PEARSE Flynn, the flamboyant Irish millionaire chief executive of Glasgow-based telecoms specialist Damovo, has quit the company after a dispute with his financial backers, it emerged yesterday.

Damovo, which was created from the former direct sales and service operation of Swedish giant Ericsson, had been hailed by both Helen Liddell, Scotland's former secretary of state, and Scottish Enterprise as an inward investment success story for Scotland.

The company last night refused to confirm Flynn's resignation.

However, a source at the company said the 182 employees at Damovo's Glasgow headquarters were told of his abrupt departure at a staff meeting yesterday morning.

The source said Flynn was dismayed over the refusal by Apax Partners, the venture capitalist that funded the break from Ericsson in 2001 and put him at the helm of the global telecoms services company, to finance further acquisitions.

According to the source, Flynn offered to buy out

Apax's 80% stake in Damovo - for which the venture capitalist paid (pounds) 327m - after receiving informal approval from an unnamed syndicate of financiers.

''They had been talking informally for some time, and were at the stage where they were ready to draft a letter of intent,'' the insider said.

''However, Apax refused to sell. My understanding is that Apax feel that they paid a hell of a lot to fund the buy-out from Ericsson, and simply didn't feel like investing any more.''

Neither Flynn nor Apax could be reached for comment last night. Damovo declined to comment.

The source said Flynn submitted his letter of resignation on Tuesday evening after the final wrangle with Apax.

The future of the company's Glasgow headquarters could now hang in the balance, since the location was understood to have been chosen by Flynn himself, because of family ties and a close affinity with Celtic football club, with whom is he is both a supporter and a major shareholder.

Damovo, which has a turnover of around (pounds) 700m and employs 2200 people at operations in 20 countries, has been acquisitive from the start. It recently purchased the Hong Kong division of Ericsson's direct sales and service operation for about (pounds) 1.3m.

However, according to the source, the trouble with Apax began last year when Damovo entered into negotiations to acquire rival Omnetica, formerly part of German giant Siemens, but the deal broke down in February at the last minute.

Graeme Bissett, Damovo's highly-regarded finance director, left shortly afterward.

Then in May, Damovo shed 15 jobs as part of an apparent strategy to curtail its acquisition activity.

At the time, a Damovo spokesman said its corporate division, which includes finance, human resources, and IT, was created to support the company's acquisition strategy.

''Damovo has now delayed, due to current market conditions, further acquisition activity until 2004,'' he said.

It was clearly a precursor to Flynn's departure.

The source yesterday said: ''This company was built to be acquisitive. This was doubly galling for Pearse, because they (Apax) also refused to sell their

stake.''

The source added that Flynn was at this stage unsure of his next move.

''He's a high-profile guy and they'll certainly be no shortage of opportunities,'' the source said. ''I know that he is now considering setting up another company and I know that he wants to stay in Glasgow, but it's really too early to say.

''He can really do what he likes. He's the kind of guy that lives out of a suitcase.''