Wealth Management

Voted #6 on Top 100 Family Business influencer on Wealth, Legacy, Finance and Investments: Jacoline Loewen LinkedIn Profile

January 30, 2012

Should I hire a broker or investment banker to help me sell my company?

An important question for an owner wanting to sell their business is, "Should I hire a broker or investment banker to help me sell my company?

The answer to this question is “maybe.”
The fees charged by intermediaries are significant. However, there are scenarios when qualified intermediaries can add significant value far in excess of their fees.
For example, if your company has performed well for the past two to three years, you want to sell most or all of it, there are a large number of potential buyers and you have no idea who the right buyer will be, a sale process run by an intermediary potentially can generate a much higher value. Another scenario is where the intermediary has particular expertise and experience in your industry, and there is “story” required as part of your sale presentation. If there is significant risk to your business if the word leaks that you are selling, you are likely better off working with a smaller exempt market dealer than a transactional lawyer.
If you want to save on lawyers’ fees, a good exempt market dealer will make sure the bulk of the work is done before calling in expensive lawyers.
There are many scenarios where an intermediary will not add value. For example, if you know the one or two likely best buyers, then you should be able to maximize value with the assistance of an experienced transactional lawyer (which you need regardless).
Private Equity likes to use intermediaries, exempt market dealers, when selling their own portfolio companies.
Often it’s a good idea to seek the advice of your accountant when making this decision. If you decide that you need an intermediary, please do not base your decision on the firm name. Be sure that the individuals that will be representing your company (often not the senior partner that comes in for the dog and pony show) have the talent, experience, time and drive to get your deal done. 
Speak to the local ExemptMarket Dealer Association in your geographic area.

Jacoline Loewen is a Director of Loewen & Partners Inc., an Exempt Market Dealer, specializing in finance for owner operators and family businesses, specifically acquisitions, restructurings, sales, successions, strategy and private equity financing.
Jacoline began her career with Granduc Mines, Northern BC, and then Deloitte in their strategy unit. She developed a strategic planning model and published it in a book called "The Power of Strategy”. She also wrote "Business e-Volution" and “Money Magnet: How to Attract Investors to Your Business” (Wiley), which has been used by Ivey as a text book.
She is a Director on the Board of the Exempt Market Dealers Association (EMDA) responsible for brand and communications. She is on the advisory board of DCL International, Bilingo China and Flint Business Acceleration. She has been a Director for other Boards such as the Strategic Leadership Forum.
She is a regular panellist on BNN: The Pitch, a contributor to the Globe & Mail and National Post, serves as a judge for the UBC and the Richard Ivey School of Business’ Business Plan Competitions and is a guest lecturer at Ivey and Rotman Universities. Jacoline holds an arts degree in Industrial Relations from McGill University and a MBA from the University of the Witwatersrand.  Her MBA thesis was selected by Cambridge University and published by Cambridge’s Engineering faculty. 

January 29, 2012

Capital gains key component to Romney’s tax strategy

Different types of taxes seem too difficult for Americans to understand. With our sales tax HST, Canadians may understand the distinctions.
I do find it interesting which media sources like to just give the percentage and no elaboration on whether it is income tax or capital gains tax. The charity donations are also worth comment.
Here is a Palm Beach article on the topic.
Capital gains key component to Romney’s tax strategy

January 27, 2012

Tony Clement - Canada's best years are ahead of us

The best years are ahead of Canada. These positive words were part of Tony Clement's speech yesterday at The Empire Club, Toronto, just yesterday.
Clement has applied government resources towards helping business in a consistent and positive manner; this is noted and appreciated. Here is an excerpt from his speech well worth the read.:

Speech by Tony Clement, President of the Treasury Board of Canada, to the Empire Club of Canada

Thursday, January 26, 2012
Toronto, Ontario
A leading American historian and senior advisor to former U.S. secretary of state Condoleezza Rice has finally admitted the truth—Canada won the War of 1812.[1]
The year after that struggle came to a close, another Canadian hero was born—the great architect and visionary of the Canadian state, Sir John A. MacDonald.
"We are a great country," he said, "and we shall become one of the greatest in the universe if we preserve it; we shall sink into insignificance and adversity if we suffer it to be broken."[2]
Sir John A. saw clearly the road ahead. And he formed this country with the values of the Empire in mind—freedom, peace, justice and the equality of people.
Over the years, those values have asserted themselves in Canadians in times of crisis.
We see them in our sacrifices at Vimy, Ypres and Paschendale, in Normandy, Korea and Afghanistan.
And we see them in our compassion and aid for the victims of earthquakes, tsunamis and disasters in foreign lands.
Canada has come a long way in 200 years. We have grown and evolved into the one of the most successful countries in the world.
When British Prime Minister David Cameron visited Canada last September, he acknowledged Canada’s leadership at the start of this new century.
In a speech to Parliament, he suggested Canada had everything it needed to succeed, and passed the torch.
He noted our leadership in two areas vital to success in the 21st century—innovation and education.
"From Blackberry to Canadarm," he said, "yours is a home of innovation and technology."
He also congratulated Canada on its diversity, saying the way we had “integrated people from many different backgrounds into a mature democracy is a model from which we can all learn.”
And the British Prime Minister is not the only one who believes in Canada these days.
Our economic leadership during the global economic crisis of 2008 has been recognized around the world.
Last year, both the International Monetary Fund (IMF) and Organisation for EconomicCo-operation and Development (OECD) forecasted we would have among the strongest economic growth in the G-7 in 2011, and again this year.
And for the fourth year in a row, the World Economic Forum rated the Canada’s banking system as the world’s soundest.
In addition, three credit rating agencies—Moody’s, Fitch and Standard & Poor’s—have reaffirmed their top investment-grade ratings for Canada.
And Forbes magazine recently ranked Canada the world’s best place to do business.[3]
By any standard, Canada has weathered global economic crisis and ongoing financial uncertainty well, particularly when compared to most other developed nations.
Since introducing Canada’s Economic Action Plan in response to the economic downturn of 2008, we have recovered more than all of the output and all of the jobs lost during the recession.
And almost 600,000 more Canadians are working today than when the recession ended, resulting in the strongest rate of employment growth during the recovery by far amongG-7 countries.
And real GDP is now significantly above pre-recession levels—the best performance in theG-7, according to the IMF and OECD.
But our country is not out of the woods yet.
As we emerge from the worst recession since the Great Depression, we know Canadian families are worried about their jobs and their financial security.
While we understand that the government’s role is to create the conditions in which Canadians will thrive, we also believe that it is the ingenuity, the aspirations and the determination of Canadians that will be the driving force behind economic growth and jobs.
So, in the time I have remaining, I would like to tell you about the things we are doing to help make that happen.
I’ll mention just three.
The first is reducing the deficit and balancing the budget over the medium term.
The second is freeing businesses to grow by cutting red tape that can stifle productivity.
And the third is creating opportunity through our move to Open Government.


Throughout our history, Canadians and their government have learned valuable lessons from economic crises.
Today, Canadians understand the necessity of reducing the deficit and returning to fiscal balance in the medium term, finding savings within government spending, and taking targeted actions when necessary to support the recovery.
This is our balanced approach that will boost our efforts to achieve a sustainable and prosperous recovery, and preserve our Canadian economic advantage now and in the future.
Canadians understand this. And in last May’s federal election, we received a strong mandate to eliminate the deficit, keep taxes low and continue creating jobs for Canadians.
In the Budget that followed, we announced our plan to return to a balanced budget while keeping taxes low.
Building on previous efforts to reduce government spending, we launched our deficit-reduction initiative.
This review is about more than finding savings. It is about modernizing government.
It’s about retooling for the future—and providing the right programs and services at the right cost to support Canadians’ success in the years ahead.


But as a country, we need to come at the challenge of creating economic growth and jobs in Canada from several different angles.
That’s why, in addition to getting our fiscal house in order, we are making sure the people, businesses and communities in Canada have the tools they need to succeed.
That brings me to our second key initiative—cutting government red tape to free businesses to grow.
We believe red tape impedes economic productivity by taking up precious time and resources, and curbs the entrepreneurial spirit.
Cutting red tape helps business focus on what they do best: sustain the economic recovery by creating jobs and generating wealth.
It also spurs innovation by leaving a clear regulatory picture for entrepreneurs, and a marketplace that is easier to understand.
Prime Minister Harper set out to realize all these benefits when he set up the Red Tape Reduction Commission last winter.
This Commission issued its final report earlier this month.
And as a sign of our commitment, we are taking action to implement a “One-for-One” Rule to control administrative burden on business.
This work is just one example of how we are helping businesses grow and invest for the future.


The third initiative I’d like to mention is Open Government.
Open Government allows Canadians to not only learn about, and participate in government, but also to create new products using government data and information.
Last spring we launched this initiative through three main streams.
Open Data, which is about offering Canadians Government data in a more useful format to reuse in innovative ways.
Open Information, which is about proactively releasing information, including information on government activities, to Canadians on an ongoing basis.
And Open Dialogue, which is about giving Canadians a stronger say in Government policies and priorities, and using Web 2.0 technologies to expand citizen engagement with government.
By tapping into the ideas and talents of our citizens, we can be more responsive to meeting their needs.
In fact, earlier this winter, we held an Open Government on-line consultation, and Canadians gave us some great suggestions.
We also held the first-ever, Government of Canada tweet chat to generate discussion about Open Government.
Open Government can also strengthen transparency and accountability in government, and a strong democracy is essential to a nation’s economic success. I’m a true believer in this.


Let me conclude my remarks today with one final observation about our need for economic growth and jobs in these challenging times.
Over the years, Canadians have learned that chronic deficits are a mortgage on our future. Chronic deficits create higher taxes, less opportunity and less freedom for our children and our grandchildren.
Ultimately, they squander the opportunities that have been given us.
That’s why we must stick with our low-tax plan for jobs and growth—a plan that has worked and served Canadians well.
I believe Canadians can overcome any challenge. We always have—as long as we never waste our treasure or lose faith in ourselves.
As Winston Churchill said when he addressed our Parliament during the bleakest days of the Second World War, “we have not journeyed all this way across the mountains, across the Prairies, across the centuries, because we're made of sugar candy.”
Freedom, hard work and sacrifice have got us where we are today, and leadership, fiscal prudence and helping Canadians achieve their dreams will take care of tomorrow.
It’s not always easy, but as history shows, it is doable.
And the benefits for us and for future generations will be immeasurable.
Thank you.

January 25, 2012

Angry Birds Attack the Leadership of RIM

RIM is getting whacked for its leadership reshuffle. The market remains unimpressed.
Running even a profitable business is no guarantee that last year's performance will be repeated. Customers need to be convinced again. Retailers need to be encouraged. employees need to be motivated. Alliances need to be maintained.
Margaret Wente writes harshly about the RIM leadership and gives a scathing indictment to the two billionaires. She probably has a point and someone should have been telling these two to focus on their business and check out apps.

Back in 2007, Mike Lazaridis and Jim Balsillie were like gods. Everyone agreed the Research in Motion CEOs were the two smartest guys in Canada, and possibly the entire world. Anyone who was a someone owned a BlackBerry. A BlackBerry meant you were a player. Even Barack Obama had one! But even if you didn’t, you cheered for RIM because finally we could forget the hideous national embarrassment of Nortel and hold our heads up in the world. Thanks to them, our whole country was a player!

When Roman emperors paraded through the streets in triumph, they used to hire a slave to whisper in their ear, “Remember, you are just a man.” Maybe Mike and Jim should’ve tried that.
When Steve Jobs unveiled the first iPhone in 2007, Mike Lazaridis trashed it. He told his employees nobody wanted to have a personal computer on their phone. Back then, RIM commanded nearly half the U.S. smartphone market. Today, it has more like 10 per cent. Not only do people like to have computers on their phones, they also like to waste millions of hours playing Angry Birds. Who knew?
The worse things got, the more arrogant they became. Last spring Mr. Lazaridis walked out of a BBC interview because he didn’t like the question. “You implied that we have a security problem; we don’t have a security problem,” he said. “We’ve just been singled out because we’re so successful around the world. It’s an iconic product, used by business – it’s used by leaders, it’s used by celebrities, it’s used by consumers, it’s used by teenagers – we were just singled out.”
Then there was all that money. Funny things happen to people who get stupendously rich. Instead of dreaming night and day about the next great product, they start to dream about building the most spectacular mansion in the entire country, or buying a National Hockey League team. Mr. Lazaridis’s construction project (a 24,000-square-foot “cottage” on the shores of Lake Huron) has been going on for years. Mr. Balsillie spent three years haggling for the Pittsburgh Penguins, the Nashville Predators and the Phoenix Coyotes.
Meanwhile, Mr. Jobs was dreaming up hit products that people would line up overnight to buy. As Toronto money manager Tom Caldwell said, “Once the CEO is building the maxi-yacht or the great mansion or trying to buy hockey teams, he is not paying attention to his business, in my mind.”
Mr. Jobs despised tech billionaires who acquired mansions and fancy toys. “I’m not going to let money ruin my life,” he told his biographer. He had no taste for “that nutso lavish lifestyle that so many people do when they get rich.” The trouble is that people who get rich get fat and soft. They’re not hungry any more.
Mr. Jobs knew that if you stop swimming fast enough, you die. He was a screaming perfectionist who cursed out his staff when they moved too slowly, or when some product detail wasn’t good enough. Meanwhile, last year, when RIM released the PlayBook, which was supposed to compete with Apple’s iPad, it was a miserable flop: It couldn’t do e-mail. It had no Skype, no GPS, no Angry Birds. As a New York Times tech reviewer wrote incredulously, “There’s no app for that.” It wouldn’t even fit into the breast pocket of a jacket.

January 24, 2012

Where was RIM's Board of Directors?

RIM leadership may have got arrogant but they also gave a great deal to the Canadian entrepreneur scene. Jim Balsillie was generous enough to give me an interview in 1999 for my book, e-Volution: How to use the Internet to grow your business. He has done his strategy very well - something I see rarely done by Canadian owner/founders.
All this talk we are hearing from the USA about how "private equity destroys jobs" and "capitalism is evil" completely by passes the fact that humans create businesses and destroy businesses. The best businesses rarely go beyond a founder's life cycle and both founders of RIM are past their peak entrepreneurial risk taking days.
There is your problem.
Where were the Board Director experts to point out this fact? As I have hammered in my blog, advisers and board directors appointed by the owners will never say what needs to be said. Have them appointed by an outsider and you will have a very different result.

January 23, 2012

Lessons from the recession for business owners

When I worked at a strategist for a bank and wrote the speeches for the CEO, who was also the founder, he would confuse me with his insistence on always bringing up complacency. As a young MBA with my career before me, I could not see wasting time on such a mundane topic which seemed more of a downer and something your mother would say. 

As I look back, I realize he was wise with his observation that success brings complacency and complacency brings failure.

Lesson from the recession: Run your company during boom times as if times were lean.

We have heard many leaders bemoaning that their companies would be far more successful if they had run them during the boom period as they are running them now. Without question, success can bring complacency. However, the best leaders we know resist this tendency. Their companies’ cultures foster continuous improvement and cost-reduction regardless of great performance.

Similarly, the advice we often give entrepreneurial and family business owners is, “Run your company as if you are preparing to sell it in three years.” This means eliminating under performing employees (which can be difficult, even when done with great care and consideration, but is critical), and building cost-cutting and improvement initiatives. These efforts will grow EBITDA and result in a more successful, resilient and valuable company.

As for my old boss, his bank is still in business, having survived the derivatives madness, and has achieved its vision to be global. 
Complacency is indeed the key word to put in all your leadership speeches.

January 19, 2012

Barry McKenna on how Canada can be competitive

How to get the Canadian economy to grow is on everyone's priority list. There were 65 recommendations made by Red Wilson's panel set up to make recommendations.
My time in private equity has shown me that "Growth and innovation" is an attitude.
Canadian business owners have managed to tuck in behind the American economy and grab a good enough market share, but not build its own global winning companies.
Here is an excellent article by Barry McKenna in the Globe and Mail discussing the problem on business innovation further:

Putting Canada on a more competitive footing will likely mean diversifying trade links beyond the U.S., converting corporate profits into world-beating innovation and pursuing big infrastructure projects. It also means welcoming more foreign investment from places such as China and the Middle East and deregulating a host of stodgy pre-Internet industries, such as telecommunications, cable and transportation.Such a campaign has a long way to go – as is highlighted by the comments of foreign investors like Naguib Sawiris, the Egyptian telecommunications tycoon. It was his money, controversially, that helped fund the startup of Wind Mobile in this country. In an interview with The Globe and Mail this week, he blamed Ottawa’s telecommunications policy for making it harder for new wireless companies to establish themselves. “Anybody who asks me, I tell him look, we are the stupid investors that poured a billion dollars into Canada here and created 1,000 new jobs, please don’t do this mistake. Don’t come here,” Mr. Sawiris said. He also drew a direct link between the long-standing federal policy of limiting foreign investment and the lack of global presence of Canada’s major telcos.
“If they were that good, why are they just in Canada here? Why don’t we have Rogers in the U.K. or Germany? Why is Vodafone everywhere? Why is France Télécom everywhere? And this national champion Rogers is only in Canada? Because only in Canada it gets pampered and it can kill its competitors.”
A push for reform
In 2008, an expert panel set up by the Harper government to examine Canada’s competitiveness recommended a major shift in Ottawa’s approach to telecom, in favour of opening it up to far more foreign investment. Three and half years later, the chairman of that panel, Red Wilson, looks back on his effort with a mixture of pride and regret. Pride because his panel’s findings are just as relevant today as they were then. But it’s tinged with disappointment because most of the 65 recommendations, including the one on foreign ownership of telecom companies, remain on the shelf even as the country’s innovation and productivity performance sputters.

January 18, 2012

Can I sell my company even if it is not profitable?

The question of the week is one asked by many of my clients:

Can I sell my company even if I have not made any profit the last couple of years?

The answer I give is a whole-hearted, "Yes!" 

You can always sell your company. The correct question though is: Will you receive a value sufficient to satisfy your personal objectives? 

Many of my clients have become used to withdrawing capital from the company and once profits erode, become nervous and think that they need to sell before profits decline further. This is where valuation and sale of your business by a professional EMD or corporate finance expert will make a significant difference. 

Although your historical EBITDA certainly is a factor, the value will depend largely on what EBITDA you can prove for the future. If, for example, you have landed large new contracts, you likely will be able to get value for most of the EBITDA that those contracts will generate over the years to come. 

I suppose the tougher question here is: Why are you selling your company now? If you have no choice, then you should prepare the best you can, potentially hire a broker  or Exempt Market Dealer to help you tell the story, and get the best value possible. 

If you don’t have to sell now and you think the future looks better, you likely will get more value if you wait. Taking on 30% sale to Private Equity would be your best option. They will fill up the tank again, revitalize your strategy and get you looking at what options you have - most often, hiring a CEO and encouraging you to do the work you love to do.

Jacoline Loewen is a Director of Loewen & Partners Inc., an Exempt Market Dealer, specializing in finance for owner operators and family businesses, specifically acquisitions, restructurings, sales, successions, strategy and private equity financing.
Jacoline began her career with Granduc Mines, Northern BC, and then Deloitte in their strategy unit. She developed a strategic planning model and published it in a book called "The Power of Strategy”. She also wrote "Business e-Volution" and “Money Magnet: How to Attract Investors to Your Business” (Wiley), which has been used by Ivey as a text book.
She is a Director on the Board of the Exempt Market Dealers Association (EMDA) responsible for brand and communications. She is on the advisory board of DCL International, Bilingo China and Flint Business Acceleration. She has been a Director for other Boards such as the Strategic Leadership Forum.
She is a regular panellist on BNN: The Pitch, a contributor to the Globe & Mail and National Post, serves as a judge for the UBC and the Richard Ivey School of Business’ Business Plan Competitions and is a guest lecturer at Ivey and Rotman Universities. Jacoline holds an arts degree in Industrial Relations from McGill University and a MBA from the University of the Witwatersrand.  Her MBA thesis was selected by Cambridge University and published by Cambridge’s Engineering faculty. 

January 16, 2012

Jacoline Loewen on 3 Rules for every Start Up - BNN The Pitch

Putting more into production of the The Pitch by pre-taping, rather than doing it live. We start today.
Up first to pitch are two start-ups that look promising for the financial returns and interesting, compelling products that they are already selling.
I will tell you their names later this week and give you a heads up on how they did with the private equity panel on BNN.
I thought I would add the 3 rules I liked the most from a great list by Mark Evens in The Globe and Mail on 10 rules for start ups. Here's Mark:

8. Understand that raising money is time-consuming and disruptive
From the outside looking in, raising venture capital looks sexy and exciting. The reality is that it involves a lot of grunt work, energy, numerous meetings and lots of patience to convince investors to commit. It also takes entrepreneurs away from running the business.
9. Recognize that once you raise money, it and your investors need to be managed
When investors decide to give startups money, they expect progress, traction and regular updates on what is happening. It’s not like they hand over the cash and then go away while the entrepreneur gets to do what he or she wants. Instead, startups need to continually manage their investors, which takes time and effort.
10. Enjoy the work because startups can be a 7/24 activity
Startups are not a 9-to-5 job that lets you go home at the end of the day without any work distractions. Startups are beasts that can be consuming so you had better enjoy the journey.

Jacoline Loewen on Professional services treating companies as an annuity

Most business owners and senior leaders build a relationship of trust with their service providers. The bulk of these relationships, generally, are the outsourced activities of accounting and legal work performed by accounting experts and lawyers.
When Private Equity partners are making an investment, it is my experience that they appreciate and respect those relationships.
One warning to family business owners, particularly those approaching the age of 50 who need to begin succession plans, your accountant and lawyer may not want to start any conversations that may change their circumstances. It pays for them to keep the Status Quo, the river flowing along the same route, so to speak, even if it is at a detrimental cost to the owner.
From years of observing the familiar level of complacency with lawyers and accounting firms, I often ask the same question, "Are you out for what's in it for you or for what's in it for the business owner?" As Adam Smith will attest, humans do go for the "What's in it for me?"
Getting an owner to change their goals for growth, for example, is just too risky. Getting a family business owner to contemplate a CEO other than themselves is just plain suicide.
As a business owner, understand this human fear of upsetting the person who is paying the bills and who could fire the lawyer or accountant from a nice, regular source of income.
Watch for complacency in your law and accounting service providers.
Often, the mere introduction of a competitive scenario from the introduction of Private Equity partners on the board, will yield better service at the same or even reduced cost. This is most often true with auditors, senior lenders and insurance and benefit providers.
Providing services should not be an evergreen annuity for the service provider. Yet it is too often the case.

January 14, 2012

Is Private Equity supported by pension funds?

Private equity is getting a schellacking thanks to Mitt Romney's time as the leader of Bain Capital.
As someone who has been in the PE industry and written a book about Canadian Private Equity specifically, the American Private Equity scene sounds like a Shark Tank, as compared to the Canadians who tend to be more like the dolphin species.I have met and worked with American funds and there is a wide range to their investment styles - some just want to give expensive money, some want to be on the board and push the strategy and a few will actually do some operational work. 
It is ingenuous to say the least, to tar the whole group with one brush. Worse still, it is destructive to the whole economy to make a Salem witch trial for private equity managers like Mitt. 
Private companies make up a large part of the economy in a majority of countries and the lion's share tend to be family owned. This type of ownership can  too often result in stagnating companies or declining businesses on average. Private equity partnerships helps these companies to grow, morph and find new, invigorating life. Without private equity shaking up the neighbourhood, it is too easy for all the competitors to be complacent. In Canada, McGregor Socks found new life with its private equity partners. Yes, they moved the manufacturing to China which upset the union. The business was going under and the two brothers were not working well together. McGregor saved some of the Canadian jobs and expanded a whole new range of design jobs in Canada. As for the union, well I studied Industrial Relations while at university and worked in a mining union which showed me the selfish nature of unionism. So let's put it this way. Unions have chased jobs away far more than private equity - if you want to talk about who is shellacking the jobs.
One of the themes emerging is that PE is "supported" by pension fund money. It is true that the largest sources of capital looking for a good return in Canada is the Ontario Teachers' Pension Fund and the Hospital Workers  Fund, both union funds. 
"With $107.5 billion in net assets, the Ontario Teachers' Pension Plan is the largest single-profession fund in the world."  OTPP has also been behind the largest PE deals in the world, including the BCE failed deal.
OTPP is busy investing in China now, taking Canadian earnings and allowing Chinese companies and their workers to get access to capital.  Do the union membership know their money is going to Chinese businesses? They would also be interested to know how much gets invested in the USA and how little in Canada.
Remember, those who can access capital get to grow their business. Investing Ontario teachers' money into Ontario businesses is actually the fairest investment. But when did "fair" be the pension's investment criteria? Would the teachers want their retirement money invested in OK companies or growth companies if it impacts on the amount they get for their retirement? You be the judge of that.

Private equity firms are glorified loan sharks

Private-equity firms are basically glorified loan sharks that take a hands-on management role in restructuring companies in return for a big cut. Sometimes it works. Sometimes it doesn’t. The biggest profits come from arriving on the scene when a target is weakest, and turning it around, but taxpayers can wind up paying for that in other ways, too.
Scathing condemnation, sweeping generalizations and hugely damaging misinformation for business owners. This article has it all. 
Read the full article here.

January 13, 2012

Advice to Mitt Romney on Private Equity

Private equity blackballing by the US media continues with Mitt Romney not exactly helping the cause. He recently commented that the 1% create wealth, yes, Mitt, with a little help from their friends - those politicians in Washington. It is the system that allows for this rigging of the system. Even a good, ethical Jimmie Stewart from It's a Wonderful Life would be altered to take advantage because of the system.
Crony capitalism is disgusting and it is destroying America.
The 99% have a right to speak up. They might not be articulate, but they are upset about something with the system. They have figured out that the system is rigged.
Quite right.
The middle class has plummeted. Life is not as good. When a New York mayor goes into office with $1B and then changes the law to stay past the usual 2 terms, and ends up with is it 50 times more cash, something is seriously wrong. When every New York cab driver asked me about how to move to Canada because they are sick of the corrupt mayor and the crony capitalism, when the Starbucks Manager near my hotel asks me how to become a Canadian, Washington, you have a problem.
Mitt, you need to see this pus-like boil of a problem because if you do not, you will not get to be President.
I am glad to be in Canada. My business club invited Stephen Harper to speak and he said he did not want to address Bay Street as it could be seen that he is being influenced by business. I was quite taken aback because we have Bob Rae and Michael Ignatieff grace our list of past speakers. Why not Harper? At the time that they spoke, Bob and Michael were running for office, not elected yet, so that makes sense. I have come to realize that Harper was right with his decision, and although Canada is slower than America, you get the sense that Canada is a fair place to do business.
So here is my advice to Mitt Romney:
Mitt, your Wall Street buddies might think you will roll things back to 2006 but don't do it. Clean up the US political Crony Capitalism system

Three misconceptions about USA economy that need to be put to rest

My investment group has a few sages and I was surprised by these three pieces of information given by one of the wisest members and wondered how accurate they were. 

For investment decisions, the biggest problem I see is a tsunami of misinformation. You can't have a rational debate when facts are so easily supplanted by overreaching statements, broad generalizations, and misconceptions. And if you can't have a rational debate, how does anything important get done? As author William Feather once advised, "Beware of the person who can't be bothered by details." There seems to be no shortage of those people lately. 
 Here are the three misconceptions that, according to my wise sage advisor says, need to be put to rest:
Misconception 1) Most of what Americans spend their money on is made in China.
Fact: Just 2.7% of personal consumption expenditures go to Chinese-made goods and services. 88.5% of U.S. consumer spending is on American-made goods and services.
I used that statistic in an article last week, and the response from readers was overwhelming: Hogwash. People just didn't believe it.
The figure comes from a Federal Reserve report. You can read it here (link lost - apologies!)
A common rebuttal I got was, "How can it only be 2.7% when almost everything in Wal-Mart  (NYSE:  WMT   )  is made in China?" Because Wal-Mart's $260 billion in U.S. revenue isn't exactly reflective of America's $14.5 trillion economy. Wal-Mart might sell a broad range of knickknacks, many of which are made in China, but the vast majority of what Americans spend their money on is not knickknacks.
The Bureau of Labor Statistics closely tracks how an average American spends their money in an annual report called the Consumer Expenditure Survey. In 2010, the average American spent 34% of their income on housing, 13% on food, 11% on insurance and pensions, 7% on health care, and 2% on education. Those categories alone make up nearly 70% of total spending, and are comprised almost entirely of American-made goods and services (only 7% of food is imported, according to the USDA).
Even when looking at physical goods alone, Chinese imports still account for just a small fraction of U.S. spending. Just 6.4% of nondurable goods -- things like food, clothing and toys -- purchased in the U.S. are made in China; 76.2% are made in America. For durable goods -- things like cars and furniture -- 12% are made in China; 66.6% are made in America.
Another way to grasp the value of Chinese-made goods is to look at imports. The U.S. is on track to  import $340 billion worth of goods from China this year, which is 2.3% of our $14.5 trillion economy. Is that a lot? Yes. Is it most of what we spend our money on? Not by a long shot.
Part of the misconception is likely driven by the notion that America's manufacturing base has been in steep decline. The truth, surprising to many, is that real manufacturing output today  is near an all-time high. What's dropped precipitously in recent decades is manufacturing employment. Technology and automation has allowed American manufacturers to build more stuff with far fewer workers than in the past. One good example: In 1950, a U.S. Steel  (NYSE:  X   )  plant in Gary, Ind., produced 6 million tons of steel with 30,000 workers. Today, it produces 7.5 million tons with 5,000 workers. Output has gone up; employment has dropped like a rock.
Misconception 2): America owes most of its debt to China.
Fact: China owns 7.8% of U.S. government debt outstanding.
As of August, China  owned $1.14 trillion of Treasuries. Government debt stood at $14.6 trillion that month. That's 7.8%.
Who owns the rest? The largest holder of U.S. debt is the federal government itself. Various government trust funds like the Social Security trust fund own about $4.4 trillion worth of Treasury securities. The Federal Reserve owns another $1.6 trillion. Both are unique owners: Interest paid on debt held by federal trust funds is used to cover a portion of federal spending, and the vast majority of interest earned by the Federal Reserve is  remitted back to the U.S. Treasury.
The rest of our debt is owned by state and local governments ($700 billion), private domestic investors ($3.1 trillion), and other non-Chinese foreign investors ($3.5 trillion).
Does China own a lot of our debt? Yes, but it's a qualified yes. Of all Treasury debt held by foreigners, China is indeed the largest owner ($1.14 trillion), followed by Japan ($937 billion) and the U.K. ($397 billion).
Right there, you can see that Japan and the U.K. combined own more U.S. debt than China. Now, how many times have you heard someone say that we borrow an inordinate amount of money from Japan and the U.K.? I never have. But how often do you hear some version of the "China is our banker" line? Too often, I'd say.
Misconception 3): America gets most of their oil from the Middle East.
Fact: Just 9.2% of oil consumed in the U.S. comes from the Middle East.
According the U.S. Energy Information Administration, the U.S. consumes 19.2 million barrels of petroleum products per day. Of that amount, a net 49%  is produced domestically. The rest is imported.
Where is it imported from? Only a small fraction comes from the Middle East, and that fraction has been declining in recent years. So far this year, imports from the Persian Gulf region -- which includes Bahrain, Iran, Iraq, Kuwait, Qatar, Saudi Arabia, and the United Arab Emirates --  have made up 9.2% of total petroleum supplied to the U.S. In 2001, that number was 14.1%.
The U.S. imports more than twice as much petroleum from Canada and Mexico than it does from the Middle East. Add in the share produced domestically, and the majority of petroleum consumed in the U.S. comes from North America.
This isn't to belittle our energy situation. The nation still relies on imports for about half of its oil. That's bad. But should the Middle East get the attention it does when we talk about oil reliance? In terms of security and geopolitical stability, perhaps. In terms of volume, probably not.

January 12, 2012

How to Pitch and Get Investment

Having a business innovation is easy: pitching to investors for funding is much harder.
Entrepreneurs, business owners, sales people and corporate innovators often do remarkable presentations to pitch their concept—only to be rejected by corporate decision makers or private equity managers who do not grasp the long term value. Why does this happen?
Having watched private equity managers who access business pitches, the person on the receiving end—the “catcher”—tends to gauge the pitcher’s competence at carrying through, as well as the deal. An impression of the pitcher’s ability to open up and discuss the business in detail will quickly overshadow the catcher’s assessment of the value of the deal. In other words, if the pitcher can work with others, the deal moves forward. If there is any hint of resistance to team input, the deal is dead.
Having interviewed many private equity managers, there are patterns for those judging business opportunities.
Catchers subconsciously categorize successful pitches as show runners (smooth and professional), experts (quirky and unpolished) and neophytes (inexperienced and naive).
Research also reveals that investors tend to respond well when they believe they are participating in developing the business going forward. As Jacoline Loewen, a private equity expert, recommends, “ CEOs pitching their business should pull back and encourage comments on the business. Then use these comments to build on the Private Equity manager’s comments to make them feel they are adding to the future plans.”
To be successful pitching, whether marketing ideas, sales innovations, a start-up or a mature business, portray yourself as one of the three creative types – show runner, expert or neophyte. Then engage the catcher in a discussion where their views are discussed and integrated into the plan going forward.
By giving catchers a chance to shine, you sell yourself as a likeable collaborator.
You can Google back programs of The Pitch on BNN and watch how the private equity investors either warm to the pitcher or shut them down. See if you can categorize the pitchers who do achieve the thumbs up from the private equity panel. You will see they fall into one of the three categories and that they embrace comments enthusiastically and open up to ideas.

January 11, 2012

Jacoline Loewen on the three steps to create value

As financial advisors, our focus is on companies in the lower middle market. This typically means companies with annual revenue between $15 million and $75 million. Since the smaller revenues, mean less room to do financial engineering, our strategy for value creation is different.
We, by contrast, base our value-creation strategy on three elements:
1.      leadership development,
2.      enterprise improvement and
3.      growth. 
From our experience, we know that if we accomplish the first two, growth usually results. Even if it doesn’t, such as during the recent recession, significant value can still be created.
Good leaders make good companies. It is not required that our leaders have a long track record of success. We can support them in accomplishing that. What is required is that the leaders possess the personality traits and capabilities that are required to realize the vision of the company. The leadership for the Post Office is different from Apple. For a less extreme example, if the success of a company hinges on continually developing creative, new products, then the leader of that company must possess a personality and leadership style that fosters ideation and creativity. By contrast, such a leader likely would not be effective if they needed to streamline manufacturing processes. Good “fit” of leadership is paramount.
Be sure you have the right team in place. Do a critical and honest analysis of your senior leadership relative to the company’s needs, and adjust accordingly.
If you are the owner and at the center of most activities, this may mean firing yourself.
Owners who realize they are the biggest block to growth and have the ego to hire a CEO will be far more likely to find greater wealth within the next five years.
One of the elements we look for in an investment is the ability to evolve the enterprise. If accomplished, this also will create value without the need for growth. However, when coupled with growth, the value creation is multiplied. Enterprise evolution, typically, is accomplished by harvesting one or more of the following:
Strategic planning. For us, the strategic plan is the cornerstone of enterprise improvement. It is not a just a budget. It sets the management team’s vision.
Sales and marketing. This is an area that often can be improved. In our experience, a majority of lower middle-market companies have not invested sufficiently in this area.
Systems. Often there is an opportunity to evolve an enterprise by improving or replacing systems, including accounting, ERP, oversight, reporting and accountability.
Asset utilization and balance sheet. In lower middle-market companies, there almost always is the ability to improve and create value through better asset utilization and balance sheet focus. This may include using a return on investment framework for capital budgeting, as well as basic items such as improving accounts receivable, accounts payable and inventory turns through focus and technology.

If you are able to accomplish some or all of the leadership development and enterprise improvement initiatives described in this article, you will create value irrespective of business cycles. Even better, you are likely to also create growth.

Jacoline Loewen is a Director of Loewen & Partners Inc., an Exempt Market Dealer, specializing in finance for owner operators and family businesses, specifically acquisitions, restructurings, sales, successions, strategy and private equity financing.
Jacoline began her career with Granduc Mines, Northern BC, and then Deloitte in their strategy unit. She developed a strategic planning model and published it in a book called "The Power of Strategy”. She also wrote "Business e-Volution" and “Money Magnet: How to Attract Investors to Your Business” (Wiley), which has been used by Ivey as a text book.
She is a Director on the Board of the Exempt Market Dealers Association (EMDA) responsible for brand and communications. She is on the advisory board of DCL International, Bilingo China and Flint Business Acceleration. She has been a Director for other Boards such as the Strategic Leadership Forum.
She is a regular panellist on BNN: The Pitch, a contributor to the Globe & Mail and National Post, serves as a judge for the UBC and the Richard Ivey School of Business’ Business Plan Competitions and is a guest lecturer at Ivey and Rotman Universities. Jacoline holds an arts degree in Industrial Relations from McGill University and a MBA from the University of the Witwatersrand.  Her MBA thesis was selected by Cambridge University and published by Cambridge’s Engineering faculty. 

January 10, 2012

Joe Oliver speaks up for the environment

There is no hope of reasoning with so called environmental groups protesting the pipeline from Alberta to Kitimat.  Joe Oliver is exposing these groups and their malevolent corruption as reported in the Financial Post.
I worked in northern BC for ESSO and Granduc Mines and was grateful that the generous salary that paid for my university and my trips to Acapulco at spring break. These mining companies built good homes, rec centers, schools and  a hospital; they even funded a museum. (My town looked just like Deadwood's set, minus the Gem Salon, but with a more sedate hotel.)
The nature in Northern BC is immense, stretching forever with few humans living there. The mine road, town and mine itself took up little space and now, if you look at Google Earth for Stewart, you will see nature has taken back much of this development. That reversal back to overgrown forest took my lifetime.
So it was crazy to me when people in Toronto would tell me they were against ESSO and Granduc as they were exploiting the land and the people. I could not understand why they would belittle my father's living, mining for the very minerals in their phones and computers. Their words about pollution and strip mining just did not match my reality where I did not see that story line beloved by Greens.
Maybe they were watching too much TV, I do not know.
I do know that at a speech by Enbridge's CEO, a smart man stood up and voiced concern about the wilderness of BC. He had been fishing there and was concerned an oil spill would affect the people's only livelihood. I shook my head because just a few decades ago, the area had employment opportunities for aboriginal people in Granduc. Then the BC government listened to the environmental movements and shut down any mining development, leaving many men of my father's generation to rot away late in their careers.
We need to speak up for politicians like Joe Oliver who have the guts to point out these activists, their sourcing of money (US), the hypocrisy of these Hollywood stars like Cameron who has massive homes and uses energy like a gushing water pipe to make his movies and let us not even add in the energy used by audiences to watch these films. If Darryl Hannah does not like development, go live in Zambia or Zimbabwe. 
In the Financial Post article, there were many comments that agreed with Joe |Oliver and I liked this one:
You can not convince these environmentalist, city dwellers that the Gateway Pipeline is a benefit to Canadians. They are not interested in where we sell our oil, if we create jobs or grow the economy. They do not care if we become a less competitive country with a lower standard of living. They do not care about the significant advances in technology that monitors and prevents spills and other problems with pipeline transportation, the safest mode of oil delivery today. But they fear environmental damage from a pipeline based on partial or unsubstantiated information they have been fed by various sources. 
How do you reason with people who won't listen or learn?

Jacoline Loewen on the defense of Private Equity

At a recent advisory board meeting, one of the Directors made the comment about how the company owner did not want private equity as it would strip the business assets and destroy the employees. I was shocked at this short sighted view, particularly as this very same Director was doing a JV with a German company with a 50% partnership and was familiar with the benefits of working with financial partners.
How did Private Equity get to this position? What happened?

In 1980, approximately $4 billion was invested in private equity in the USA. Today, that number is estimated to be over $600 billion. Canada has followed a similar, but smaller, trajectory.
Many of our great companies and iconic brands were founded with private equity investment and partnering including: RIM, Opentext, IMAX, Skidoo, Four Seasons, Mastermind, Flickr, Apple, Sleep Country, Harveys, Rogers, Cirque duSoleil and Lululemon. Many private equity individuals and firms have generated very large and highly publicized returns on their investments. They have made it the Billionaire's Lists.
The visible, monetary success of private equity was met with some general concern, skepticism and, perhaps, envy from the business community and seeded the pervasive negativity of today. These attitudes were then heightened by the sometimes-questionable and widely publicized practices of mostly American well-known private equity professionals like Michael Milken of Drexel Burnham Lambert, who drove tremendous merger and acquisition activity with junk bonds, T. Boone Pickens generating fortunes with greenmail, and Carl Icahn’s ruthless corporate slashing. 
In Canada, Vengrowth’s Labour Fund rise and fall was not helped by the perception that management had taken a huge fee for themselves, and lived the high life in mansions, while not giving the promised returns. I heard a top journalist lumping all of labour funds and private equity with Vengrowth. 
It is very unfortunate that the journalist put the term “private equity” into a negative business view which flows through to the public’s dialogue. It is hardly surprising then that the bad apples of PE spoil the reputation for private equity that has done very well. Bermingham Construction, Hamilton, was only able to get private equity, not bank finance, and then able to grow to a significant size. This growth would have not happened with bank debt.. 
The public’s concern about private equity was cemented during what Carlyle’s founder, David Rubenstein, called the golden age of private equity, from 2003 to 2007. These years saw unprecedented levels of investment activity, investor commitments, debt deployment and the formation and growth of thousands of private firms and companies that support their investing. During that period, 13 of the 15 largest buyouts in history occurred, and three of the largest private equity firms went public, creating tremendous wealth for their general partners. 
During the golden age, many owners of small- and middle-market companies, and much of the public, started considering private equity investors to be greedy abusers of debt, willing to do whatever is necessary to generate a quick return, even to a company’s detriment. Unfortunately, that perception was not unfounded. Fortunately, there are many great private equity firms that do not operate that way.
Private equity is like many industries (and political parties) where a highly visible portion sets the public’s perception of the whole. There are, in fact, many private equity firms that don’t fit the stereotype, and they can be great partners to business owners and management teams.
Reputable private equity firms focus on creating returns though growth and improvement of the companies they invest in. They develop transaction structures that align their needs with those of the selling parties, as well as the company and its employees. They use appropriate leverage. They develop well thought out incentive plans for company leadership and employees. They support management in developing and executing a strategic plan that will satisfy stakeholder expectations and realize the company’s full potential. They bring resources to bear that the ownership and management wouldn’t otherwise have access to. Finally, they are valuable sounding boards and guides. 
They add value.
Don’t assume all private equity firms — or corporate finance advisers for that matter — are the same. If you are considering a transaction, talk to an exempt market dealer, like Loewen and Partners to point you towards those private equity partners with the track record and who make great partners. They definitely exist.

January 9, 2012

Banks leave their debt business to the ABLs

The Banks are turning more to low risk business, quite understandably so. Wealth management will be the big winners over the next five years. The question will be what happens to private equity if the banks will not be as accessible with debt lending?
Some experts are saying the golden age of private equity is over because of the decline in bank interest in lending.
Over the past few years, we have seen that banking is getting eroded by - you guessed it - private equity in the ABL business model design. What ABL does is do asset-based lending which is what banks used to very well but it takes up too much time to manage the risk assessment. Remember, the big banks have moved beyond that tailor customizing the suit for the quirks and foibles of the one entrepreneur. Big banks are mass manufacturers of financial loans. The riskier business owners have had to look elsewhere for loans that are more expensive than the banks, but will fill the gap to serve that larger client.
Canada's ABLs have been having a bumper couple of years as they bring their customized loans forward to serve Canadian businesses needing financial support. From my experience with the ABL business, it is a good alternative to banks and the people working with the business owners are far more mature than the bank employees. I also give the ABL industry a huge round of applause for making Canadian businesses more competitive by shoring up worthy companies when the banks would not. Again - the banks are right as these are higher risk loans.
Europe is in a far worse situation than Canada and Danial Shafer at FT points out GE's growth as PE struggles to find loans to help them fund their activities because the banks have shrunk their debt business.
Private equity groups in Europe are increasingly turning towards asset-backed loans as they look to fill the financing gap left by retrenching banks.GE Capital, one of the largest pan-European providers of such loans, is forecasting a wave of asset-based lending deals in 2012 after this year saw such financing becoming more attractive to buy-out groups.The lending arm of US conglomerate General Electric said financing facilities given to private equity backed mid-market companies had shot up to $1.3bn in 2011 from almost zero in the year before.Stephan Caron, chief commercial officer in the UK, said he expected asset-backed lending to grow further next year as GE Capital’s pipeline of deals had approached the size of this year’s financing facilities.