Former ICC chief still big fan of privatisation

FRIDAY INTERVIEW/Michael Quinn, chairman of Datalex: Michael Quinn says remaining State companies have much to gain from privatisation or part-privatisation but if they go that route they must be well prepared, writes Ella Shanahan

There are options other than flotation available to State companies and, even if the companies go down that road, there are choices beyond privatising the whole company, Mr Michael Quinn, former chief executive of ICC Bank and now chairman of Datalex, advises.

Mr Quinn - who describes himself as an accidental banker - led the State bank through a sometimes fraught, privatisation and sale to Bank of Scotland.

Now safely ensconced in the private sector on many company boards - he took early retirement two months ago at 55 - he still is a big-time supporter of privatisation.

A point that has been missed by the media, he says, is the return to the State on the privatisation of three banks - ICC, ACC and TSB.

He says capital is a major issue, considering the Government's plans for infrastructure, health and education, which will make huge demands on State funding.

"The achievement of those privatisations resulted in the following: the State got almost €1 billion and they were relieved of any contingent liabilities in relation, in particular, to ICC and ACC, because the Government would have been giving ownership maintenance commitments.

"The fear might have been that, during a process like this, you might narrow competition for financial services but, out of this outcome, you had not just a highly successful privatisation but the competitive situation in financial services was significantly increased."

The alliances made these banks stronger, he says. "The capital capability they can bring to the financial services sector here would be vastly more than they could have done on their own."

ACC was sold to Rabobank, the Dutch financial services group.

Of the options open to the remaining State companies - most of which he believes could benefit from privatisation - he says mergers or part-privatisation could be considered.

"If you want to make an organisation attractive for privatisation, existing boards of management have a job of making sure the existing shareholder is properly rewarded for the capital they put in. However, if you want to move to a private ownership, you have to move to a platform to make the business attractive to a new shareholder so that, if they put their money in, they can reasonably expect it to grow by X per cent per annum.

"Some companies which might be going through a difficult period, you might find - through a business restructuring of that company - an entity which may be attractive for privatisation. Whereas the entity as a whole might not be attractive because of its social responsibilities, if you isolate those social responsibilities, you might find there are entities that are not core, that can sit on their own commercially and aren't cluttered by the social remit and you can deal with those separately," he argues.

The issue of capital for State companies is one which ICC Bank had to grapple with in the late 1980s, when the public finances were fairly strapped. ICC Bank and Enterprise Ireland were tugging at one end of the rope in their efforts to support small and medium-sized businesses and the Government was pulling hard on the other end.

"There was this conflict: you had the Government on one hand with its requirements to reduce borrowing, with ICC saying we could do with extra capital. The State finances had to be got into shape.

"Now if you look at the Government's programmes of spending on infrastructure, health and education, there are huge demands on the State in relation to making funding available for these massive areas of expenditure. Therefore, the State companies are going to be competing with these for their own capital needs."

He values his experience of privatisation, even though one of the proposed sell-offs collapsed in the process.

"Undoubtedly it was a complex process but highly rewarding in the sense that we set ourselves on a path. There was a common agenda and it worked out extremely well. Having seen the issues facing potential privatisation, I felt a fantastic sense of achievement, not just for myself, but for the whole organisation when it was successfully completed," he says.

But he has cautionary words for any company considering privatisation.

"The process, of necessity, has to be inclusive if you want a successful privatisation. It's somewhat time-consuming and I think it's not practical to say that any point in time is the right or wrong time. You make a commitment to something you want to do and take it through the process."

This involves forging a good relationship with your Government department, your board, management, staff and your customers.

"It's very important that the customer would be kept informed and up to date. . . you wouldn't want to lose the customer.

"At various times there would have been different strains - which is why, in sharing a template for the future, I would be very keen on preparation, preparation and preparation. . . the more you put in on the preparation side, the earlier issues arise, the earlier you will generally find there is a consensus in the end to getting a resolution of them."

Mr Quinn has, at times, voiced his criticism of the lending policies and services of commercial banks but he does it nicely, and his hallmark has been leading by example. He says that when ICC started to provide long-term (10 years +) loans for business, nobody else was doing it.

Within a couple of years, the other banks had followed. In the early 1990s, most banks were indicating that lending to small and medium-sized business was loss-making, yet it was the ICC's only business and they were making money.

"As the 1990s progressed, providing services to small businesses became a flag that all of the other banks were anxious to wave," he recalls.

"In terms of service levels, I think the interaction with the customer was probably the biggest area of differentiation which ICC had over the other banks. It's a bit of a cliche to talk about closeness to the customer, and knowledge and understanding of their business, but we felt that most other banks had fallen down in that area."

It is something that remains a priority under the ownership of Bank of Scotland.

"What people are inclined to forget is that customer needs are changing all the time and you need to have it at the forefront of your policy, not just on paper but in practice, to keep very close to the customer," he says.

Investing in start-up companies certainly required that approach and ICC is acknowledged to have invested well.

"When people look back at the of reasons for the Celtic Tiger, those small and medium enterprises turned out to be one of them. A number of them would be below the value that we would have invested at and that would be reflected in the companies' accounts - the valuation would be lower.

"But there have been very few failures and our hope would be that, basically they had a good product suite, there remains a market for their products," he says.

"We would also have had companies where there would be a significant unrealised gain - we differentiate between a realised gain, where we sell the shares, and unrealised - and we would have a number of companies in there showing significant values over what we paid for them."

Mr Quinn is still chairman of ICC Venture Capital and rates Today FM, Horizon and Power Leisure, of which he is a director, among the star performers in the company's portfolio.

One month into the chairmanship of the troubled Irish travel software firm Datalex, Mr Quinn says the management changes, improvement in cost base and the ability of the travel industry to bounce back augur well for the company.

"To use a jargon word, it's in a good space. There has been an identifiable growth in activity in Datalex of late and the challenge will be to convert that activity into revenue."