Good private equity funds still attract large investments

Some private equity firms may be having problems fund-raising but don't tell that to Berkshire Partners.

The eighth fund of the Boston-based firm is clocking in at $4 billion, three sources said. Berkshire Partners, which only began fund-raising in late January, is expected to announce a first close in the next week, a source said.

A final close for Berkshire Fund VIII LP is seen coming 60 days after. "There was massive interest," a second source said. "This is one of the must-have funds of 2011."

The firm's prior fund, Berkshire Fund VII LP, closed at $3.1 billion in 2006. The one before that collected $1.7 billion in 2002. Fund VII had generated a net IRR of 6.9 percent as of September 30 for backer California Public Employees' Retirement System, while the sixth fund had produced a net IRR of 23.2 percent.

Berkshire Partners, which pursues leveraged buyouts, growth capital deals, take-privates and related transactions, typically invests between $50 million to $500 million equity per deal. Sectors of interest include consumer products, retailing, business services, transportation, energy as well as manufacturing and communications.

Last week, Berkshire Partners recapped Engineering Solutions & Products, a government services provider. In January the firm teamed up with Rhone to make a minority investment in Coty, the beauty company.

While private equity fund-raising is rebounding this year, firms have been taking longer to close their funds. The Gores Group took about 18 months to collect its third fund, which came in at $2 billion. EnCap Investments spent an estimated nine to 10 months raising $3.5 billion for its eighth upstream energy fund.

Watch how you present yourself to Finance types

Teaching Growth at Rotman University, to the top entrepreneurs of Canada is a privilege and I enjoy it greatly. Yet, I was stunned when one of the $3M revenue business owners chatted with me.

“I have to get some money. How do I get some money?” that was the opening sentence to me. She put on a cute, begging face – my kids used to do that to me when they wanted to go to MacDonalds and get the kiddie meal with a toy. 

She said, “I am so disappointed with the banks and BDC, they will not give me a loan. I have been a client of theirs for years; I wrote them a letter giving them a piece of my mind. What do I do with finance people like that who just do not get it?”

I was exhausted before we even began. 

This business owner had a copy of my book, Money Magnet, on the desk in front of her, yet had not flicked through it before speaking with me. Even one page would have given her more of a clue how to connect to finance people. For her, it was all about her and this ghastly situation for her. She may have realized that her company was actually attractive to Angels as she has good cash flow. She is also passionate about what she does. Double points.

Business owners talk like this to finance people who have access to a great  network of potential investors. This owner had given me a huge message about her style. Why would I put Loewen Partners' reputation on the line by making a call? If I did that favour, pretty soon, no one would pick up my phone calls. I asked her if she had a business plan. Nope. An income statement - maybe. OK, now we were making positive inroads.

As I probed, I could see she had a viable business and would be attractive to the right fit of investor. Since I work with $20M revenue companies and up, she was too much of a "can you do it for me?" type, for me to make any revenues and she would be too tough to mentor. I doubt she would ever touch my book again.

 Pass!

Instead, she could have opened with a few sentences (after describing her revenues and market) that would have caught my attention. Any of these would have made me see she had built and sustained a good business. Any of these door openers would have kept the conversation flowing because they are positive and business smart:

Conversation Openers with Finance Experts

1.      I have a great Business Model – We do loans for plastic surgery and I have been in business since 1998 and been profitable every year with strong cash flow. Our business has grown by 20% each year.

2.      We have a stunning Revenue Model – we have Margins of 60%. With another $200,000, I can add 2 more sales reps which drives the growth. I am looking for an Angel interested in financial services, near to Markham.

3.      There is Competition, like credit cards or the banks.

4.      Key Differentiating Feature – we have close links to the top 10% of plastic surgeons. So we make sure the client goes to good surgeon who also gives us a good price.

5.      Unique Selling Proposition- Secret Sauce – we are niched, focussed on plastic surgery.

6.      Addressable market – Can give the plastic surgeons a referral fee to advertise us on their websites and draw in clients.

BNN The Pitch - 5 Typical Questions

"Before I go on The Pitch," says Jacoline Loewen, "I get a one page outline about the company that is seeking the capital.  This brief summary will sprinkle clues throughout the description about how ready the owner is to get financial investment dollars. Typically, I like to give the outline a run through my standard framework which I detail in my book, Money Magnet."

As a business owner, you could discuss these at your next business meeting with your team. Try one question a week and you are now doing strategy extremely well:

6 Questions to Grow Your Business

1.     What has changed in our industry (e.g. impact of Asia) and why is it now the time for a company like ours?

2      How are we different from the competition - our processes, our product?

4.     How is our customers' environment changing and what new pain does it bring? 
     Are we focussed on how our company is stepping in to help soothe that pain?

5.     Will this pain be enough to get customers to switch to our offering?

6.

The Pitch

thepitch@bnn.ca

The Pitch is an exciting new weekly show from Business News Network that hooks up Canadian entrepreneurs with the risk capitalists who are sitting on the real money... the money that brings ideas to life.  During the program, start-up entrepreneurs or companies seeking to take their business to the next level will sell their business idea - and the amount of cash needed - to a panel of tough financiers and experts.  The panelists will either give the pitch the green light or send the dreamers back to the drawing board.  It's a fast-paced half-hour hosted by BNN's Andrew Bell. And it's 100% live, giving viewers a chance to see how the entrepreneurs perform in a high-pressure atmosphere.

Wednesdays at 11:30 a.m. ET / 8:30 a.m. PT

Join the Debate - Canada Has Missed the Boat to Asia

What's happening - Ivey Debates: Canada Has Missed the Boat in Asia on Tuesday, May 3, 2011, 6 to 8:30 p.m. at First Canadian Place Gallery, 100 King St West, Street Level, Toronto

What we provide - Debate of the Year between a CTV anchor, a financier, a corporate strategy officer and a management consultant with Ivey Asia Dean/ Former Sun Life China CEO as the moderator. It is an event to be filled with great insights, business opportunities and funny comments! 

What you need to prepare - Sharp questions, healthy appetite (for drinks and hors d'oeurves) and a mood for networking with high profile alumni!

Ivey Debates: Canada Has Missed the Boat in Asia, a question raised by Dean Kathleen Slaughter's November 2nd statement in the Global & Mail newspaper: "Canada Has Missed The Boat in Asia."

Featuring:

• Andrea Mandel-Campbell, CTV Anchor, Journalist and Author of 'Why Mexicans Don't Drink Molson'
• Jacoline Loewen, Partner, Loewen & Partners Inc, panellist on BNN The Pitch, author of Money Magnet: Attracting Growth Capital to Your Business
• Dev Srinivasan, Vice President Strategic Initiatives for Capital Markets, BMO and Ivey 2010 Emerging Leaders Award Recipient
• Gordon Perchthold, Managing Partner, The RFP Company
• Moderator: Janet De Silva, Dean of Ivey Asia and Former Sun Life China CEO

Are Canadian corporations soft, complacent and overly protected or have the examples of Bombardier, Manulife, and RIM demonstrated that Canada can effectively compete in fast paced, high growth Asia?

Registration

• IAAT Supporter*: $20 ($22.60 HST)
• Current Students and Recent Grads (2010/2011)**: $20 ($22.60 HST)
• Renew for or become an IAAT Support and attend this event - for alumni who graduated in 2009 or before: $70 ($79.10 with HST)
• Renew or become an IAAT Support and attend this event - for alumni who graduated in 2010 or after: $50 ($56.50 with HST)
• Ivey Alumni: $40 ($45.20 with HST)
• Non-Alumni: $50 ($56.50 with HST)

* Find out more about IAAT's Supporter program by going to http://iveynetwork.ca/toronto/supporterprogram/

Strategy planning process keeps the business going

"A Business Plan," is a very broad idea. 
When I ran the strategy process in a big business, I did several plan-budget things every year from department to division to business unit. In one sense these were all a lot of hooey - the ink would still be soft when the first 15% was being changed. Some of that was stupidity but as it turns out, most of it is what "planning is all about. The planning success was the process because it kept everyone focussed on who is the target client, what do they want to see and how could you help them do their work better. The quick analysis done around what was the business offering that competitors could not, is almost a subconscious check on getting done the essentials to delight the customer.
In a finance business I have worked with for the past 16 years, I look back on its strategy-the early plans-and remembered how I did have to force the managers to go through a strategy process. At the time, some entrepreneurial types laughed at their irrelevance.  
"What did it matter to know we were not trying to be everything to all people?"
"What is the point of having three objectives to achieve this year?" "And how can you set just three that apply to everyone?"
The strategy process chewed over the amount of money they needed to keep in their piggy bank to ensure survival through the black swans. Back then, the governments were dropping the level of reserves required and there was political pressure to not red ink "no lend zones" for real estate. The bank was accused of not wanting to do deals as they refused to do the derivatives and swaps every other bank was now allowed to do with the reduced legislation.
Although they grossly mis-timed and mis-sized the recession, recovery is strongly underway. When I recently hosted the head strategist for this bank which is now global, he talked about the discipline of having a formal, tough process of doing a one page plan even. The process is what made the company conversation keep going back to sanity during the go-go years. He said to me that those old, goofy plans are priceless.
I wrote a book called The Power of Strategy about the process I used. It became a best seller and is still available on Amazon.