An old hand at trouble

DCC founder and chief executive Jim Flavin is no stranger to trouble, having ridden his fair share of tough commercial patches and legal wrangles on his way to building the unique conglomerate that is DCC, reports Kyran Fitzgerald.

THIS week, a High Court showdown between former friends got underway. In one corner, the McCann family Neil senior and son, Karl in the other, Jim Flavin, a onetime director of the family Plc, Fyffes.

The bitterest of conflicts frequently arise out of shattered friendships.

For many years, Neil McCann senior and Jim Flavin were almost brothers in arms.

McCann, the Dundalk man who made his fortune in the banana business.

Flavin, the suave former banker, who broke free from the AIB organisation to create a highly successful business conglomerate called Development Capital Corporation back in 1976.

Both men have been well known figures on the Irish business scene since the start of the seventies.

Both are survivors, having ridden through their share of commercial tough patches.

The days when the pair quaffed celebratory glasses of champagne together, however, are long gone.

However, life goes on and indeed, Flavin's publicly quoted company has gone from strength to strength.

DCC still operates out of its original premises, a modest, brick building in Stillorgan, but the company has grown enormously since those early days. It now has annual turnover of €2 billion, with large stakes in companies in IT distribution, energy, healthcare, environmental management, construction, and the food sector.

The company has been a plc since 1994 and has a market value of around €1.3bn. Right now, however, the CEO's mind is elsewhere as he prepares to negotiate the legal rapids.

The journey could turn out to be bumpy.

At stake in the High Court is the business reputation of the group's founder and continuing driving force. The judge, Mary Laffoy, will be asked to determine whether DCC and Jim Flavin had inside knowledge when they offloaded more than €30 million Fyffes shares back in February 2000, just ahead of a profit warning that triggered a near meltdown in the Fyffe's share price.

Jim Flavin has been there before and he has not been left with particularly happy memories of the Four Courts.

At the height of the famous battle for control of Irish Distillers, a battle fought between the Grand Met consortium and the French "white knight" bidder, Pernod Ricard, which had been enlisted by IDL management under Richard Burrows, Jim Flavin found himself giving evidence in the witness box in the High Court. Irony of ironies, Fyffes and Flavin were in the same corner during that particular legal bout.

At the time, Flavin was a non executive director of Fyffes, once known as Fruit Importers of Ireland.

A key advisor to the company, he was involved in negotiations on the sale of a pivotal 20% shareholding which Fyffes held in Irish Distillers. Talks took place on the sale of the stake between Fyffes and Pernod the businessman,

Dermot Desmond, acted as an advisor to Pernod in the negotiations. An agreement was reached on a sale price 450 pence a share. Within days, however, Grand Met came in with an offer of 525p per share, later raising it to 550p.

Fyffes and Flavin argued that the deal had not been consummated as it had been conditional on receipt of a tax clearance cert. Legal proceedings ensued. It emerged that Flavin had said to Desmond that as a "man of considerable influence", he should go out to Kinsealy residence of the then Taoiseach Charles Haughey to secure the clearance certificate. (Desmond was a close advisor of Haughey. The IFSC had just been launched at his suggestion).

Flavin maintained that it had been said as a ' joke'. In any event, the judge decided that the deal stood.

The Supreme Court upheld this verdict. The shares were handed over to Pernod which emerged as the ultimate victor in the takeover battle. If not a knockout victory, then an easy win on points for Flavin's opponent.

He suffered further embarrassment when Howard Kilroy, then chief operating officer of Smurfit Group, at a time when that company was really riding high, decided to sell the Smurfit pension fund holding in DCC, taking the view that DCC had "acted outside its remit" during the IDL affair.

The DCC boss showed, however, that he was not without friends. Back in 1976, he had managed to line up backing from 11 institutions when starting up DCC and he was soon able to place the Smurfit holding for £3m, while raising another £17m in the market.

Over the years, first as part of accountants, Stokes Kennedy Crowley (now KPMG) and later the AIB business circle, Flavin built up a wide network of connections.

The longtime DCC chairman is Alex Spain, a former senior partner in SKC. He later became chief executive of the old State owned ferry company, B & I, prior to its eventual sale and rebirth as Irish Ferries.

ANOTHER connection from those SKC days, John Callaghan, a former SKC managing partner, was briefly headhunted by Fyffes to take up the post of managing director.

A parting of the ways soon followed and Callaghan went on to become chairman and for a while acting CEO at First Active Plc, helping to headhunt Cormac McCarthy, the man who transformed the ailing plc's fortunes.

Flavin's own background is an interesting one. He attended the prestigious Blackrock College, Eamon de Valera's old school, where near contemporaries included the former AIB chairman, Lochlainn Quinn, and former Labour party leader, Ruairi Quinn.

However, he started work at just 18 as a clerk in the old National Bank, studying at night for a degree in commerce. He later qualified as a chartered accountant, completing his articles with Kennedy Crowley, the firm run by Niall Crowley, a future chairman of AIB and Irish Life.

By the mid 1970s, Flavin was running AIB's venture capital outfit, Allied Combined Trust, now known as ACT. However, running an operation that formed part of a large banking organisation had its drawbacks.

The answer lay in parlaying connections to lever backing for a breakaway venture capital outfit.

DCC soon attracted a small group of bright young managers. With Morgan Crowe as his right hand man, Flavin built up a team that included venture capitalist David Gavagan and the future Barlo Group CEO Tony Mullins.

By 1990, DCC was already a substantial player with investments in 38 companies, typically with substantial stakes of between one third and a half.

In the DCC stable were household names such as Flogas, Manor Park Homes, the leasing company, Reflex Investments, a high profile software company, Kindle and printers, Printech.

But there were also some turkeys, Capital Leasing and above all, the video rental firm, Xtravision.

At one point, it was worth over €40m. The bubble eventually burst and in 1989, the share price plummeted. The collapse of Xtravision which later re-emerged under new ownership was a major embarrassment. However, Flavin and DCC had a sufficiently large stable to bear the loss of a couple of horses and today, the company has a very widespread and balanced portfolio of investments.

Says Liam Igoe of Goodbody Stockbrokers, "the big focus is on return on capital employed. There has been no big acquisition, no magic bullet. They make small to medium sized acquisitions and then drive those companies forward."

"It is a fairly unique model for a Plc. DCC may look like a 1970s style conglomerate, but the reality is different. The companies tend to be sales & marketing oriented. The common thread is the top level management and the financial discipline."

Return on capital goodwill included exceeds 21% and DCC can point to compound annual growth of over 17% in earnings per share over the past decade.

DCC is cash rich and has handed back money to the shareholders. Jim Flavin has talked of making acquisitions of up to 500m, but in reality, he is in no hurry to pay top dollar.

As he put it in the latest DCC annual report, "public companies are often under market pressure to make acquisitions .. research has shown that corporate activity often destroys shareholder value."

Flavin is now sixty two. Whatever, the verdict in the court case, he cannot go on forever. He has a team of bright managers around him. Only time will tell whether one of these can step up to the plate. Then there's that court case. If the €85m Fyffes claim was to

succeed in full, it would mean €1 off the share price along with reputational damage and the prospect of further litigation, admittedly on a smaller scale. However, victory in what amounts to an allegation of insider trading would lift a large monkey off the back of Flavin and DCC allowing them to concentrate on what they do best the wringing of maximum returns from businesses.