005, she and her sisters, Anne Roche and Eileen Monaghan, and the family of former chairman Walter Beatty, formed JDH Acquisitions to take the company private. They hired Gallagher on commercial terms to do the deal. "I thought I was getting in for six months, I didn't realise it would take two years," he says.
In a boardroom overlooking Grand Canal Dock in Dublin, Gallagher is in unwind mode after the €1.165 billion sale of the Jurys Inn chain to Quinlan Private last month. That capped a frenetic round of deal-making in which JDH realised another €707 million from the sale of landmark hotels such as Jurys Ballsbridge, the Berkeley Court, the Burlington, the Towers and the Montrose.
That's quite a return, although a large number of employees will lose their jobs when these hotels close their doors.
The 11 remaining hotels are valued at up to €750 million, with annual profits before tax and costs of €50 million. Solid reputations for financial wizardry have been built from much lesser stuff, but Gallagher exudes modesty. "The smartest thing I can do is hire people smarter than me," he says.
This autumn he returns to the helm of Crownway, an investment firm he controls with his wife. Currently engaged in property investment in Britain and Europe, it is believed the firm now has the strength to go after deals worth more than €250 million.
"We like to think of ourselves more like a PE [ private equity] company, where we will have commercial involvement in something and transact it," he says.
JDH may well go down in history as the arch-beneficiary of the property boom, but Gallagher is not for investing in domestic property.
"My view on the Irish market is that whether we get a soft landing or a hard landing, definitely the weight of percentage is on the downside as opposed to on the upside. I think there's a correction here and how bad that correction is I don't know . . . there's a whole bunch of factors which will influence whether it's a soft one or a hard one."
While the family factor was crucial to his work for JDH Acquisitions, he brought A-grade business credentials to the job, having already made two fortunes.
In the late 1990s, he realised more than €10 million from the sale of security firm Magnum to Williams plc. He then set up waste and water group Celtic Utilities and ultimately realised more than €45 million from its sale to National Toll Roads, a company controlled by his brother-in-law Tom Roche.
The saga at Jurys Doyle started in May 2005 when the Precinct consortium - Bryan Cullen, JJ Murphy and David Coleman - came with a €15.25 a share approach for the group.
With developers Seán Dunne and Liam Carroll sweeping up shares in separate manoeuvres, there would be many a twist before JDH took control seven months later at €18.90 a share.
Gallagher says it was clear to him from the outset that the business was worth more than €18.90.
An emotional imperative was certainly at work for the families in JDH, but he says he would not have taken on the job without a mandate to do whatever he held necessary to execute the take-private and restructure the business on a sound financial footing.
"I wouldn't do it any other way. I had four families . . . I didn't want things revisited because otherwise you'd have mayhem both from management's point of view but also in terms of execution. If people changed their mind at the last minute, we'd be in serious trouble."
JDH took control of Jurys Doyle by way of an unconditional bid, financed with €1.6 billion in debt from AIB. There was no certainty that either Dunne or Carroll would sell out, but Gallagher believed that neither man would like to be left with a minority stake in the face of a big majority holder such as JDH.
"The first thing was that we had to go unconditional, which was unheard of in Ireland. It's very rare, even in the UK. Unconditional means that you've got to go for the company and you could end up with 60 per cent. Obviously that's very high-risk strategy.
"From our point of view we had to find a way of going unconditional. The obvious thing for us was to try and get a bank to put up €1.6 billion of debt to finance the deal, which was a first. We ran a very complex debt auction process, both in the UK and Ireland, and we wrote the terms of that. AIB stepped up to the plate.
"The terms were pretty tough in the sense that they were totally flexible, they couldn't force us to do anything and they didn't know what we were going to do. All we agreed with them was that we would reduce debt over a period of three years. We didn't tell them how we were going to do that.
"The other thing they had which was very different was that we only wanted to deal with one bank, so we didn't want any syndication. Once we had them on board, we had really got the firepower to go unconditional."
The Doyles, Beattys and investor Elizabeth Nelson started out with 42 per cent of the group but strengthened their hand considerably with a surprise overnight foray to increase their stake. This put pressure on Dunne, who had amassed 28 per cent, and on Carroll, who had 8.3 per cent.
"If we got over the line, 51 per cent, nobody in their right mind would want to sit as a minority shareholder because they'd be meeting us for a cup of tea once a year and that would be it and we'd be in for the long game."
Gallagher says Carroll told him in a short phone call - "five minutes, no more" - that he would sell to JDH. "They rang us. He's a very astute commercial guy. He's been highly successful in what he's done. He would only go when he saw no way of getting control."
Dunne, of course, had his eye on the three Ballsbridge hotels, and prevailed in two tenders to spend €379 million for the sites.
"I don't know what Seán's intentions were, but I think he bought into the business because he believed there was value there. How much interest he had beyond that I've no idea."
Gallagher says the hotel business was in poor condition when JDH took control and emphasises the importance of his mandate.
"We had set out a plan for them. We didn't keep revisiting things in relation to decisions which were tough, we knew pretty much what we wanted to do.
"When we did the take-private, we took control of the company by setting up a finance committee underneath the board and we ran everything through that."
The business was badly structured, with high overheads, "layers and layers" of general managers and people "running three stars one day and five stars the next". The hotels suffered from underinvestment and the inns business suffered because only two sites were opening each year "when they should have been rolling out 10".
While the restructuring process led to the sale of prized assets such as the Burlington and the inns, Gallagher does not agree that this was at odds with the families' intention to protect the integrity of the group.
"Although the integrity of the business was critical to them, they were also very commercial people. They realise you have to pay debt down. You can't just sit with €1.6 billion of debt on your books and hope that it's going to be okay. We had to take some tough choices and decisions."
Selling Jurys Inns was never a given. But once the decision was made, Gallagher made a point of approaching investment banks such as UBS and JP Morgan before hiring Merrill Lynch as advisers. Merrill's rivals valued "the business to become our advisers", but their transaction teams knew exactly what was on offer when the sale started.
"We didn't allow it to become an Irish auction," he says. "It ended up an Irish auction, it ended up in Irish hands but it didn't set out that way because we had all the big guns there."
ON THE RECORD
Name:John Gallagher
Job:Chief of Crownway Investments, adviser to Jurys Doyle owner JDH Acquisitions
Age:He turns 48 next month
Education:He studied history and politics in University College Dublin.
Why he is in the news:Having completed a restructuring of the Jurys Doyle hotel group, he will return to his personal business interests in the autumn.
Something you might expect:He's a demon for financial detail.
Something that might surprise:In his youth, he wanted to be a rock singer. "I'd probably have starved." Now he sings in a band called Dakota 66. They play the Doors and the Rolling Stones.
