Are you looking for an equity partner? Terry Didus at Heenan Blaikie has good news.

A report from Heenan Blaikie which is well worth reading.

Optimism In Canada’s Private Equity & Venture Capital Markets
Heenan Blaikie,Terry Didus, 16 April 2013

The federal government recently announced that it would be injecting $400 million into the venture capital sector in Canada in 2013. To Canada's private equity and venture capital community, this comes as welcome news and serves as a call to action for an industry that has certainly gone through some dark days in recent years. Yet, based on the activity in the last 24 months in the private equity and venture capital markets, there may yet be room for optimism.

Private Equity

Almost $4.5 billion in private equity deals were done in Canada in 2012, representing more than 110 transactions – a 25% increase over Canada's best year in 2008. In part, the number of transactions, particularly in Quebec, reflects a generational transfer of ownership among the baby boomers. As well, these numbers are reflective of a large number of going-private transactions, where many companies (that had no business going public anyway) are simply giving up on the market or find they can't live with the required level of compliance and regulation.

Venture Capital

Another telling statistic is that venture capital funds raised almost $1 billion in 2011 and $1.8 billion in 2012, and more than $400 million was actually disbursed (70% more in 2012 than the previous year). As for the $2.8 billion raised in 2011 and 2012, these are venture capital funds that will have to be invested, mostly in Quebec, over the next five years. Of the total funds raised across Canada last year, Quebec funds captured a 52% share, or $924 million. Bottom line – venture capital fundraising is at its highest level in a decade.

The Federal Government's Venture Capital Action Plan

Lastly, in January 2013, the federal government of Canada, in a studied and planned effort to provide support to Canada's underexploited knowledge-based economy, announced that it would deploy $400 million over the next seven to ten years to bolster the presence in Canada of a strong and mature venture capital private sector. This is more good news for Canadian start-ups and Canadian venture capital funds and national funds of funds, as well as foreign funds seeking to enter the Canadian market as co-investors. These funds will not be managed by the feds; instead, this program will be pushed down through the existing funds of funds network in Quebec.

The government's plan is in response to historically less-than-stellar returns for venture capital investors in Canada resulting from a lack of investor confidence, the unwillingness of large institutional investors to take a chance on early-stage companies, and a lack of venture capital funds and experienced fund managers in Canada who are able to lead successful venture capital funds. The government hopes to overcome this systemic problem with a long-term view of improving Canada's economic competitiveness by increasing private sector investment and decision-making in emerging Canadian companies with high-growth potential. Based on the experience of growing knowledge economies, such as Boston, New York and Silicon Valley, this program underscores the importance of a sustainable private sector venture capital sector, as well as recognizing other factors, such as technology transfer offices, linkages to foreign investment pools and the availability of mentors for inexperienced venture capital firms to build local expertise.

In order to do this, the government has committed this $400 million to support the creation or growth of private sector, large-scale venture capital funds in Canada. The $400 million will be allocated three ways:

(i) $250 million to establish new, large private sector-led funds of funds in partnership with institutional and corporate strategic investors, as well as interested provinces;
(ii) up to $100 million to recapitalize existing large private sector-led funds of funds; and,
(iii) up to $50 million to be invested in a handful of existing high-performing venture capital funds in Canada.

The fact that the lion's share of the funds will go to both new funds of funds (which should be up and running within the year) or existing funds of funds represents a big opportunity for foreign institutional investors seeking to enter the Canadian market and invest in Canadian high-growth companies in a significant way. With a minimum investment requirement of $10 million, potential investors for the new and existing national funds of funds are large foreign or domestic institutional investors, such as banks, pension funds, corporations, SWFs, insurance companies and interested provinces (the participating provincial governments will contribute capital on the same terms as the capital from the government of Canada).

Each of the national funds of funds must be managed by an experienced private sector general partner with a substantial presence in Canada. Eligibility for the underlying venture capital fund managers also depends on a substantial presence in Canada and a commitment to invest one-third of their total capital in Canadian-domiciled firms. The incentive structure for private sector investors will be the same in both the new and existing funds of funds. In each case, the government will privilege funds of funds capitalized between $200 million and $300 million, and making market-based private sector investments focused on maximizing returns.

Interested investors will have the opportunity to examine a draft term sheet from the government outlining:

(i) the key parameters of the funds of funds;
(ii) the funds' investment orientation; and,
(iii) the selection of private sector general partners.

Somewhat surprisingly, this program has not yet received significant media attention. The reason may be due in part to the fact that, at this point, the exact size and sectorial focus, if any, of these national funds of funds are undetermined. The decisions the government makes will depend on discussions with private sector investors and which investment strategies and conditions maximize participation from institutional and corporate strategic investors.

Jacoline Loewen, expert in mid market companies, Crosbie

Don’t Let Family Ties Bind Your Exit Strategy

Blood may be thicker than water but it can also create a way bigger mess.

Running a family business has some definite advantages, yet it poses unique challenges when creating an exit strategy.

In this PROFIT BusinessCast, Ed Giacomelli, managing director at specialty investment banking firm, Crosby & Company, explores these obstacles—including financial, leadership, social and emotional—and how best to avoid them. Great podcast and if you are interested in succession, worth the listen:
View Profit Magazine link

CFA Society Lunch - Crosbie tells the outlook for M&A activity in Canada

Selling and Buying, Mergers and Acquisitions, Financing Strategies and the Outlook for Private Equity

Date:  Thursday, May 16, 2013Time: 12:00pm to 2:00 pm
Location:  The National ClubFunction Type: Luncheon Seminar

OVERVIEW

Presentations by the  senior management  of specialty investment banking firm Crosbie & Co. Inc will cover the outlook for M&A activity in Canada, examine  trends in Private Equity  and  explore the wide range of liquidity strategies that are possible for business owners as well as  the factors that need to be considered in order to achieve a successful outcome.  Through various case studies, Crosbie’s management  will share their experiences in a variety of situations where different financing opportunities were identified and then achieved for a range of Canadian companies.  Crosbie will also highlight the key issues that need to be managed throughout such processes and how an advisor can add value. With more than 2.5 million owners of medium sized businesses in Canada beginning to retire, an estimated $1.2 trillion in business assets are poised to change hands – the largest turnover of economic control in generations.

SPEAKERS

 Ed Giacomelli, Managing Director 

With  over 25 years of experience in investment banking, corporate finance and capital markets, Ed has advised public and private clients on domestic and cross-border engagements, including leading M&A transactions, raising capital and providing independent financial and strategic advice.  His clients have included entrepreneurs, family-owned businesses, public and private companies. Ed is a media commentator and speaker on M&A trends and capital markets. He has served as a director of public and private companies and is on the President’s Council of St. Michael’s Hospital Foundation.  Ed holds an HBA and MBA from the Ivey School of Business, University of Western Ontario.

Ian Macdonell, Managing Director 

Ian has 20 years’ experience in a broad range of investment banking activities in both Canada and the United Kingdom. Prior to joining Crosbie, he was Executive Director, Corporate Finance at CIBC Wood Gundy Securities and Vice President, Corporate Finance at RBC Dominion Securities. He has played a primary role in numerous merger & acquisition advisory assignments and public and private debt and equity financings across a variety of different industries. He graduated from Queen’s University with a BSc in chemical engineering and completed his MBA at the Ivey School of Business at the University of Western Ontario.

Jeffrey Ng, CFA,  Vice President

Jeffrey has over 10 years of investment banking and corporate finance experience  including advising private and public companies across a wide range of industries in various M&A, financing, valuation, and other board advisory mandates.  Prior to joining Crosbie, he spent over 5 years at Wachovia Capital Finance of Canada.  Jeff has a Bachelor of Business Administration degree from the School of Business and Economics at Wilfrid Laurier University, and is a Chartered Financial Analyst.

WHO SHOULD ATTEND

Investors in public and private companies, investment bankers and analysts.

 To Book:  or go to http://www.cfatoronto.ca/

Get advice from one of Canada's M&A corporate finance experts - Ed Giacomelli,

Get advice from one of Canada's M&A corporate finance experts - great show with Ed Giacomelli, Crosbie, on BNN.
Press here to view.
or here is the link:  http://ow.ly/hTXLZ

Recovery of US Car Sales

Good news as early signs show the US economy is getting going again. The Globe & Mail sum up the car sales and the impact on Canada:

 the recovery of U.S. sales from the depths of the recession is creating strong demand for the cars, crossovers and minivans cranked out by auto makers’ assembly plants in Ontario, many of which are running on overtime. The U.S. market is the destination for about 80 per cent of the vehicles that come off the assembly lines operated by the five manufacturers that build vehicles in Ontario.

“The biggest driver of this year’s story is going to be replacement [demand],” Ken Czubay, vice-president of U.S. marketing, sales and service for Ford Motor Co. said Friday. “When the fleet is 11 years old, you can imagine the fuel economy that they used to get on an 11-year-old vehicle. They are now getting significantly better fuel economy,” Mr. Czubay told analysts and reporters on a conference call.

Kurt McNeil, vice-president of U.S. sales operations for General Motors Co., pegged the January sales rate at 15.3 million, up about 14 per cent from January, 2012, and 50 per cent from January, 2010.

“This says to us that we continue to recover strongly from the recession despite the headwinds of higher taxes and lower government spending,” Mr. McNeil said on GM’s conference call.

Both Ford and GM reported double-digit increases as did Chrysler Group LLC, Honda Motor Co. Ltd. and Toyota Motor Corp.

Risk of Social Media exposing your company's secrets

Crosbie tries to give its expertise and knowledge about its client cases through their social media. Due to Risk and strict OSC compliance, the partners are always vigilant about what is being said across our Crosbie social media platform. Here are a few lessons from Harvard Business School blog:

Through unwitting leaks of critical information by employees, platforms like Facebook and Twitter can expose some of your company's secrets. Leaks are nothing new; companies have been eavesdropping on each other forever. But social technologies open new channels that permit snooping on an unprecedented scale. That's why corporate social-media strategy should include not only engaging customers, gathering intelligence, and reinforcing brands, but also shielding the company from prying eyes.

Here's a quick quiz: Have you ever tweeted your business-travel plans? Does your LinkedIn profile describe what you do in great detail? Is localization enabled on your mobile device when you use social media?

If you answered yes to any of those, you and your company may have left footprints that your competitors can detect and analyze.

For example: An analyst wanted to generate data on how a major consumer-electronics company's leading product was doing. In a matter of minutes, readily available software tools mined half a million social-media comments for information about the company, revealing that 75% of 21-to-35-year-olds and 60% of 36-to-50-year-olds had made neutral or negative comments about it while people 20 and younger (a group largely underestimated by the company) showed 100% positive sentiment about it. The analyst inferred that the company was losing its business customers fast and that a competitor could gain by targeting younger users.

Employees and senior executives alike are sometimes too casual about disseminating the information they possess, or they don't understand what's confidential and what isn't. A few tweets or Facebook comments about a work project can give a competitor valuable insight into a company's product plans, and travel information might suggest that marketers or salespeople are aiming at new clients or regions.

As an exercise, we analyzed the LinkedIn profile of a senior executive from an aerospace company, responsible for sales in Latin America and the Caribbean. We noticed that he had added new links to salespeople in a new region in a short period of time. The contacts were highly suggestive of the company's plans.

RISKS

There's a vague but growing awareness of these vulnerabilities in the corporate world: One recentsurvey shows that companies are beginning to recognize the risks posed by social media to their confidential information, with 37% of employers saying that Facebook poses the greatest risk and 27% citing LinkedIn. Another study shows that only 50% of senior financial executives from both public and private companies are confident that sensitive or confidential information is adequately protected on social-media platforms.

But most companies are still unaware of the risks and the tools that can help mitigate the danger. Here are a few measures that every company should consider to reduce its exposure.

• Assess. Determine what's important for your company to protect. Perform an internal assessment to look for the core information that you care about most, and tailor policies and actions around the findings.

• Educate. Make sure everyone in the company understands what information might be sensitive. An individual's list of LinkedIn connections or Twitter followers reveals his or her networks. Facebook likes and favorite articles in Google Plus leave footprints showing areas a person has studied and new strategic initiatives he or she may be involved in.

• Guide. Establish clear and simple social-media usage policies. There's a database of such policies here to help you get started.

• Keep it inside. Implement and promote internal social networks that are walled off from the outside world. These platforms allow employees to talk shop in a social environment without risking information leakage. Use incentives to encourage adoption, and make sure senior employees lead by example.

• Monitor. Set up continuous monitoring of employees' postings on social media about such matters as business travel, job assignments, and reorganizations. Dell, for example, has established a social-media listening center to track conversations and provide intelligence to executives. Put yourself in your competitors' shoes and war-game a determined effort to find information about your company.

• Limit. There's little reason why your company's information should be accessible by analytical tools such as those that allow users to download critical data or analyze an individual's full social-media postings. Most tools allow webmasters to prevent spiders from crawling and indexing their sites.

• Disable geolocation. Make sure employees turn off social-media geolocation features. Many companies have found that it's ineffective to simply forbid the practice. It's better to educate employees and show them the footprints they've already left. Take a look at what an app created by O'Reilly researchers Alasdair Allan and Pete Warden did with the geolocation information harvested from the consolidated.db file of the iPhone of a person living in New England.

Social media, by its very nature, is a tricky space to navigate. Both the opportunities and the risks are often hard to perceive. The key to seeing and minimizing the risks is to continuously test tools so that you can see where competitors might be able to find your secrets. At the same time, invest effort and senior management time in setting a good example.

Now it's your turn to act: Become a role model and help bring attention to the risks of social intelligence to your company. 

When it comes to valuation, size does matter.

Barry Critchley, Financial Post,  gives a useful summary of Crosbie and its views on GF Data's 5 year research report. Here are the highlights from the report:

• When it comes to valuation, size does matter. The data shows that for upper mid-market transactions (those between $100-million and $250-million) which have been completed by private equity groups “have consistently attracted premium multi-ples compared to smaller trans-actions.”

One key measure is the private equity total enterprise value divided by EBITDA: For the past years that multiple has been higher for larger transactions than it has for smaller sized transactions. In the first half of 2012, the multiple was about 7.9 times (compared with 7.8 for 2011) — or almost three percentage points above the comparable multiple for transactions between $10-million and $25-million completed over the comparable period.

Crosbie gives four possible reasons why size does matter: larger companies tend to have greater stability; are more able to attract greater leverage or debt financing; are in the sweet spot of the market (because more private equity groups are focused on larger transactions) and because larger mid-market companies have greater liquidity options including initial public offerings.

Crosbie is an investment bank doing corporate finance for owner operators.

Crosbie comments on research on private equity

Barry Critchley spotlights Private Equity deals over the past 5 years and the report on Private Equity by Crosbie in The Financial Post, Canada.
Read article:

All market participants have views on certain matters but until those views are researched they remain opinions without facts.

Toronto-based Crosbie & Co. Inc., which defines itself as a specialty investment banking firm, has now filled a potential void on the importance of private equity to the mid-market. The firm, which has been around for more than 25 years, recently published an analysis of 1742 North American transactions which have been completed over the past five years. The underlying data was compiled by GF Data Resources, a U.S. based firm that offers “a searchable proprietary database that provides private equity buyers, intermediaries, capital sources and valuation professionals with accurate and detailed information on business transactions ranging in size from $10-million to $250-million.”

Recently Crosbie published the results of that analysis.

“The document is powerful because it covers so many transactions over such a long period of time. One can draw some clear inferences for the broader M&A market from this unique data set, specifically for larger middle market transactions which attract higher calculation multiples,” said Colin Walker, managing director at Crosbie & Co.

Colin Walker: LinkedIn

Canada’s culture of risk aversion

The National Post has such an important story on Canada and its risk aversion.

Q  During your presentation, you mentioned Canada’s culture of risk aversion. Do you believe this can be changed?

BC  When you get to post-secondary education, our educational systems are built on a 150-year-old model that’s not set up for today. We reward tenure, not innovation. Our faculties are strong political silos, and what we need are students graduating who have diverse backgrounds. Business people who have a fine arts background are more innovative and creative and take more risk. The challenge is it takes a generation. So, first you have to get change in our university system, which is challenging. Second, you have to give it time to catch. You can’t change culture overnight.

JR  To me it’s the embracing of failure that is a big difference I see, particularly in Silicon Valley where entrepreneurs use failure as a badge of honour, and in Canada we don’t really do that. We view that as something you do not disclose or something that you’re ashamed of. I would have a far higher propensity to invest in an individual after three failures as opposed to seeing zero failures, because I now know that when that individual is going to be working on their next opportunity they’ll know where to pivot around. They move much faster and are able to get to the same point they were at the previous opportunity within a fraction of the time. So, when the company starts to scale; when the problems become far more complex, somebody who has dealt with failure, I believe, is able to navigate and pivot around those and not completely panic at a situation.

What is top public-policy to spur productivity?

Great summary of what Canada needs to get done to grow as a strong economy. The National Post makes it monthly subscription fee worthwhile with this one comment.

Q  We’re going to have a new premier for Ontario by the spring. From your perspective, what is the most important public-policy change that could be made to spur productivity in Ontario?

JR  A year ago on the Liberal platform, they introduced angel tax credits and a corporate venture capital tax credit that was extremely well received. It leverages pure market forces. The government doesn’t select. It really becomes an incentive. It was a very innovative idea. Ultimately, it got passed on largely due to the deficit situation. But those are two examples of something innovative that hopefully the next premier can resurrect.