Regional Turnabout

Memo to the Twin Cities investment community: D. A. Davidson has arrived.

Montana-based Davidson, which bills itself as the largest full-service investment firm headquartered in the Northwest, has tripled its annual revenue to $204 million over the last decade and is shooting for $250 million by 2009. Now, in reversing the well-worn historical path followed by Minnesota companies that went west, Davidson is looking east for further growth.

For much of the 20th century, Twin Cities companies romped across Montana. Brokers, bankers, grain millers, wholesalers, and railroad scions here regarded the state as a colonial outpost. They helped develop Montana, then hauled much of their profit back to Minnesota.

But when Davidson was started in 1935, it would have been unusual for a Montana company to set its sights on Minnesota. Back then, the firm’s staff consisted of only three employees: David Adams Davidson, his iron-fisted secretary, and a cashier. Their lone operation, in an elevator shaft behind a storefront in Great Falls, generated just $17,000 in revenue that first year.

But Davidson’s son, Ian, was dreaming up a very different future for the company. In 1956, his MBA thesis at the University of California in Berkeley laid out the roadmap that enabled the company to morph into the diversified regional financial services firm it is today.

“I was the third employee,” says Ian Davidson, now 75 and chairman at the firm. “It was a positive mission to create a viable brokerage firm headquartered in Montana. I thought it could be done.”

He did it by joining regional stock exchanges, where he quickly learned more about the investment industry and gained access to revenue that was available only to exchange members, according to The Lengthening Shadow, a company history written by William Preston. In 1995, Davidson served a term as chairman of the National Association of Securities Dealers. Currently, he chairs the board of Plum Creek Timber, a Seattle-based real estate investment trust that is currently the largest private landholder in the country.

Employee-owned Davidson Companies, also based in Montana, is the parent of five businesses. The largest is D. A. Davidson. The others are in the trust, investment advisory (managing $1 billion for clients), and travel fields. D. A. Davidson has survived waves of consolidations and remains a sizable independent.

It ranks 83rd by capital among the 5,100 securities firms registered with the National Association of Securities Dealers, 40th by the number of registered branches, 55th by employees and 44th by number of brokers. (Davidson has 950, mostly based in the Northwest.) In the year ended last September, roughly 55 percent of revenue came from the smorgasbord of financial services offered by its private client group, 39 percent from its capital markets group, and the rest from managing assets.

Forbes magazine named three of Davidson’s equity analysts to its “best securities analysts” roster this year. Fred Dickson, Davidson’s chief market strategist, is the father of the Davidson 99, a regional stock index that has become an oft-cited measure of the market performance for Northwestern companies such as Microsoft, Starbucks, Nike, and Amazon.com.

The East-West Pull

Gary Nelson, who had headed loan placements for Northland Securities in Minneapolis, opened Davidson’s first Twin Cities office late in 2005 in Minnetonka. That office now heads Davidson’s company-wide loan placement program. Half a dozen employees there work primarily helping real estate developers find capital by placing loans at community and regional banks.

Last May, the firm opened its second Minnesota office (in down-town Minneapolis) to build up its equity business here by selling research and securities to institutional investors. The office has three employees: a securities analyst, an assistant, and an institutional salesperson.

D. A. Davidson CEO Bill Johnstone says that within the next five years, the firm could open a third office here and build up a presence comparable to its visibility now in Denver.