Regional Turnabout

Ian Davidson cautions that the firm’s growth here will depend on imponderables. He notes that it may make sense for Davidson to focus more on developing private client business in its own backyard, where it is better known and more established, than in the Twin Cities. Another area of uncertainty is acquisitions. Davidson is always on the prowl for them, but it’s impossible to foresee where or when opportunities might pop up.

 

The Minnesota Connection

As Davidson plots out its future in the Twin Cities, one thing is for sure: The company will be able to tap a reservoir of experience in the financial community. So much so, Johnstone quips, that “there are people in the firm who think it’s a cabal.”

Johnstone, a Montana native, graduated magna cum laude from the University of Minnesota Law School in 1969, then joined the Dorsey & Whitney law firm in Minneapolis. At Dorsey, he handled underwritings and practiced corporate finance law for 25 years. In 1996, he moved to Dallas for securities firm Dain Rauscher, Inc., to head an affiliate company before returning to Dorsey as its managing partner. In 2000, he joined Davidson and moved back to Montana.

Other former Twin Citians in high posts at Davidson include Tom Nelson, the company’s top financial and operating officer; and Larry Martinez, its general counsel, who previously served as an attorney at Dorsey. Nelson did stints as a top officer at three different Twin Cities financial companies and former D. A. Davidson president Ron Tschetter, tapped by President Bush last year to head the Peace Corps, was a top executive at Dain in the Twin Cities for many years.

Johnstone and Davidson say their firm’s independent status, its employee ownership, customers’ desires for face-to-face transactions with a smaller firm, and the quality of life in its Midwest and Northwest territory have helped it win customers and recruit top talent from larger companies. The head of its trust unit came from asset management firm Legg Mason in Baltimore, and the leader of its western region private client business had been at Wells Fargo in Seattle. Johnstone says nearly all of the 25 or so brokers the firm has added in the last 12 to 18 months came from larger investment firms.

 

Stepping Up and Out

Consolidations have created rich opportunities for Davidson, particularly in the Seattle market. Wells Fargo’s 2000 purchase of Ragen MacKenzie, a brokerage firm based in Seattle, helped pave the way for Davidson to move into that region.

In May, New York–based financial services giant Wachovia Corporation disclosed plans to buy investment and financial services firm A. G. Edwards for $6.8 billion, a transaction that will create the nation’s second largest retail securities firm. Ian Davidson says that after news of that deal broke, job-seeking brokers from Edwards peppered the Davidson firm with calls.

Both of Davidson’s top executives attribute much of their firm’s growth to the two biggest deals it has ever done: its 1998 acquisition of Jensen Securities, a research firm in Portland; and its 2005 purchase of the Kirkpatrick Pettis fixed-income and public finance business from Mutual of Omaha. The Jensen deal gave Davidson a battery of securities analysts. Kirkpatrick Pettis added a beehive of talent in Denver, plus small offices in the Midwest and East—including an Orlando office that specializes in stadium financing.

Davidson’s ownership structure shields it from takeovers. Ian Davidson says he owns about 18 percent of the company and other family members another 3 percent or so. An employee stock ownership plan holds another 33 percent. About 420 employees hold the rest of the stock.

Few things are certain in the volatile world of finance, but the odds seem good that Davidson, venerable and growing, will be around for a while, and that we’ll be hearing more from this company in the Twin Cities. The questions are how much more and when.