Marys Medicine



Lessons from Private Equity How to increase the value of private companies in B.C.
Vancouver Private Company Services
2011 Edition

"Someone's sitting in the shade today because someone planted a tree a long time ago." Private Equity background Lessons from BC's top private equity firms Concluding remarks Appendix A – Participant companies Despite a slow economic recovery over the last couple of years, liquidity in the market has been increasing, and we are seeing a surge in the Private Equity sector. These professional investors are being reinvigorated by the relatively lower valuations and excess uncommitted capital at hand. Regardless, whether the economy is up or down, top Private Equity firms operate with their investment companies to produce a strong return on investment on a consistent basis.
Given a defined exit period, top Private Equity (PE) firms What are the lessons learned from Private Equity?
have a disciplined framework of strategies and tactics that We have interviewed BC's leading PE firms to learn about allow them to build up the enterprise value of an investee the techniques they employ to achieve business success. We company, usually over a five- to seven-year time period, and believe that these principles and techniques are relevant to exit with a target Internal Rate of Return (IRR) of 25%+. As all of our private company clients, and we hope to share a business owner it is critical to create value by applying a these lessons learned with you. PE type of discipline over a certain timeline without forgoing the long-term health of the company, even if you plan on This report summarizes our interviews with BC's top PE firms leaving your business to your family.
and identifies five key lessons learned. We believe that these lessons can be employed by many of our private company Who are Private Equity investors?
clients to produce improvements in operating and financial Private Equity investors are professionals who raise capital performance, and to develop repeatable and sustainable and invest in private companies. Well-known for their processes that will make their companies more valuable. For ability to provide leadership support, advise on operational some clients it may be appropriate to employ one or two of efficiencies, and fund and drive growth, PE investors the lessons; for others, a future partnership with a PE firm bring with them a disciplined framework and a plethora may provide significant growth potential.
of business acumen that often lends itself to business success. Simply put, PE investors focus on working with Given that driving shareholder value is the number one management teams to make good companies great.
priority for private company owners, we believe that this Private Equity study provides an important perspective. We Although that's more easily said than done, PE investors trust you will find this report insightful and relevant and we have the ability to realize an IRR on invested capital in look forward to further serving your business needs.
the range of 20% to 30%. Many target companies are those that have demonstrated impressive historical growth that, for whatever reason, has plateaued. PE investment firms have a track record of transforming strong, stable companies into expansionary businesses. Their ability to aid management in moving into a new phase of business growth is uncanny, and has spurred Deloitte to ask the question, "How do they do this?" David Lam, CA, CBV, CF Daryl Johannesen, CA Mid-market M&A Leader Private Company Services Leader Private Equity background Different types of Private Equity
Venture Capital – Predominantly composed of start-ups As is true for any industry, Private Equity (PE) comprises and early-stage companies, venture capitalists engage various sub-segment niches. The objective is always similar in investments that provide growth capital to prepare in the sense that PE firms will try to create operating companies for a more mature stage of the business cycle. and financial efficiencies and increase shareholder value; Venture capitalists invest in ventures that are high-risk and however, the strategy and risk profile is different for each have a high-return, and are most commonly known for segment. Provided below is a brief overview of the three investing in high technology, biotechnology and software main vehicles for PE investing.
companies. Public venture capital targets similar types of companies, providing needed capital to execute growth Traditional Private Equity – Separated into two key plans and build the business over a minimum of 3 to 5 year classes (buyout and growth funds), traditional PE funds time horizon to create a sustainable enterprise.
target mature companies with a history of stable earnings, with the goal of enhancing the target companies so that Mezzanine Funds – Mezzanine capital provides financing they can grow and be sold for a premium relative to the for Private Equity transactions with subordinated debt and/ investment purchase price. Buyout firms will typically utilize or preferred shares. Sometimes, the financing is convertible a greater proportion of leverage and purchase control of into common shares after a vesting period, which gives the company so that they have a greater influence on the the financiers the opportunity to hold equity in a company strategic direction of the company. Growth funds utilize at a later point. Mezzanine funds mitigate risk exposure less debt and do not require control in all their investments. because subordinate debt and preferred shares receive Investments from growth funds are typically used when priority on the assets of the firm ahead of common shares. target companies require an injection of capital to allow Mezzanine funds typically operate under a growth strategy the company to reach the next stage of its business cycle. similar to growth funds for traditional Private Equity.
Buyout funds will more commonly purchase control from a vendor who is in the midst of a succession plan (i.e., The PE market in BC is largely composed of a mix of buyout planning to exit), whereas growth funds will more often funds and growth funds partnered with high net-worth partner with the vendor to achieve mutual gains. Below is investors. BC has always been dominated by mid-sized a breakdown of a few different types of funds that operate businesses. This provides buyout firms with plenty of in the realm of traditional Private Equity: middle-market targets, and generates less interest from large institutional funds. • High Net Worth – These funds are backed by one Total capital under managment by PE fund type in 2010 (%) Total capital under managment by PE market segment in 2010 (%) or more high net worth individuals. They are able The graphs highlight the overall PE landscape in to leverage current and past investments as well as relationships to advance the success of new ventures.
• Infrastructure Funds – These funds are specialized to Total capital under managment by PE market
long-term capital-intensive projects such as roadways, segment in 2010 (%)
tunnels and bridges. With the advance of public private partnerships in recent years, infrastructure funds have become more common.
• Pension Funds – These large institutional funds invest in various sectors to provide pension benefits for their 100% = 84.9 billion 100% = 84.9 billion members. They invest in Private Equity so that they can Buyout and other provide diversity to their fund and influence the pr of their investment.
Private independent Source: Thompson Reuters as summarized by McKinsey & Company Total capital under managment by PE fund type in 2010 (%) they provide excellent operational oversight to achieve their Total capital under managment by PE fund
targeted IRR, to capitalize on their strategic and operational type in 2010 (%)
experiences, and to spend considerable time working with their partner management teams to increase the company's value. Understanding the areas where operating and process improvements can be made, the ways to aid management with strategic planning and targeting, and 100% = 84.9 billion the extent to which the industry is fragmented are all essential. Our interviews with the top PE firms in BC, which are discussed further in this document, have revealed the methods of increasing value.
Private independent Recent trends in Private Equity2
Not unscathed by the global financial crisis, PE firms
Source: Thompson Reuters as summarized by McKinsey & Company witnessed a nearly 90% reduction in fund-raised capital between 2007 and 2009 across Canada and the United States. Not surprisingly, this also translated into a large decline in the amount of capital invested. As depicted in the Along with the steep advance of stock markets in the early graph below, the amount of capital invested by Canadian 1980s, Private Equity (PE) also began to gain momentum. funds declined nearly 80% between 2007 and 2009.
The relative increased volume of ebbs and flows created opportunity for PE firms to capitalize on turnarounds and Buyout, mezzanine, and other PE capital invested by Canadian funds ($ Billion) fast-growing companies, largely with the use of pure Buyout, mezzanine, and other PE capital invested by Canadian funds ($ billion)
financial engineering tactics. PE firms found that an optimal capital structure and an efficient tax regime combined with some strategic guidance offered strong returns in a relatively fragmented market. Over the years, consistently attractive results have created further interests in the PE model, which in turn created more competition in the PE space. As PE firms invest in foreign companies, and as strategic acquirers are more able to transact across borders, there is further increased competition for PE firms within the growing trend of globalization. The perceived increase in strategic investors resulted in increased acquisition prices, which has the ability to limit a PE firm's IRR.
In recent years, PE firms have adapted to the competitive forces by employing a ‘buy and operate' model. Financial engineering is still very important, particularly for buyout Source: Thompson Reuters as summarized by McKinsey & Company firms, but in recent years the ability to provide operational expertise and strategic planning is much more relied upon. The graphic on the next page illustrates that the majority A Morgan Stanley study1 demonstrated that "company of PE deals occur in energy and resource services, in outperformance" was the main driver of value in nearly manufacturing, and in the information and media sector. two-thirds of PE deals. The reliance on financial leverage This is driven by the size of the respective sectors as well as and market/sector appreciation was found to be a primary the opportunities to increase value within a five- to seven- driver in only one-third of deals. Since the global economic year time frame.
crisis, this is amplified, as the ability to obtain leverage has been more difficult. Therefore, PE firms need to ensure 1 As summarized in "Operational Improvement: The Key to Value Creation in Private Equity," Morgan Stanley, July 2009 2 Private Equity Canada 2010, McKinsey & Company Despite the remaining economic woes, recovering macro indicators coupled with pools of Canadian buyout, mezzanine, and other PE deals
dormant capital from the prior year spurred PE firms to invest in numerous opportunities. by industry sector in 2010
Canadian PE firms increased investment by approximately 120% between 2009 and Oil and gas, mining 2010. This improved market activity is largely attributed to middle-market companies, which is in contrast to the pre-recession upticks that comprised mostly large-cap deals. Further, the appreciating Canadian currency provided ample opportunities for cross-border Information and media investments. It is estimated that 70% of all Canadian buyout deals in 2010 were for Total capital under managment by PE market segment in 2010 (%) Professional and technical services It appears that the uptick generated from market activity will at least be sustainable Wholesale trade, distribution through 2011. A recent report published by Mergermarket3 indicated that North America witnessed 357 Private Equity buyouts in the first half of 2011, which marked a Accommodation and food services 10% increase in volume compared to the same period last year. Further, Mergermarket estimates that this resurgence in volume translates to an approximate 59% increase in value. The second half of 2011 is expected to be slightly slower for Canadian activity compared to the first half because of changing macroeconomic conditions. Nonetheless, market activity is expected to increase compared to 2010.
Entertainment and recreation 100% = 84.9 billion What Deloitte has noticed in the marketplace
Buyout and other Deloitte's transaction experience corroborates the foregoing discussion. We saw 2009 as a year of hesitancy for investors, allowing for a collection of capital to build. Although volumes have increased since then, the market activity is still well below the pre recession Waste management 2% levels, causing more competition for high-quality deals at the middle-market level. Agriculture and forestry 1% Increased competition has resulted in opportunistic Private Equity investors pursuing smaller deals overall, and seems to have changed some of the transaction strategy for the Source: Thompson Reuters as summarized by McKinsey & Company time being. The chart below highlights the noticeable differences in Private Equity strategy 1 Per the Canadiann Oxford dictionary that Deloitte has been privy to between the current period and pre-recession levels.
Transaction terms Outbidding strategic More conservative 6x to 9x Earnings Before Interest, Tax, Depreciation, Amoritization (EBITDA) More willing to take minority Majority (70% to 80%) Participate in auctions Moderate willingness 3 Deal Drivers North America 2011 Half Year Edition, Mergermarket in association with Merrill Datasite "There is a direct correlation between the purchase price for a business and the quality and reliability of the reporting system. Quality reporting provides more confidence to the purchaser and reduces perceived risk." Tricor Pacific Capital Lessons from BC's top Private Equity firms Based on our interviews with BC's Private Equity (PE) firms and our extensive transaction experience in the private company space, we have noticed reoccurring themes of successful businesses that are owned by these firms. Intrigued by the business model, we interviewed BC's top PE firms to understand the defining characteristics. The following are summaries of the five key lessons that Deloitte took away from the various interviews.
Lesson 1:
Confirm/redefine your
in Alberta; however, we also need to be conscious of the operational impact. We support management's goal of corporate strategy adding facilities, but our challenge is for management to first streamline the throughput of existing facilities. By doing so, One of the very first things that PE firms will do post- implementing a successful facility is much more likely to be investment is either confirm or redefine the corporate value added. Challenging management's strategy gives both strategy of the investee. What does ‘great' look like? They parties the opportunity to identify shortcomings and ensures will do a complete market, customer and competitor the plan will be successful amongst partners." Chris Tsoromocos analysis to get a thorough understanding of the of Stern Partners firmly underscored the need to demonstrate competitive context in which the company operates today growth in the strategy: "Most business owners will understand and where it will operate in five years. Oftentimes, the that equity value is typically generated from growth. You need investee company has a viable strategic plan with sufficient to have a very clear path to realistically growth your company's growth opportunities. However, as Praveen Varshney, top line. Flat revenue businesses will often see valuation Director of Varshney Capital Corp. explains, "Sometimes discounts applied." the plan is tailored and biased to the strengths of the existing management team – we help management The recent economic environment is testament to the fact that prosper in areas that they are less familiar with. This often strategic plans need to be monitored and adjusted regularly. results in substantial growth." Mr. Varshney recalled a Tyler Smyrski from Yellow Point notes, "You'd be surprised past investment in Coastal Contacts, where the president by how beneficial a strategic planning session is. You get of the company offered a pioneering service, excellent the opportunity to discuss all of the successes and failures, distribution with a growing brand recognition. To drive which basically leads to innovative thinking. We engage in a growth beyond the initial plan, Varshney Capital helped revised strategic planning session at least annually for all of expand the company's focus to ensure that a global our portfolio companies. The plan doesn't always change, but marketing strategy of being recognized in the top spots of when it does, it's well worthwhile and can keep you ahead various search engines around the world and an affiliate of the market." Furthermore, David Eisler, Managing Director marketing program were essential aspects of the strategic at Banyan Capital Partners, told Deloitte that encouraging plan. Coastal's management team successfully executed different perspectives in strategy planning is integral. Mr. Eisler exceptional sales growth with annual sales increasing from encourages a two-day annual strategy meeting between the $2.5 million to $160 million over the period of a few years.
directors, management and sometimes industry professionals in a non-board-meeting setting for each investee company. "By A critical part of the strategy is to understand where the incorporating different perspectives, the strategy will be more revenue and EBITDA need to be in five years to generate a robust and will not reflect individual biases." return on invested capital of two to three times or more. Moreover, they will identify, agree on and implement three to five key initiatives that are practical and achievable under a defined time frame to realize the required return on investment (ROI). In particular, top PE firms will consider segments with the best growth potential (top-line improvement), segments with ability to improve margins "Most business owners will understand that (bottom-line improvement), and segments that require enhanced customer service (overall improvement and equity value is typically generated from creation of goodwill). Darren Latoski, CEO of Western One growth. You need to have a very clear path Equity, explained that his goal is often not to ‘reinvent the wheel'. Most times, he prefers to reinforce a strong to realistically grow your company's top line. existing strategy. "This is exactly the case with a recently Flat revenue businesses will often see acquired company, Britco," says Mr. Latoski. "To hit our revenue targets. it's clear that we need to add facilities valuation discounts applied." Chris Tsoromocos Lesson 2:
View your company acquisitions. Together we created and executed on a long-term strategy for the business, ultimately resulting in the completion of three successful acquisitions that have It is important to view your company as a platform for expanded the company's geographic footprint across subsequent tuck-in acquisitions to improve growth. PE Canada. If you look beyond organic growth opportunities firms understand that acquisitions are an effective way to and ensure that you have the skills necessary to execute on grow valuation metrics such as EBITDA and to accelerate an acquisition strategy the returns can be quite attractive.
market penetration and increase the valuation multiple. As While PE firms will utilize appropriate amounts of debt to a business owner, it is imperative to have an acquisition maximize IRR and grow the business efficiently during all strategy with infrastructure (i.e., financial systems, strong business cycles, business owners are more reluctant to business processes, information technology, etc.) that is leverage. The graph below highlights a conundrum that robust enough to support acquisitions. It is also imperative privately owned companies commonly face. to internally develop Mergers and Acquisition integration capabilities to ensure that the company can maximize and extract synergies from the acquisition targets. A company with a valid acquisition strategy and the ability to grow via acquisitions will have a higher perceived value. Although not every business model is suited for acquisitions, the acquisition core competency of PE investors can be an invaluable service to their investee companies. Terry Holland, President and CEO of Krystal Financial Corp., notes that "Acquisitions are not a core competency of many business owners – we're able to facilitate the process, organize an efficient capital structure with lenders, and negotiate the terms of the deal, which allows the Growth Established Mature management team to focus on growing the business. You need to be conscious of the ability to add shareholder value through debt financing during growth cycles." Business owners will often grow a business to a stage of Furthermore, Joe Lucke, Director at Tricor Pacific, maturity that naturally makes it an excellent candidate emphasizes the value that PE firms can provide, with their for leverage and expansion; however, this coincides with relative impartiality: "Consolidating is always an issue in a period of their life when they have built up equity and practice because competitors struggle to trust each other wealth and, as a result, feel more conservative and are less enough to complete a deal. Sometimes, rightfully so, willing to assume further debt. Consequently, the business entrepreneurs are wary of their competitors' motivation. owner cannot make the changes that are required for the When we're involved, this is less of an issue because we business to continue to grow. Entrepreneurs should clearly don't share the same history with the competitors and understand the ability to increase their equity value through we're perceived as being more neutral." debt financing during growth cycles, bearing in mind the Michael Berkson, Partner at Fulcrum Capital (formerly proper capital structure for their business. Because PE firms HSBC Capital), was able to share an ongoing success story are able to remove themselves from this bias, they are able with Deloitte whereby the natural path of an investee to use leverage to their benefit. Terry Holland commented: was to expand geographically through acquisitions. "We "By financing a company with the proper capital structure, are currently involved with a company that had a great we're able to improve IRR even during a period of business reputation in Western Canada and an experienced and decline. Just recently, we were able to exit from an committed management team but, despite their desire to investment where the enterprise value declined, but the grow, this group had never raised capital or dealt with the equity value had actually improved because of the capital myriad of issues involved in integrating a new business. structure in place." Our investment created a partnership that allowed the existing team to remain focused primarily on operations while leveraging our experience to close on the identified Lesson 3:
Develop and monitor
"I've learned that KPIs are twofold: they will help you grow your business and they will help you sell your business." Most business owners do not know the value of their company, let alone what drives value. Therefore, to assist an owner to make the right economic and strategic decisions, it is important for them to clearly understand the key value drivers for their company at an operational and tactical level. not necessarily profitable revenue growth. Ensuring that KPIs align with the agreed upon strategy is imperative." Engaging This all starts with Key Performance Indicators (KPIs). in strategic discussions with an executive team and having an Quality data and interpretation of data allow for quality impartial board of directors will help identify new and existing decision-making. Developing KPIs that tie back to the levers that arise with new opportunities and growth, giving execution of the three to five key initiatives is essential to entrepreneurs a better opportunity to identify and closely track the valuation of the company. Analyzing KPIs can fill the the proper KPIs for their business.
gap between business value and business operations by linking standard economic drivers with business inputs, "Perhaps the most difficult aspect of KPIs is ensuring that the outputs and management. In this way, KPIs help companies entire upper management team associates themselves with organize, discuss and prioritize improvement opportunities the KPIs. The worst case scenario is one where management that can deliver high value in terms of their impact on the considers the KPIs to be a reporting requirement imposed on following elements: revenue growth, operating margin, them by the board and/or investor, but not something they asset efficiency and market expectations. Because these actively measure and manage, as opposed to considering the four elements are essentially what determine the value of a metrics as a tool that will enable them to more effectively business, business owners should spend considerable time manage the business." says Mr. Johansson. PE firms work with identifying exactly what aspects of their operations affect management to develop KPIs, but ultimately the management these elements, and which operational levers are available team needs to clearly understand how detailed operating to impact financial performance.
metrics impact financial performance, valuation metrics, and individual compensation and growth. The KPIs should PE firms are always gleaning KPIs to assist with their be clearly defined with management, along with targets. planning and their regular monitoring. Randy Garg, By linking upper management's compensation to KPIs, two Managing Partner at Beedie Capital Partners, noted, "I objectives are fulfilled: first, they ensure that management wouldn't say KPIs can be taken from some playbook and is genuinely interested in KPIs, and second, they provide generalized across companies – they need to be crafted and management with the ability to grow with the business, measured specifically for each type of business. In the case keeping them motivated and keeping employee turnover low. of one of our portfolio companies, Nettwerk Music Group, Further, as we alluded to in Lesson 1, entrepreneurs need to we try to measure, on a monthly basis, the number of new be open to the fact that key initiatives and five-year plans may signings as well as leverage on the existing library, amongst need to be modified. By regularly interpreting operating results other indicators. This exercise shows everyone, on a very and KPIs, one can identify necessary changes on a timely basis granular and regular basis, where management needs to and can better adjust to changing business environments.
focus its efforts and be more aggressive and proactive, as opposed to being reactive in this fast moving industry." Yuri Fulmer, President at FDC Capital, is a long-time entrepreneur. Before becoming a full-time private investor, Notwithstanding the above discussion, KPIs are not always Mr. Fulmer owned and operated a successful chain of MR easy to identify. Based on our interviews, we found that MIKES Steakhouse restaurants, which he eventually sold to a many PE firms do not have a solid grasp of the KPIs for as Vancouver-based Private Equity company. Mr. Fulmer states, long as six months after investing. Without giving oneself "After the sale I continued to operate the restaurants for a proper time to analyze value drivers, hasty decision-making period of time. I knew the KPIs in my head, but I never really lends itself to skewed goals. Curtis Johansson from CAI thought about measuring and analyzing them. Private Equity made the following comment on this topic: "For example, brought a disciplined, regular reporting and reconfiguration of utilizing revenue as a KPI without giving proper regard to KPIs. With this experience, I've learned that KPIs are twofold: margins can have an adverse impact on value as it may they will help you grow your business and they will help you encourage management to focus on revenue growth but sell your business." Lesson 4:
Develop a high-
turnover." And according to another PE firm, "We know performance culture private company owners do not like diluting their equity, andyes, having minority shareholders complicates ownership.
There are three distinct steps to ensuring a However, equity ownership is one of the best ways to align interest and help drive the company forward. Also, potentialupside of equity is a motivator, but so is the potential loss 1. Conduct an honest assessment of the strengths and of capital. That is why WE will not give equity, or allow them weaknesses of the current management team.
to earn in. We want them to put their own capital on the 2. Provide key employees with creative incentives and line."Corroborating the applicability of these strategies, we equity plans tied to the key initiatives and the KPIs.
reviewed a study that was recently published by Stanford University.4 The study suggests that the reduced agency 3. Fill gaps with strategic executive hires at the costs that stem from the Private Equity compensation model management team and board levels.
may improve profitability. Interestingly, the authors found that CEOs at PE-owned companies received almost double Identifying the relative strengths of an existing management the equity, 10% lower salary and increased variable cash team is challenging for any company. Fortunately, PE compensation compared to their counterparts at comparable firms are able to delve into many past experiences to aid public companies.
and coach management with this process. A common theme that we have found is that entrepreneurs are Another local private equity firm helped us understand very good at what they do, but as they grow a relatively the extent to which creative incentive schemes can add simple business into a complex organization, they become value to your business. "We had a manufacturing business bogged down with detailed work that hinders them from where safety procedures were an issue. By implementing a growing their business further. PE firms recognize this nominal bonus that was tied to safety procedures, we found before they even invest, and they apply their best efforts a significant improvement in safety. Fewer employees were to pair each member of the management team with their injured and less downtime was necessary. The benefit this relative strengths. Beedie Capital told us that professional business received far outweighed the cost." The message is personality assessments are especially useful in identifying clear – if incentive schemes can change the way people view strengths and weaknesses. By having management focus on their own personal safety, it can certainly motivate people to their strengths, they are much more likely to assume greater improve all other business operations.
responsibility. Leveraging down in this fashion ensures that the success of the business's success is not attributable Another common finding is that existing CEOs wear too many solely to one or two individuals. In order to maximize ROI, hats. By filling the gaps with strategic executive hires at the it is imperative that the management team takes management and board levels, PE firms are able to facilitate responsibility for and ownership of business growth. the greatest efficiency from management. Private companies By delegating operating decisions to management, sometimes have a large divide in experience between the shareholders free up more time for strategic planning, their founder/CEO and the rest of the management team. PE firms business becomes more attractive to investors and lenders, use their extensive network to provide CEOs with VPs that and the business model transforms into an independent will reduce the work burden and will help grow the company. and sustainable entity.
The CFO role is one that requires improvement, according to almost all of the PE firms we spoke with. This is because A key differentiator between many business owners and an experienced CFO will ensure that the main operators are PE firms is the hesitancy of business owners to sell equity available to engage in valuable strategic planning, rather to management, which Deloitte also notices during the than needlessly spending time on financial reporting. Also, annual rollout of Deloitte's 50 Best Managed Companies the quality of the financial reporting system impacts the program. Albeit understandable, the consensus from our PE extent to which KPIs can be measured. Joe Lucke highlights interviews is that diluting one's equity position for increased the importance of financial reporting: "There is a direct motivation, an improved ‘partnership' mindset and greater correlation between the purchase price for a business and the growth potential is worthwhile. According to Praveen quality and reliability of a business's reporting system. Quality Varshney, "Stock options can be a great compensation reporting provides more confidence to the purchaser and tool to attract and retain staff and to reduce employee reduces perceived risk." 4 Managerial Incentives and Value Creation: Evidence From Private Equity, Phillip Leslie and Paul Oyer, Graduate School of Business, Stanford University, November 2009 "It is actually best to seek financing (debt or equity) when you don't need it, as you can negotiate from a position of strength, which ultimately results in beneficial terms." Lesson 5:
Praveen Varshney would be required to purchase this asset and, instead, re-invest it into operations returns should be much higher. Whether the objective is to secure debt financing, sell In addition, when you ultimately look to sell the business your business or pay yourself a dividend, one thing is prospective purchasers are unlikely to pay market value certain: cash flow is the single most important factor, for non-operating assets and, therefore, you are not without contest. A cash flow mindset is critical because maximizing value." Business owners who adopt a similar business value is ultimately determined by cash flows. approach will be able to improve their balance sheet, Many operators view the first step in enhancing business impress lenders and perhaps extract more dividends in the value as improving revenues and earnings. This is incredibly important; however, strong, positive cash flow will perpetuate positive earnings and growth potential. The To emphasize the importance of cash flow, Terry Holland best practice is to consider earnings and cash flow jointly. provided details about an issue that one of his investee Aside from growing EBITDA, there are two critical areas companies faced during the economic crisis. Annual sales that private company owners need to focus on in order to declined from $30 million to $12 million and the company increase operating cash flows: efficient management of found itself in breach of debt covenants. Mr. Holland working capital and capital expenditures.
noted, "Although we missed our earnings covenants for the year, our lenders were able to relax the covenant issue It is not uncommon to see top-line growth coupled with because we had demonstrated excellent cash flow. All of increasing working capital. Without oversight, this can our cash covenants were in good shape." Curtis Johansson translate into decreased cash flow as a percentage of had a similar story, where an investee had annual revenue revenue. Another PE firm explains, "We continually see decline from approximately $100 million to approximately small and medium-sized business owners being quite lax $50 million, but was still able to manage covenants and with working capital. We see them repeatedly allowing reduce its debt balance by maintaining disciplined cash flow late payments on their receivables because they've grown techniques. In both cases, each party is proud to say that comfortable with the customers and, similarly, we see them their business has improved substantially since then, and paying suppliers early because that's the precedent they've cash flow discipline was essential to the recovery in both set from years of dealings. By reducing your collection circumstances. As one would expect, our PE interviews period from 30 days to 27 days, your AR balance falls by found that there seems to be a strong correlation between 10% – the extra cash produces an incentive to quit improved cash flow and the sophistication of the reporting granting breaks." framework of a business. Private company owners can benefit from investing money – and, more importantly, The concept of managing cash flow is so important that investing time – into a reporting framework that is some PE firms will offer short-term bonus incentives that compatible with proactive decision-making.
are tied to the quality of the balance sheet and cash flow KPIs. A similar methodology should be applied to capital Cash flows relating to the financing activities such as expenditures as well. Capital expenditures need to be interest payments also have a material impact on the consistent with the company's strategic plan, should be company's cash flows. Praveen Varshney notes that "It is well researched and should provide long-term value.
actually best to seek financing (debt or equity) when you don't need it, as you can negotiate from a position of Owners should consider alternative measures such as strength, which ultimately results in beneficial terms. The return on assets, capital efficiency ratios and discounted extra cash or line of credit comes in handy when the rainy payback periods as KPIs to monitor regularly. The goal day comes because they always do!" is always to enhance the balance sheet. This means monetizing redundant or unproductive assets or business Optimizing cash flow is certainly a goal of all business units, and converting traditional assets into sources of owners, but many firms can still improve by imitating the financing. Michael Berkson, Partner at Fulcrum Capital discipline that PE firms employ. Yuri Fulmer was impressed (formerly HSBC Capital), illustrated this concept with by his stint when he was employed by a PE firm after selling the classic ‘lease vs. buy' decision when it comes to a his MR MIKES enterprise. He says, "I learned more about company's facilities; "Without a strategic reason to own the balance sheet side of business than I ever learned the property that a company operates out of, there is before, and I noticed an improvement in our cash positions usually very little economic benefit in directly owning this too." The fact that Mr. Fulmer says this after selling an type of non-operating asset. If you use the funds that already successful company speaks volumes. Concluding remarks It is easy to say that business value is important, but not so easy to make the right decisions every day about "As a business owner it is critical to strategies and priorities – such as where to spend time and resources, how best to get things done, how to win create value by applying a PE type in the competitive marketplace and, ultimately, how to drive shareholder value.
of discipline over a certain While the economic recovery has yet to build real momentum and more challenging times are still ahead of us, there are also real opportunities for substantial growth for private companies in BC through smart and Daryl Johannesen disciplined execution. Private Company Services Leader Private Equity firms are not smarter than business owners; however, their framework and strategy to build value, due to their defined ownership time frame, should be better understood by business owners. By understanding and following some or all of the lessons from Private Equity firms, private company owners can drive greater value. Lessons in summary: Lesson 1:
Lesson 3:
Confirm/redefine your Develop and monitor corporate strategy • Challenge your strategy. What does ‘great' look like? Do • Develop appropriate operating Key Performance you have a management team or board of directors to Indicators (KPIs) that tie back to the execution of the key properly challenge your thesis? • Know where the revenue and EBITDA have to be in five • Ensure that the organization and management team years to generate a return on invested capital of three clearly understand how detailed operating metrics impact times or more.
financial performance, valuation metrics, individual • Identify, agree on and implement three to five key compensation and personal growth.
initiatives that are practical and achievable under a • Understand what operational levers are available to defined time frame to achieve the required ROI. improve financial performance. Strategic discussions with an executive team and an impartial board of directors will Lesson 2:
help identify new and existing levers that arise with new opportunities and growth.
View your company Lesson 4:
• View the company as a platform and develop an acquisition strategy plan. Accelerate growth through accretive tuck-in acquisitions to accelerate market performance culture penetration and multiple arbitrages.
• Conduct an honest assessment of the strengths and • Develop integration capabilities to ensure that the team weaknesses of the current management team.
can maximize and extract synergies from the acquisitions.
• Provide key employees with creative incentives and equity • Leverage up – always bear in mind the proper capital plans tied to the key initiatives and the KPIs.
structure for your business. Be conscious of the ability to add shareholder value through debt financing during • Fill gaps with strategic executive hires at the management growth cycles.
team and board levels.
• Leverage down – ensure that the business's success is not attributable solely to one or two shareholders. In order to Lesson 5:
maximize ROI, it is vital that the management team takes responsibility and ownership of business growth. Cash is king • Cash flow mindset: business value is ultimately determined by cash flows. • Manage working capital aggressively.
• Discipline capital expenditures: apply a similar methodology to capital expenditures. Ensure that major expenditures are consistent with the plan, that they are well researched and that they will add long-term value. • Enhance the balance sheet: be disciplined about the financial position of the company. Participant companies Banyan Capital Partners
FDC Capital Partners
Banyan Capital Partners, a Canadian-based Private Equity FDC Capital Partners is a Vancouver-based boutique firm with offices in Toronto and Vancouver, invests in and private equity firm focused on early stage investments, the buys middle-market companies located in Canada and the creation of operating partnerships, and buyouts of privately northern United States.
held companies in the lower middle market. FDC prefers powerful ideas and passionate people: which is reflected With more than 100 years of Private Equity, investment in a portfolio that includes among others, a food service banking and operating experience collectively, Banyan has businesses and an early stage, internet-based purveyor of developed a strong franchise and has invested directly in 15 comprehensive electronic gift card solutions. FDC looks diverse companies generating over $1.5 billion of annual for opportunities that other firms might pass over. Due to revenue. Banyan's portfolio companies include leading it's extensive operational background, FDC will consider healthcare, manufacturing, distribution, utility and oilfield investing in companies that may need a new direction, service businesses operating across North and re-branding, or new management. South America.

Fulcrum Capital
Banyan has over $200 million of capital under HSBC Capital (Canada) has a successful investment track management. Their investor base includes two of record achieved over the past 18 years through four Canada's largest pension funds, one of the largest financial private equity funds plus mezzanine and bridge lending. In institutions in the United States, a multi-billion dollar September 2011, the management of HSBC Capital agreed Japanese trading company, and Connor, Clark & Lunn to a deal with HSBC Bank to acquire HSBC's Canadian Financial Group, one of Canada's largest independent private equity and mezzanine finance business. The spinout money management firms.
is expected to be completed before the end of the year. Beedie Capital Partners
Upon closing, the group will operate as Fulcrum Capital Beedie Capital Partners is the recently established in-house Partners ("Fulcrum") from their offices in Vancouver capital arm of the Beedie Development Group, the largest and Toronto.
industrial landlord in British Columbia, with a 65+ year The Fulcrum team is poised to continue HSBC Capital's history of growth and success. Based in Vancouver, Beedie strong performance through continued focus on the Capital manages the group's non-real-estate-related Canadian mid-market with flexible investments typically investment interests and invests directly into companies ranging from $5-25 million in sectors spanning business in the form of debt and/or equity (typically as minority services, distribution and retail, manufacturing, consumer investors), preferably in Western Canada and the Pacific products, real estate and beyond. Fulcrum will manage two Northwest. Beedie Capital looks for growth and expansion private equity funds with $300 million in committed capital financing opportunities in companies that are achieving and a mezzanine finance business with in excess of $400 $10-100 million in revenues, across a variety of industries.
million in committed capital." Headwater Equity Partners
Founded in 1989, CAI is a Private Equity firm specializing in Headwater Equity Partners was established to address buyouts, restructurings, acquisitions, recapitalizations and the succession challenges faced by many companies in other corporate growth initiatives. CAI's broad operational the lower mid market today. It specializes in helping and financial expertise and its ready access to capital companies manage succession through well-aligned position this firm as a valued partner for proven, motivated management buyouts. Headwater also provides growth management teams. CAI acquires significant ownership capital to management teams that have a strong vision for positions in North American companies and fully utilizes their businesses and are seeking value added investors to the firm's extensive experience and resources to achieve help them achieve it.
strategic objectives. CAI has invested, or placed with co-investors, over $1.3 billion in equity or equity-related Headwater is focused on making private investments investments to help fund growth and corporate transition primarily in Western Canada. The principals have over in companies throughout North America.
twenty years experience making private equity investments to support succession, growth financing, corporate excellence. T&M helps management teams increase the spin-outs and acquisitions. They have an excellent track long-term value of their businesses through strategic record and strong references from those they have done advice, operational expertise, organic and acquisition growth, and financing. Notable investments include Mr. Lube and Boston Pizza.
Krystal Financial Corp.
Tricor Pacific Capital, Inc.
Krystal Financial Corp. is a Vancouver-based Private Equity Tricor Pacific Capital is a leading Private Equity firm firm focused on lower middle-market companies. Krystal that invests in profitable, well-managed middle-market has not only executed numerous buyout transactions companies. Based in Vancouver, with an office in Chicago, where 80% to 100% of a business from a founder/owner Tricor's investment efforts are concentrated in the Western was purchased, but has also been an investor in businesses and Midwestern regions of Canada and the U.S., where its that are seeking to bring on a partner to help them grow reputation, relationships and responsiveness have enabled and/or strengthen the business. Krystal believes in a Tricor to be very effective. With expertise resident in both partnership philosophy where management, employees countries, Tricor has been successful in expanding Canadian and shareholders all participate in the success of the businesses into the U.S. market and U.S. businesses into business in a meaningful way. As investment managers, the Canadian market. Notable investments include Golden Krystal strives to add value to experienced management Boy Foods and Advanced Engineered Products.
teams through participation in strategy, financing and capital budgeting decisions. Notable investments include Varshney Capital Corp.
Foley's Chocolate and No Limits Sportswear. Varshney Capital Corp. (VCC) is a Vancouver-based family investment firm with a focus on public venture capital. VCC specializes in using the Canadian stock markets to Stern Partners is a lead investor in a diverse range of fund-raise for early-growth-stage companies in a variety operating companies, including apparel manufacturing of sectors ranging from mining to technology. The firm and retailing, commercial printing, equipment distribution also invests in real estate ventures. Notable investments and servicing, home furnishings retailing, horticultural include Carmanah Technologies Corp., Mountain Province products manufacturing and distribution, newspaper Diamonds Inc. and International Thunderbird Gaming Corp.
publishing, packaging, paper manufacturing, real estate and technology. The investee companies are operated Western One Equity Income Fund
and managed independently, generating annual revenues Western One Equity Income Fund is an unincorporated, ranging from approximately $15 million to over $200 open-ended trust formed to seek out and acquire million, and collectively employ about 3,000 people. By predominantly privately owned small and medium-sized deploying its own capital to each investment, Stern businesses located in Western Canada. Industries of Partners can align objectives with all stakeholders focus include infrastructure and construction, logistics and have flexibility with investment structures and and distribution, outsourcing, financial services and approaches. Investments are individually structured, and manufacturing. Notable investments include Britco can accommodate external partners or co-investors as Structures and Production Equipment Rentals.
warranted. Founded over 20 years ago by Ronald N. Stern, Stern Partners is based in Vancouver, with the head offices Yellow Point Equity Partners
of operating businesses and investments located primarily Yellow Point Equity Partners is a Private Equity investment throughout North America.
firm based in Vancouver. Yellow Point specializes in management buyouts and growth investments for middle- T&M Group of Companies
market companies based primarily in Western Canada. The T&M Group has over 30 years of experience A significant portion of the personal net worth of Yellow investing in, building and realizing success in growing Point's principals is committed to the funds, ensuring profitable businesses. T&M currently manages a portfolio that interests are fully aligned with investors and of businesses across diversified industries that share portfolio companies. Notable investments include CBV the common goal of driving success through people, Collections, MR MIKES Steakhouse and Prism Medical.
a long-term perspective of value and a passion for "Start to build your business to sell, not build to own, even if you plan on leaving your business to your family. That way, you will focus on drivers of value earlier on." Front row, l to r: Mike Brankston, Tracy Mackinnon, Ian Wanke, David Lam, Helen Dutch, Kanise LoBack row, l ro r: Klemens Wilhelm, Todd Ponzini, Darren Gwozd, Rick Kohn, Claude Rinfret, Darryl Johannesen Mid-market M&A Leader Private Company Services VP of M&A Transaction Associate Partner Financial Advisory Services, Financial Advisory [email protected] [email protected] Director of Operations Financial Advisory [email protected] National
National Private Company National Corporate Finance Corporate Finance National PCS Private Equity Financial Advisory [email protected] Deloitte, one of Canada's leading professional services firms, provides audit, tax, consulting, and financial advisory services through more than 7,600 people in 57 offices. Deloitte operates in Québec as Samson Bélair/Deloitte & Touche s.e.n.c.r.l. Deloitte & Touche LLP, an Ontario Limited Liability Partnership, is the Canadian member firm of Deloitte Touche Tohmatsu Limited.
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.
Deloitte & Touche LLP and affiliated entities.


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Prescription des antibiotiques par voie locale dans les infections cutanées primitives et secondaires PRESCRIPTION DES ANTIBIOTIQUES PAR VOIE LOCALE DANS LES INFECTIONS CUTANEES BACTERIENNES PRIMITIVES ET SECONDAIRES Agence Française de Sécurité Sanitaire des Produits de Santé Prescription des antibiotiques par voie locale dans les infections cutanées primitives et secondaires

Author's personal copy Environmental Pollution 158 (2010) 1275–1280 Contents lists available at ScienceDirect Environmental Pollution EROD activity and stable isotopes in seabirds to disentangle marine food webcontamination after the Prestige oil spill Alberto Velando a,*, Ignacio Munilla b, Marta Lo´pez-Alonso c, Juan Freire d, Cristobal Pe´rez a a Departamento de Ecoloxı´a e Bioloxı´a Animal, Facultade de Ciencias, Universidade de Vigo, Campus As Lagoas, 36310 Vigo, Spainb Departamento de Bota´nica, Facultade de Farmacia, Universidade de Santiago de Compostela, Santiago de Compostela, Spainc Departamento de Patoloxı´a Animal, Facultade de Veterinaria, Universidade de Santiago de Compostela, Lugo, Spaind Grupo de Recursos Marinos y Pesquerı´as Universidade da Corun˜a, A Corun˜a, SpainTwo years after Prestige oil spill, seabirds were exposed to remnant oil related to their feeding habits with consequences on delayed lethality.