Surprised by who won the UK's top green contract?

I was expecting to be bored out of my skull by corporate jargon and those charts dotted with activities on some flow chart, but my first contact with Siemens was the complete opposite. I was in Johannesburg and had organized a "Strategy Summit", inviting a range of companies to present their practices around innovation. 
The Siemens Project Ventures team arrived looking alarmingly like Mr. Smiths in the Matrix movies but then they put up their first slide and blew us away. Their innovation project was examining the fastest uptake of cell phones - South Africa went from zero to 60% within a year. They tied this to looking at the vast geographic ranges with little technological investment and how to make money from that scenario.
These mostly German young men then went on to explain how their findings were being applied to China and India where there were similar technological and geographic challenges.
I was not surprised to read that Siemens Project Ventures  won the British government's contract for a wind farms. If you read the fine print, none of these windmills will be made in Britain, instead Germany will get the jobs, keeping that German engineering competence sharp. Here's part of the story and a link:

The successful bidders for the nine new British offshore wind farms have been announced, paving the way for the UK’s most ambitious renewable energy project, which aims to deliver a quarter of the UK’s electricity by 2020.

Costing £75 billion, the new wind farms will be on a far bigger scale than anything so far in Britain and are expected to create 70,000 jobs.

 However, there is concern that few of the 6,000 turbines will actually be made in the UK. The companies granted licences today to build the farms will not be obliged to source any parts from domestic manufacturers and most are expected to buy turbines made in Denmark or Germany.

Jacoline Loewen, expert in raising capital for companies who want to grow and author of Money Magnet.

Why business owners will benefit from tough year ahead for private equity

The toughest year is ahead for private equity as it will seek to buy companies, putting  business owners in the driver's seat. Valuations are causing the most trouble for both private equity and business owners. This is the traditional disagreement with private equity wanting three times EBITDA while businesses think they should get 12 times EBITDA.

The problem here is that business owners need to realize that this means their company is expecting to grow 12 times per annum. This means getting going in other markets, not just their same-old, same-old. A partnership with private equity would help but they are not miracle workers so workers will need to become more realistic. Here is a great article on the struggles ahead for private equity and how that will benefit business owners - written by Financial Times:

There is a suspicion among investors that when a private equity company is seeking to raise a new fund it seeks to sell some of its best-performing assets to keep its backers happy by returning some cash to them.

Stephen Schwarzman, Blackstone's chief executive, has told investors his group plans to float eight companies and sell five this year. In the UK, Permira has promised to return a "wall of cash" to investors. This could trigger a wave of buying opportunities for other private equity groups, as many of these companies have no obvious trade buyer and may not make ideal flotation candidates.

In some cases, buy-out groups that raised their last fund in 2005 - such as BC Partners and Cognetas - are nearing the end of their five-year investment periods.

After a private equity group goes beyond its investment period it can no longer do new deals, unless investors grant it an extension or if it raises another fund. This could leave some big buy-out houses out of the market, at least temporarily. Several buy-out groups are in the happier position of having recently raised big funds, such as Hellman & Friedman, First Reserve, TPG, CVC Capital Partners, Warburg Pincus, Nordic Capital and Advent International.

Yet with bank debt still in short supply and the recession failing to produce the expected flow of opportunities to snap up good companies on the cheap, these groups are having to work harder to put their capital to work.

As buy-out groups still have about $450bn of "dry powder" left to invest, there is fierce competition for the best opportunities, which is pushing up prices.

Jacques Callaghan, head of private equity at Hawkpoint, the investment banking boutique, says there are more than 65 private equity groups that can still write a £100m equity cheque for a deal in Europe.

"A number of firms are going to feel under pressure to invest in the next year or two, or they will face calls to reduce their fund size," says Mr Callaghan.

So even those buy-out bosses who fulfil their New Year resolutions by raising fresh funds will still face pressure to show they can spend the money on attractive deals.

This is good news for businesses who are thinking about selling in the next five to ten years. Make it your new year resolution to find out more about private equity investors. 

Jacoline Loewen, expert in helping business owners get the money and the partners they deserve.
National Post video interview: http://www.financialpost.com/video/index.html?category=Financial+Post&video=XgmEI_w_0T1ljmKoXzmCCjo_6u1hka1w

Sellers of businesses seeing the last of private equity

Listen up sellers of businesses. You may have been chased relentlessly these past few years by private equity funds wanting to invest. Here's a warning. Those times may be coming to an end within the next five years. 

Just as industry has been outsourced, so is capital now rewarding those emerging markets too. Money is flowing to China and India and that means less for local comapnies. Here in Canada, funds are still doing well raising new capital as our banks do have money to lend at good rates, allowing the private equity model to work. Elsewhere in the wolrd, the tide of money is retreating. Here is an article from the Financial Times. You need a subscription to read it all but I pulled a few key points.

As private equity bosses consider their New Year resolutions, many are likely to commit themselves to overcoming the meanest fundraising market in the industry's history by raising a fresh pool of capital. This tough challenge will separate the buy-out industry's sheep from its goats as increasingly choosy investors decide which groups deserve to be given more money to invest and which should be left to wither away.

Being starved of fresh capital is the kiss of death for a private equity group, giving it little option but to go into run-off, slowly selling off assets to return cash to investors. Some groups have already been forced out of the market. In the UK, Candover terminated its new €3bn (£2.66bn) buy-out fund this month after struggling to meet its own €1bn commitment.

Alchemy Partners has suspended new investments until at least 2011 after its founder Jon Moulton's shock departure plunged it into crisis earlier this year. Next year, scores of private equity groups are expected either to exhaust the capital available in their existing funds or to reach the end of their fund's investment period. This is likely to push some of the world's biggest buy-out groups - including Kohlberg Kravis Roberts, BC Partners, and EQT - to take the plunge and start fundraising in 2010. Some are already on the fundraising trail, such as Lion Capital, which is seeking €2bn for consumer goods buy-outs, and HG Capital, which has raised half its £2bn target.

But as investors are still smarting from big paper losses after the massive buy-out deals of the credit bubble, there is unlikely to be enough money to go round. As a result, next year could produce a shake-out in the private equity industry, rewarding the better performers with capital and leaving others to expire.

Partners Group, the Swiss fund-of-funds, has forecast that a third of buy-out groups "will be unsuccessful in raising meaningful amounts of additional capital for future funds and will eventually dissolve".

Jacoline Loewen, expert in private equity, author of Money Magnet, described as the best book on private equity by Austen Beutel.

7 Habits of Investors in Inefficient Markets

What is the market up to? I get to listen to the market, or at least a fairly large part of it, as I belong to a finance club with Bay Street's smartest money guys. Collectively they control several billion Canadian dollars, so when they talk, I listen. Over the last five years, since I joined, I have listened to leaders of public companies, owners of private companies, stock promoters, investors and many more. Yet few of these people spoke about the big crash coming up in 2008.
As we leave the decade of the "Naughts" and wrap up lessons learnt about markets in the past ten years, I realize that even this club of such smart men and women followed the markets off the cliff in 2008. What were they thinking?
Back in 2007, Paul Krugman summarized the seven habits that help produce the anything-but-efficient markets that rule the world. I thought a great way to begin the next decade would be a quick review of these:
Seven habits that help produce the anything-but-efficient markets:
1. Think short term. 
2. Be greedy. 
3. Believe in the greater fool 
4. Run with the herd. 
5. Overgeneralize 
6. Be trendy 
7. Play with other people's money 
I got these 7 habits courtesy of Paul Krugman, quoted in Fortune back in 2007. Worth contemplating.
Jacoline Loewen, author, writer, and expert in private equity.

Movers and Shakers in VC Circles

Private equity is increasingly the phrase used for larger Venture Capital firms. There is also a more regular career track beginning to form for many top VCs. Private equity professionals increasingly either move from an operations role or from corporate finance. 

The last year saw interesting career moves for industry professionals in the emerging markets along with transition from big to small firms or shifts from industry domains to private equity. In the emerging markets with high growth, talent does get ahead, whatever the gender, which will be the challenge for the Americans. 

One such high rising female in India is Vishaka Mulye. She took over from Renuka Ramnath as the new MD & CEO of ICICI Venture in April 2009. A career banker who joined ICICI group in 1993, Mulye has occupied various roles in treasury, structured products and insurance. She was the CFO of the bank between 2005 and 2007 and later the CEO of ICICI Lombard General Insurance. Her appointment at the helm of India's largest private equity fund (with about $2 billion fund under management) has catapulted her into the big league.

Jacoline Loewen, Expert on private equity and author of Money Magnet, Attract Investors to Your Business.

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How would you learn from your lousy leader?

Douglas Adams once noted: "Human beings, who are almost unique in having the ability to learn from the experience of others, are also remarkable for their apparent disinclination to do so."
On the same theme, Keith McFarland was in Toronto to speak to the YPO Leadership Forum. He is the author of The Breakthrough  Company and talks about the impact of leaders who have not matured. Keith talks about one leader who said "All Buyers Lie". This negative attitude to customers impacted terribly on his long term revenues eventually.
Here's a quick story I valued from Keith in BusinessWeek:
The hotshot vice-president who took over the marketing group where I worked when I was in my 20s was a great anti-mentor. Arrogant, quick-tempered, and controlling, it took him only about six months to turn a great department into a loose collection of warring fiefdoms. I knew I wanted out, so I observed what I thought at the time was proper etiquette:
me out of it but finally relented, extracting only one promise: I would allow him to tell the president of our organization about the change.

What I didn't know at the time was that he and the president were at war over some of the same issues that were causing me to flee and that he intended to use my departure as a weapon against the president, who had been my friend and sponsor for a number of years. So my boss said I was leaving my post because I was tired of the president meddling in the affairs of our department. Nothing could have been further from the truth, but the president appeared to believe him and was so offended by the statement that it took several years to repair my relationship with him.

What did my first anti-mentor teach me? That people, even those you view as untrustworthy, are essentially reliable. Wait, hadn't this person betrayed me by lying about my motivations for leaving the job? Yes, and that's precisely my point. His actions were entirely consistent. I knew he was selfish, manipulative, and insecure. So to expect him to behave otherwise was bad judgment on my part.

I realized right then that people are surprisingly dependable and vowed to use what I knew about them to predict how they're likely to act. When my boss asked me to let him relay my move to the president, I should have been on my guard. I should have said: "You know, my relationship with him goes back almost 10 years, and I wouldn't want to offend him by not telling him myself."

The funny thing is, as the years have passed, the anger I felt for my first anti-mentor has dissipated. The lesson to treat every person as reliable (based on who they really are) has served me well as an entrepreneur, whether I'm dealing with colleagues, investors, or customers.


Posted by Jacoline Loewen - see YouTube interview with National Post: VIEW

The key reason for private equity's success

The massive profits that some private equity firms make on their investments evoke admiration and envy. The mainstream reason (which has been true for a large portion of private equity funds) is due to the firms' aggressive use of debt, concentration on cash flow and margins, freedom from public company regulations, and hefty incentives for operating managers.

But I believe the key reason for private equity's success is the forced strategy of buying to sell.

Why do I say forced? Mainly because it is my experience that  public companies, which, in pursuit of synergies, usually buy to keep. This attitude or frame of reference brings very different pressures to bear on management.

The chief advantage of buying to sell is simple but often overlooked. Private equity's sweet spot is acquisitions that have been undermanaged or undervalued, where there's a onetime opportunity to increase a business's value. Once that gain has been realized, private equity firms sell for a maximum return. A corporate acquirer, in contrast, will dilute its return by hanging on to the business after the growth in value tapers off. Public companies that compete in this space can offer investors better returns than private equity firms do. (After all, a public company wouldn't deduct the 30% that funds take out of gross profits.) Kinross is doing this by getting into diamonds, not just gold. Their more inexperienced investors attracted by the gold price hike, get nervous and want a concentrated stock. More experienced and professional investors appreciate the subtle nuance of the management team.

Corporations have two options: (1) to copy private equity's model, as investment companies Wendel and Eurazeo have done with dramatic success, or (2) to take a flexible approach, holding businesses for as long as they can add value as owners. The latter would give companies an advantage over funds, which must liquidate within a preset time--potentially leaving money on the table. Both options present public companies with challenges, including capital gains taxes and a dearth of investment management skills. But the greatest barrier may be public companies' aversion to exiting a healthy business and their inability to see it the way private equity firms do - as the sale and cashing in of a successful transformation, not a strategic error.

Jacoline Loewen, author of Money Magnet, Attract investors to your business

How Private Equity is using Social Media

Details of Simmons Bedding Co.’s bankruptcy reorganization plan have been translated into Chinese and posted on a Web site in Guanzhou to encourage Chinese bids, the Wall Street Journal reports. The move is unlikely to disrupt the company’s plans to be sold to Ares Management LLC and Ontario Teachers’ pension plan, but it does show growing interest by Chinese bidders in U.S. assets, especially at discounted prices, the WSJ writes.

Do you want to make money or do you want to tick all the boxes correctly?

"We are rowing against a tide where people are more interested in how you are ticking a box, instead of how you are running a business. In private equity we have a very simple job: make money for our shareholders. It is a purity I quite like. Lack of clarity is the source of the trouble; not knowing what your job is." The head of the British Venture Capital Association spoke out about why entrepreneurs and private equity, not government, will be the partnership to save the British economy. (Read more)

The Canadian Venture Capital Association also talks about the power of private equity versus other forms of lending or public market capital. The theme you will see repeated at CVCA conferences and their work with private equity funds,  is the superior performance of aligned interests of privately held capital versus the public markets. The private equity investment is a much more involved and engaged form of ownership that the dispersed model found on the stock market. There a company's shares are typically held by a wide range of institutions, leading to the phenomenon of the "ownerless corporation", where investors fail to hold a powerful management to account.

At Isis, which targets mid-market businesses that are seeking between £2m and £30m of equity, Kolade is looking to sectors such as healthcare and online retail for growth, along with traditional shops.

"If I were to buy into mainstream retail now, the leasehold deals I could do would be extraordinary," he says.

Jacoline Loewen, http://twitter.com/jacolineloewen

Succession Planing sounds easy - it ain't

Careful succession planning has a key part to play in a firm’s survival and long-term business sustainability, particularly given the current economic climate, PricewaterhouseCoopers (PwC) has said.

Speaking about his experience in running, and subsequently selling, one of Ireland's largest family businesses, the Gunne Group’s Pat Gunne said: “In my experience, when running the Gunne Group, long-term business success will be determined by building and maintaining business relationships, having a real focus on cash and a clear vision for building the brand around the optimum strategy.

“In addition, having the right structures in place including strong non-executives are critical. Another key issue for success in any family business is fast-tracking succession planning. Planning for the transfer of wealth in a tax efficient manner, that it is well communicated and has the buy-in from all family members is critical,” he added.

“There are a number of important planning steps for effective succession planning. Firstly, it is hugely important that a tax-efficient will is put in place in order to avoid a tax trap. There are also a number of corporate exemptions that can be availed of in order to release wealth efficiently which should be investigated,”

“Family partnerships should also be considered as a mechanism for efficient participation in the future growth of wealth,” he added.

The six key steps for efficient succession are:

• Have a clear process to manage potential conflict
• Agree a clear ‘family constitution’
• Manage the tax
• Have clear reward policy for both working and non-working family members
• Have a clear and efficient sharing of wealth framework
• Communicate clearly .