Merrion showing no signs of slowing its tempo

It's been a hectic year for John Conroy, chief executive at Merrion Capital. Whether at Eircom or Aer Lingus, he's been in the thick of corporate action for months.

Merrion is advising Aer Lingus in its defence against Ryanair's bid and the firm advised Eircom's employee share ownership trust (Esot) during the telco's takeover by Babcock & Brown. "By and large the market remains very favourable to us and we've been able to put a very good year under our belt," Conroy says.

Passive he is not. Famous as the man who led a spectacular walkout from NCB Stockbrokers to form Merrion in 1999, Conroy was in Cork this week for the opening of the firm's first office outside Dublin.

The woman in charge there is Rose McHugh, former deputy chief of Bandon-based waste, energy and outsourcing group SWS and chairwoman of State fisheries body Bord Iascaigh Mhara.

Merrion will provide wealth management, corporate finance and equity services in Cork.

McHugh had hardly opened Merrion's door in Montenotte when the firm secured the job of selling SWS, a business which has attracted bids of €120 million.

From this good start, Conroy has high hopes for the foray into Munster. "In 2005, we made pretax profits of €8 million. I would say an office in Cork could represent a serious chunk of that type of number in four to five years definitely, assuming stable market conditions," he says.

Conroy sees parallels between Cork people and the Icelanders he has met since the Reykjavik-basedbank Landsbanki bought out Merrion a year ago.

"There's a proud independence about the Icelandic people which I think has some parallels in Cork. If you look at Cork going back over the generations, they have been recognised for a very strong business culture, being a major pharmaceutical centre, shipping port and a major success in the areas of services. On the business side, what appeals to us is that this is not just a Celtic Tiger phenomenon. It goes back generations."

Merrion took the benefit of outside investment as early as 1999 when New York investment bank Allen & Co bought 30 per cent of the firm for some €3 million.

Few expected Conroy and his team to sell the business outright, but it was an attractive deal.

Landsbanki paid in excess of €27 million upfront on its initial 50 per cent stake, valuing the business a year ago in the region of €55 million. The value of the second half will be determined by Merrion's profits this year and in the next two years.

Conroy won't confirm suggestions that the overall deal could be worth €90-€100 million by its conclusion, but profits are on the rise.

The firm made pretax profits of €8 million in the first six months this year, the same as in 2005 as a whole. The second half of this year will bring in income from the Eircom deal and the Aer Lingus flotation and its Ryanair defence, so the value of the deal continues to rise.

"People have tended to underestimate the amount of profitability in Merrion," he says. "The earn-out is working very well for both sides I would say. Obviously we're motivated to build a bigger, better company and they, I think, will benefit from having a more diversified company, a company with a strong franchise.

"They will also benefit by having a company with a strong footprint in the Irish market if they want to do different things in the Irish market down the road. It's one of those deals where both sides are happy."

Yet more than most, Conroy knows that growth is never a given. A civil engineer by training, he might have done with a hard hat as Merrion's establishment coincided with the dotcom collapse. "We were very unlucky in our timing but since then the market's been more favourable. The market backdrop has been very favourable, it won't always be so and we continually manage our business in the belief that we operate in a cyclical business. We need to be able to adjust and adjust very rapidly."

Ryanair's surprise approach for Aer Lingus is not quite dead yet, so there's not a lot Conroy can say about that. But what of the pricing of the Aer Lingus initial public offering (IPO) at €2.20 per share, just days before Ryanair offered €2.80?

"The IPO was successful," Conroy insists. "It brought in €500 million-plus gross proceedings ... It was one of the largest offerings of its size in a notoriously difficult sector and there was general endorsement for the group's business plan.

"If one was to send to the market a company with a high level of government ownership and a lot of obstacles to investment from different sources built-in, the proposition ought to be attractive. You either privatise or you don't."

As for Eircom, Conroy says the telco's ownership changes show there is always value in companies even if their top-line growth is not very high. "There is always an attraction for good stable cashflows," he says.

He admires Con Scanlon, the former head of the Communications Workers' Union (CWU), who has led the Eircom Esot since the company's privatisation in 1998. "Con Scanlon is probably the best corporate financier in town. The Esot has done a remarkable job for its beneficiaries," he says.

"The third observation I would make is that these guys from Babcock are very serious players and I think, from what I can see, the new regime is very committed and energetic to getting value out of the business."

On the business scene generally, Conroy senses excitement in the environmental and alternative energy sectors.

"Property remains a big area for wealth managers in town. But I myself would be generally cautious on Irish property. I think that investments generally should be diversified geographically in terms of property and also should be diversified in terms of assets by having more than property in their portfolio."

Merrion started life as a small operator among bigger beasts, much like the Icelanders have ventured forth aggressively from their remote island. "Iceland for us is an inspiration in terms of business and also an indicator of business potential if it's worked well," he says.

"Iceland has a population of 300,000 people. It's got a stock market of €15-20 billion, three banks with a combined capitalisation of €10-€12 billion including Landsbanki (€3.5 billion). You can draw parallels." 

In that expansionary mode, Conroy has medium-term designs on a presence in Belfast and, possibly, across the Atlantic in Boston or Chicago.

"If you look at the population of the greater Boston area (six million) and Chicago (nine-10 million), that's two or three times the population of Ireland. If we only get a small slice of that, and it is a very deal-driven society over there, it could easily match what we do over here."

In Conroy's world, it's all about the deal.