Davy's chief is aiming for a doubling of profits to €100 million in five years, writes Arthur Beesley

Davy Stockbrokers' chief Tony Garry starts the new year in acceleration mode after the €316.55 million management buyout (MBO) of the broker from Bank of Ireland. The powerful firm is not known for modest ambitions and Garry wants to double profits to €100 million within four or five years.

That's quite an undertaking even for an organisation such as Davy, a big-foot deal-maker in a market in which the largest transactions are now quantified in billions. So it's pedal to the floor time for Garry, who has 470 staff on his books.

Long the dominant broker on the Irish Stock Exchange, the firm's private clients unit is a prime beneficiary of the growing appetite for big-ticket investment opportunities. To many observers, the proximity of this unit to the firm's corporate and institutional clients has been a big advantage for Davy, which was well-placed to benefit from speedy growth in the Tiger.

Garry says the private clients unit, led by Brian McKiernan, is pace-setter for Davy at large with a 50 per cent share of company profitability. "It has changed," says Garry of the growth profile. "At the moment, there's probably more momentum in private clients than there is in other parts of the business.

"A lot of people are busy making money and they haven't time to sit down with their advisers and say what should I do. The great thing about it is that the wealth is there, it's dynamic. There's huge wealth in places like Germany, France, the UK, but a lot of it is not dynamic. It's embedded in trusts and companies and private companies, whereas here it's all been made in the recent past."

Tapping that wealth will be a big focus for the firm in the years ahead. Not that Garry will say what's in his in-tray, which must hide some of the juiciest secrets in Irish business. Nor will he disclose how much Davy paid out last month in year-end bonuses.

"I wouldn't tell my mother that," he says.

An affable man who has scant regard for the cult of personality, Garry has been with the firm since 1979. Not particularly well known outside business circles, he is very much an top-ranking insider in the commercial world. Garry is long enough around to have seen Davy take its first steps away from its original partnership structure when it came under the control of Citibank.

Bank of Ireland took charge in 1988 when it bought 90.44 per cent of the firm's equity, but left majority control of the voting rights on Davy's board with management. Some 9.66 per cent of the shares were already in the hands of Garry and other well-connected board members such as capital markets head Kyran McLaughlin and chairman Brian Davy, whose father James Davy co-founded the company in 1926.

Funded by Anglo Irish Bank, the MBO valued Davy at a chunky €350 million. "We agreed a price with the bank that in the end was considered fair to both sides where we paid more than we wanted to pay and they maybe got less, but at a the price that was considered fair to both sides I think," Garry says.

"We've had to take on substantial debt and all that, but I think that reflects our confidence in the future for the business and our confidence in each other as a group of people, particularly the younger people we have in the organisation."

Garry won't disclose who got what in the carve-up of equity which allowed about 110 of the broker's most valued staff to take shares in the business. Without giving any further detail, he says it "mightn't necessarily be fair" to say that people such as himself have the largest stakes.

Certain staff have signed up for tougher contracts and there is provision to move the equity around with the passage of time, he says. "The make-up of the business isn't going to stay the same. Partnerships have to be dynamic. We have put a structure in place that will be dynamic."

Bank of Ireland has a four-year claw-back on the proceeds of any sale of Davy, but Garry says there is no plan to sell the firm on.

"There's been some chat around: 'oh they've bought it so they can flip it'. We've been quite categorical on this. We bought it so we can own it and take it forward ourselves and operate in an ownership, partnership environment," he says.

"We have a group of really talented ambitious people. A lot of those are mixing with people who own their own businesses. It was felt that there are succession issues to be faced over the next few years, that's how you take the business along.

"We would see broking is still a partnership business. It's a financial services firm as opposed to what you might think of a general insurance company or a life company or a retail bank. It operates best under a partnership ethos. We discussed with the bank the best way forward and we thought he best way was to divide out and distribute equity among the key staff, and it's distributed very widely."

Bank of Ireland also has claw-back rights on the proceeds of any demutualisation or sale of the Irish Stock Exchange, a factor which must be a big disincentive for Davy to push that agenda.

The process is stalled already because member firms are in deep disagreement over the weighting of their interests in the exchange, which is a company limited by guarantee.

Member firms have equal guarantees, regardless of their scale. Demutualisation would convert the exchange into a company limited by shares. It's no mystery that smaller firms want equal shares, but big players such as Davy disagree.

"There are different views," Garry acknowledges. "We're the largest, I think we should get the largest share. There is a voting structure already in place for agms, where the votes are distributed; that voting structure has been in place for years."

Leaving Bank of Ireland will not deprive Davy of heavyweight balance sheet support for its business, he insists. "That never really came to pass in a sense, the need for a bigger balance sheet . . . It's not something we've needed."

Garry says Davy has more than €100 million in net liquid assets, enough for its everyday needs. "We have a significant balance sheet ourselves so we have the ability to underwrite transactions."

He says Bank of Ireland's in- house private banking and corporate finance units had first call on business from the bank's own clients so there will be no loss of business from that quarter.

"The fact that we weren't spoon-fed or dependent on that would give us added confidence going forward," he says. "We would be very bullish about the corporate finance side."

In the year just finished, Davy saw plenty of action in deal terms. The firm raised $300 million (€225.98 million) to part-finance Riverdeep's mega-takeover of Houghton Mifflin; it managed Setanta Sport's raising of some €300 million from TV3 owner Doughty Hanson, and it carried out Ryanair's spectacular dawn raid for Aer Lingus shares at the moment of its flotation.

That list is far from exhaustive, but it's safe to say that such transactions will provide a boost to Davy's profits. That's not to mention a clutch of bond issues for Irish financials, listings on the small-stock IEX exchange and a booming fund listings business.

Garry won't put a figure on the likely outturn in the current financial year, which runs to March, but says Davy's €45 million pre- tax profit in the previous year came off a turnover of more than €150 million. Stating that he is "more concerned about where the bottom line would be", he does not identify his turnover target for the future.

He is clear however on the mid-term profit target: "Most companies, when you say what do you hope to do in the next five years, you'd say you'd like to double pre-tax. In that context, €100 million sounds like a nice figure in terms of a four or five-year timespan."

A lot of things will have to come right to realise such profits, but Davy's opening position is stronger than most. While succession planning forms part of the rationale for the MBO, Garry is in for the long run. "I certainly would see myself here in five years time and I think my colleague Kyran would as well," he says. "Working with young people keeps you young as well."

Garry says there is plenty of poke left in the Irish economy even if the steam has run out of the racier growth. "It'll be a soft landing but you'd have to think that a lot of what's happened has happened," he says.

"If the outlook for the economy is a lot better than it was, we're unlikely to see a repeat of the growth we have seen for the last 10 years. We're still going to be, hopefully, well above the European average."

All going well, that will be to the advantage of the private client division, but Garry says there will be no diminution in the institutional side of the business, which still makes half of Davy's profits.

The profile of companies listed on the Irish market has changed radically over the years, but Davy retains a rather large chunk of the action.

"We've always seen that there were threats to the institutional side. Some of the larger corporates can be taken out and that takes away your product base. That's happened. We've survived. We've gone on and we've brought new companies to the market."

To drive the institutional side of the business, Davy plans is broaden its research product - in the building materials, banking, entertainment, travel and leisure sectors - to include companies in Britain and Europe.

Garry says there is little action in the business scene that Davy doesn't see. Given his own profit targets and the MBO debt, there wouldn't want to be.

Factfile

Name:Tony Garry

Position:chief executive, Davy Stockbrokers

Age:55

Why he is in the news:Davy managers bought out the broker from Bank of Ireland in November in a deal that valued the company at €350 million. 2007 heralds the start of a campaign to increase its annual profits to €100 million within four or five years.

Background:Garry is from Ennis, Co Clare. He joined the Civil Service at 17 as a junior executive officer, became a bond trader at the Central Bank and moved to Allied Irish Investment Bank. He joined Davy in 1979. He was a night student at UCD and attained BComm and Masters degrees there. He had in mind to be a teacher, but his mother said that was not for him.

Hobbies:He likes Clare hurling and golf.