Ivey Business Plan competition shows that investors like female businesses

Rick Spence captured the comments given at the Women Entrepreneurs of Canada conference (WEC, is run by Carrisa Reiniger) and one thought was that male investors do not get women's businesses and do not invest. I have personal experience that shows me that assumption is so 90's, but no long relevant in 2010. In fact, Loewen & Partners raised capital for the female led day care firm, Kids & Co, and it does not get more estrogen laden than that. I did notice at the time that the male investors did not even twitch an eyebrow at gender or business focus. After all, as one of the male fund managers said to me on my question about the relevance of gender, "Lululemon is one of the biggest Canadian private equity success stories out there and it is a female product company."
I wrote a letter to the National Post to comment because, honestly, it bothers me when entrepreneurs hid behind some "victim" stereotype instead of facing their brutal facts that they are not clicking with investors because their business is simply not sustainable. If these female entrepreneurs faced the brutal truth, they would be able to adapt all the sooner and go on to get the money they deserve.
For full article: http://bit.ly/whogetsvcmoneymore

Reluctant Partners, Feb. 1.

At the start-up stage, if you look at the Ivey Business Plan competition, for the past two out of three years, a female lead team won. This competition is judged by Bay Street's toughest investors. A female team that did not make it to the finals, Peer-FX, went on Dragons Den and won a deal. That female leader is still in business because she is good at what she does. I wrote an article at the time and asked her about being female in business. I was not surprised when she said it is just not part of her thinking.

Whether you have a uterus or testicles, investors want to know how much money you will make, when will they get their money back and will it be more than if they put it in a blue chip stock in the stock market? If you can show you can give that potential, you will attract investors. End of story.

Barbara Orser, professor at Carlton, has done research to back up these points and says only entrepreneurs who start robust, high potential businesses will get the money.

I do agree that it would be good for women to network and support each other more.

Jacoline Loewen, Loewen & Partners Inc., Toronto

Read more: http://www.nationalpost.com/opinion/story.html?id=2538961#email#ixzz0f9NoetUr 
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And how is the Canadian economy doing?

"When we see government stimulus end and the private sector to walk on its own two legs, I will feel a lot more confident," says David Rosenberg, Chief Economist & Strategist, Gluskin Sheff + Associates Inc.

David spoke at YPO Leadership conference and gave the strong message that he is looking for sustainability. For investors, the market is being driven by government stimulus. This is the reason he is a bear on the US equity market. Canada is different as it is financial and commodities only, so much less of a diverse market. Resources have driven up the value of the Canadian dollar.

Look for multinationals who can benefit from the weaker Canadian dollar - those with Chinese and Indian businesses.

Posted by Jacoline Loewen, author of Money Magnet. See Financial Post video interview.

What do you think of upfront fees?

The Private equity and Venture Capital Group has been running the longest discussion on Linkedin on the hot topic of paying up front fees for capital raises.
Here is one comment that caught my eye"

I've worked with the CEO's and BOD's of many companies in their efforts to raise series A, B, or C capital. The issue of upfront fees normally arises when efforts to raise angel or VC funds have been exhausted and companies reach out to the alternative capital markets. As we all know during the last 18 months the traditional sources of capital have become scarce.In the alternative capital markets, it is common practice for the investment finders to charge upfront fees and generally these are large sums before beginning any work.

That being said, I have recently, through close long-term contacts in the VC industry, been introduced to an investment capital finder who does a great job raising capital and unlike investment capital companies like Bain, Goldman and others who charge large upfront fees. Loewen & Partners does not. 

Rather they  take a strategic partnership approach with company CEO's who have a business model they think can be executed successfully by charging a modest monthly cost share during the capital raise period. They don't want to make money on the front end but rather taking a strategic partnership approach with their clients, money is made on the back end of the deal when the capital closes escrow.

Loewen & Partners' business model makes complete sense to me as a outsider and business person. They have some skin in the game utilizing staff to zero in on sources of capital that would be a good match with the entrepreneur's business model. And with the cost share model , the entrepreneur has skin in the game preventing him/her from window shopping for money and then just walking away when the capital sources are brought to the table to negotiate the terms sheet. 

In my opinion, If you can find a similar capital finder who will do a cost share approach during the raising period, rather than charge large up front fees, you will have a win/win approach in raising your capital needs.

Peter's Question

“If the company disappeared, would it be missed?”

This question was posed by the thoughtful Peter Barlas, a portfolio manager at KJ Harrison, a company that invests high net worth individuals’ money. Peter was taking us through his logic in picking companies for this next stretch of market which is going to have "S" curves with oil slicks galore. 

If you want to know his stock picks, which I thought to be shrewd, you can get hold of him at KJ Harrison.

Now, what about you, what companies would you miss? Philip Lieberman, KJ Harrison, told me he would miss Gillette, but not Crate & Barrel, which is why retailers are falling from favour currently. For me, Apple would be a big black hole; their podcast feature alone has changed the way I get information.

If you are considering attracting money to your business, Peter’s question is a good one to ask each and every day. Would your company be missed? If not, why not? What would be the much requested features? That could add to your valuation.

What happens to companies with private equity?

Financial Post's John Turley-Ewart discusses private equity with author and entrepreneur Jacoline Loewen.

Watch the video
http://www.youtube.com/watch?v=nnfT3110upo&feature=related

Family businesses can grow to become major forces in their economies.

It is tough to keep a family business in the hands of the family, yet there are options. Private equity likes family businesses as other companies prefer doing work with them and customers like the feel of a family brand over a corporate one.
Very few large family businesses thrive beyond the third generation. Those that do, find ways to run themselves professionally while making the family happy. Private equity can play a huge role in keeping family legacy but the business moving forward profitably.

McKinsey and Co did research on how family businesses have managed to evolve and survive in various countries.

In advanced economies, as well as in emerging markets, most companies start out as family-owned businesses. From their humble beginnings, driven by entrepreneurial vision and energy, some have grown to become major forces in their economies. Indeed, this still happens not only in emerging markets, with their chaebols in South Korea and grupos in Latin America, but also in North America and Europe, where relatively young family-owned businesses such as Wal-Mart Stores, Bertelsmann, and Bombardier, to name just a few, have become front-runners.

But family-owned businesses—companies in which a family has a controlling stake—face a sobering reality: the statistical odds on their long-term success are bleak. In fact, a number of studies, taken together, suggest that only 5 percent continue to create shareholder value beyond the third generation. This statistic should come as no surprise, given the business challenges any company faces in increasingly competitive markets, to say nothing of the difficulty of keeping growing numbers of family shareholders committed to continued ownership. One kind of risk for these businesses comes from the generations that follow the founder, whose drive and business acumen they might not match, though they may insist on managing the company.

Jacoline Loewen, partner, author of Money Magnet, How to attract investors to your business.

Top 50 CEOs list has only 15 out of 50 MBAs - what gives?

The MBA does bring a great deal of value in taking you to the next level in thinking and giving you a instant network of equally competitive and performance driven people. It is always worthwhile revisiting the objective of obtaining an MBA. Is it to get you on the top 50, highest performing CEO list or to give you an introduction to management? 
Roger Martin, Dean of Rotman, is one of the leading edge leaders of business schools, I believe, and we are lucky to have him here in Canada. In the USA, here are thoughts on the MBA by one of my favorite out of the box investment advisors - Check out Clemens Kownatski' blog for more:

MBA Reality Check: "Harvard Business Review just published: The Best-Performing CEOs in the World

Very interesting to see who is on that list and even more interesting to learn what their backgrounds are.  As a Business School graduate, I often wonder about the merits of an MBA degree, considering the time, effort and substantial capital that went into the education.  Going through the list of  Top50 CEOs, I noticed that only 15 out of 50 (less than a third) had a formal business education.  Although I still consider business school one of the best investments I ever made, one has to wonder what these Non-MBAs know that isn’t taught in business school and whether or not that skill can be taught at all? Next time you consider an investment, you may wonder what makes people like Steve Jobs such an “out of the box” thinker; perhaps the same thought process could be used when analyzing your next investment."

You can read more by Clemens Kownastski's latest issue of Market Insights, also available at: http://fxinvestmentstrategies.blogspot.com/

As always, please email any questions to Clemens at: info@fxistrategies.com.

Financial Post interview with Jacoline Loewen: http://bit.ly/8bDKmJ

The new way of investors partnering with owners

Our research with the owners and CEOs of private companies and their private equity partners illustrates that there are three leverage points for investors to impact the trajectory of the business: 

1. Strategy and strategic contacts, 
2. People, and 
3. Execution. 

Loewen & Partners provides investors with a window of meaningful involvement in a portfolio company that goes far beyond the typical boardroom interaction. It allows a private equity partner to rapidly come up to speed on the key issues within the firm and help leverage the potential of the firm.

Click on who we are to get some background on our partners. To explore the RED™ process in detail, go to what we do.

Family-owned companies run by eldest sons tend to be managed relatively poorly.

"I do not want to hand him the business yet, as he is only 28 years old. Yet, I do need to retire and get my money out of the business. I'm only 47 years old," said this owner of a large business at a YPO dinner in Yorkville last night.
She shrugged, "Too bad that he cannot have the company but I am not ready to hand it over."
This is how the Queen must feel with Prince Charles wanting to take over the throne; he is simply not ready or competent enough. As I chatted with this entrepreneur and mother about her succession plans, she expressed her frustration. Despite having her eldest son running her business, I sensed she, like the Queen, did not respect his ability to take the ball and run with it.
"Succession planning is my biggest issue. All my money is tied up in that one business. Can you imagine that?" she worried.
Yes, I could.
I see it all the time. Owners do not know their options available. Meanwhile, they jeopardize their entire family wealth. McKinsey and Co have researched the results of handing family businesses to elder sons and the results should make this mum stop, "gulp" and take another look at using private equity.

Family-owned companies run by outsiders appear to be better managed than other companies, a study finds, while family-owned companies run by eldest sons tend to be managed relatively poorly. Moreover, the prevalence of family-owned companies run by eldest sons in France and the United Kingdom appears to account for a sizable portion of the gap in the effectiveness of management—and perhaps in performance—that we observe in their companies relative to those of Germany and the United States.

These findings come from a study of more than 700 midsize manufacturers in France, Germany, the United Kingdom, and the United States. The study, conducted by McKinsey and researchers at the London School of Economics,¹ looked at the quality of key management practices relative to performance metrics (such as total factor productivity, market share, sales growth, and market valuation) and found that they are strongly correlated.² On a scale of one to five, with five being the highest, US and German manufacturers scored best on these metrics (3.37 and 3.32, respectively), while French and UK companies scored worst (3.17 and 3.09).³

Which are better - public or private boards?

Advocates of the private-equity model have long argued that the better PE firms perform better than public companies do. This advantage, these advocates say, stems not only from financial engineering but also from stronger operational performance.
Directors who have served on the boards of both public and private companies agree—and add that the behavior of the board is one key element in driving superior operational performance. Among the 20 chairmen or CEOs, McKinsey & Co. recently interviewed as part of a study in the United Kingdom,1 most said that
PE boards were significantly more effective than were those of their public counterparts. The results are not comprehensive, nor do they fully reflect the wide diversity of public- and private-company boards. Nevertheless, our findings raise some important issues for public boards and their chairmen.
When asked to compare the overall effectiveness of PE and public boards, 15 of the 20 respondents said that PE boards clearly added more value; none said that their public counterparts were better. This sentiment was reflected in the scores the respondents gave each type of board, on a five-point scale (where 1 was poor and 5 was world class): PE boards averaged 4.6, public boards 3.5.

5 Tips to attract more revenues to your business

Wanting to attract more money to your business? Add on consulting.

Developing a consulting suite of skills has many side benefits, one of these is getting to know your client better. At the private equity firm, Loewen & Partners, the economic downturn - OK, cliff dive - meant they had to look for revenues elsewhere. Loewen & Partners had the blueprint on how to raise money for businesses but more than that--they knew the strategy required to achieve growth once businesses got their big payment. This was a scarce skill set, particularly with Canadian companies lulled into complacency by being next to the world's best market--America.

Since expanding into consulting services, Loewen & Partners has been impressed with how their client relationships have deepened and they have been able to push the growth strategies developed at the time of the capital raise. The best part is that the firm no longer has to be a transaction driven corporate finance expert. They get to stick around and be the high integrity, results-driven relationship that they always wanted.

Here are some of Loewen & Partners’ tips:

1. Design daring documents. You're charging consulting clients a pretty penny for access to your blueprint for success. That blueprint better be detailed, adaptable and actionable.
2. Speak to your current relationships. To uncover consulting prospects, make it a habit to ask clients to stick their necks out for you and make some introductions. When beginning, consider charging clients below-market rates in exchange for referrals.
3. Exploit internet connections. Social networking, blogging, Linkedin Groups are valuable, low-cost vehicles for spreading the word about your consulting service.
4. Tune in to opportunities. Train yourself and your sales force to listen to clients and prospects to spot opportunities to bring up your consulting services when a situation warrants.
5. Boomerang back frequently. Don't leave implementation of your recommendations to a client to chance. A positive outcome is critical, especially for a fledgling consultancy in need of glowing references, so stay in touch with clients to be sure they are continuing to execute the plan you put in place. 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Sellers of businesses seeing the last of private equity

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

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

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

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

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

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

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

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

7 Habits of Investors in Inefficient Markets

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

Movers and Shakers in VC Circles

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

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

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

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

Read more

How would you learn from your lousy leader?

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

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

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

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

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


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

The key reason for private equity's success

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

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

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

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

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

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

How Private Equity is using Social Media

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

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

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

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

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

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

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

Succession Planing sounds easy - it ain't

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

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

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

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

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

The six key steps for efficient succession are:

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

Is offshoring good or bad for Canada and why?

If offshoring going to wind down our economy and hollow out our skills? I asked Paul Hogendoorn, owner of OES manufacturing and here are his comments:
"It is a necessity, but it must be done wisely. I have seen a number of companies offshore much of their manufacturing requirements, but end up greatly weakening their product development capabilities. When you no longer buy many components through distribution, the technical support routinely delivered by those companies dries up. The engineering department loses valuable resources. New technologies come along and the company no longer has the ability in-house to pursue and develop them. No one can, or wants to design or build the prototypes, or suggest the best new components or methods, or assist in anyway. (There's nothing in it for them."
So, offshoring usually leads to lower production costs in the short term, but done wrong, it also leads to reduced competitiveness (and even viability) in the long term.
A successful formula used by some companies is to offshore production when it becomes mature production, and keep leading edge production here until it becomes mature (and you are working on the next).That way, your engineering and product developments stay healthy and adequately supported by the leading manufacturers and distributors.

So we can stop panicking...

Firms run by private equity companies have been more productive in the recession

Looks as if the private equity model of growing businesses pays off with its extra alignment of interests. Factual article on the British PE scene:

Firms run by private equity companies have been more productive in the recession. The claims by the British Private Equity and Venture Capital Association (BVCA) were based on results from a portfolio of 47 major companies including Alliance Boots, New Look, Travelodge and CenterParcs. Based on results for 2008 and the year to March 2009, the firms' average productivity reached 7.7%, "significantly in excess" of the average 1% UK rate during the same period. The association's second annual report, which comes under new transparency rules for the buyout sector, said average annual profit growth was 11%, although employment levels fell after acquisitions were taken into account.

BVCA chief executive Simon Walker said the figures were "promising" given the bleak conditions. But he added: "While the profit and productivity growth figures are testament to private equity's focus on portfolio management through the recession, the economic outlook remains uncertain.

"Private equity-owned companies are not immune from the continuing recessionary pressures."

Read more.

Perplexed by the stock market rally off the March bottom?

The stores this year have far fewer Christmas wreathes and decorations and since I am not a shopper, for me to notice that means there is a big cut back in retailing to this holiday season. Is everyone tightening the belt a few notches or is the recession finally over? Have the retailers estimated potential sales below potential? I suppose it depends on whether you are a bull or a bear. Here is the email I received from Lynn Lewis, Sr Wealth Advisor, ScotiaMcLeod, and I think it gives a very practical view from John Gudritz and Jason Tank from Front Street Investment Management.

Here's a Market Review worth reviewing:
It is fair to say that we are perplexed by the huge stock market rally off the March bottom. The bulls believe the market is just “climbing the wall of worry” as it always does. The “walls” we see are more than just worries. These walls are long-term structural problems in the economy that will not be easy to climb over and should hinder economic growth for years to come. We think that makes stocks very risky assets at current prices.
We respect the fact that bull markets normally do climb a wall of worry coming out of a recession or a sudden and severe financial crisis. The stock market rises on the relief that the actual economic data turned out to be better than what investors were worried about.
Today’s bullish investors argue that this is what has happened this year. The market had crashed to the March lows based on fears that our economy (and the global economy for that matter) was heading into a financial abyss. By avoiding the abyss through the use of massive amounts of government spending and guarantees as well as some accounting tricks by the banks, the stock market has recovered about half of its decline from its peak in 2007.
We get it. The economy is better off than it was a year ago. We would expect to see some improvement with the banking industry back up and running and those stimulus programs encouraging people to spend. And with the Federal Reserve keeping savings rates near zero, they are doing their part to entice people to do something else with their money than put it in a bank.
But how much better is the economy? How sustainable is this growth? Is it enough to justify a 65% rally from the market bottom? Are these worries of ours as unimportant as the market makes them look today? Have we really missed the start of a new secular bull market? We still don’t think so.
The bulls believe that while the recession was a bad one, it was just a recession. Therefore, using history as a guide, an economic recovery is right around the corner. Businesses will invest, consumers will shop and corporate profits will grow. It is just that simple.
Having friends and family members who have hit their own personal walls of financial difficulties from this Great Recession we would like to believe that scenario. However, the so-called recovery we have seen so far is not suggesting that will be the case. Let’s look at the data.
Job growth (and higher wages) is one of the biggest hurdles that we will have to overcome to get this economy on a higher and more sustainable growth path. Since the stock market started to rally in March the United States has lost over three million jobs and the unemployment rate has climbed to 10%. We would expect to see the unemployment rate actually rise in the months to come as more people re-enter the labor market.
While the number of job losses has substantially declined from the extremely high numbers a year ago (a favorite “less bad” statistic for the bulls), we see little hope for large gains in the job market anytime soon. In the month of November there were almost 48,000 fewer people hired than in October, which was the worst in over two years, according to the Challenger, Grey & Christmas Employment Survey.
The bulls believe that companies were too severe in the number of people they fired this past year. They will have to rehire many of them as production is increased to replenish the inventories of goods that have been depleted. That may be the case but there is another wall to overcome before that new job is created.

There are currently 9 million people working part-time who want full-time jobs. Also, the workweek is at a low 33.2 hours. Therefore, companies will first increase the workweek and then put part-time workers back to full-time before they hire new workers.
The bulls will also point out that existing and new home sales have been strong over the last few months. Once again we have our government to thank for that good news because of the tax credit for first-time homebuyers. The question is, did that government program create new sales or just take from what would have been future sales. We shall see in the next few months, especially with the FHA looking to tighten their lending standards.
Unlike the bulls, we think that falling home prices are still a major obstacle for future growth. We believe the studies that show that there is a large “shadow inventory” of homes that banks have foreclosed on but have not put on the market to sell. And to make matters worse, over the next couple of years there will be another wave of foreclosures as Option ARM mortgages that were so popular on 2005 through 2007 begin to reset at a higher payment levels and mortgage balances that are much higher than the appraised values of the homes.
Lastly, the bulls point to the better than expected corporate earnings as a reason for this rally. While earnings were better than expected, revenues were disappointing. In fact, revenues were down by a substantial amount. In order to achieve the earnings expectations next year we are going to have to see revenue growth of close to 10%. Good luck with that.
Like it or not this will not be a typical economic recovery because we are coming out of a different type of recession. Normal recessions are caused by rising inflation and interest rates and excess inventories. Once the inflationary pressures recede, the Fed cuts interest rates and production increases to meet rising demand and the economy is back on track and growing again. The worries are easily resolved.
The Great Recession was caused from the bursting of the real estate bubble that was the result of a decade of easy credit. Our economy expanded on the ability of almost anyone with a pulse to be able to get credit, whether from multiple credit cards or home equity loans. Those days are over.
We are in what we think will be years of credit contraction, and therefore, deflationary pressures on assets, especially real estate. The credit lifelines have been pulled from many people and severely reduced for others. That has limited their ability to quickly recover from the financial strains they are currently experiencing. Many more people are going to hit their personal wall of financial stress or ruin before this economy is on more solid footing, in our opinion. The timing of that will depend to a large degree on the government lifelines that continue to be extended.
Speaking of our government, the largest wall that we as a nation will have to confront with in the years to come is the debt we are accumulating at over a TRILLION dollars a year. Even using the Obama administration’s estimate of a 4% annual economic growth rate (which we think is too optimistic) we will still be looking at $10 TRILLION of additional debt in ten years. State and local governments have some sizable walls (budget deficits) of their own to overcome over the next two years.
We think these walls are real obstructions to our economy’s growth over the next few years. The exact timing of their effects is not clear. However, they will be a drag on our economy as we make our way over them. We don’t believe that current stock prices reflect this risk, which is why we remain in a protective mode.
Maybe it will turn out that we are too pessimistic about this recovery. Maybe we can borrow, tax, and spend our way into prosperity. Maybe our walls are just worries that we will easily be able to surmount. We should know the answer to that soon.

Lynn Lewis, CIMA, CIM, CMA, FCSI
Sr Wealth Advisor
ScotiaMcLeod

It's jobs, not cranes

A private equity fund manager just got back from Chicago and told me he was shocked that he could not see any cranes building new buildings. I told my private equity buddy that I had heard that the signs people use to try and find patterns has changed from cranes to jobs, and a press release from Reuters reiterated this point:

Crucially, consumers in Canada and around the globe now view job creation as

the most concrete symbol of economic revival, Wright says. That stands in

contrast to the early 1990s, when the presence of construction cranes was a

key sign of economic growth.

The RBC Canadian Consumer Outlook index also found that, while 56% of

Canadians view the current state of the national economy as good, that is down

from 59% in September and 62% in May. But 48% are extremely optimistic the

economy will improve over the next year.

The November survey results will be set as the benchmark of 100 against

which future results will be compared.

-By Monica Gutschi, Dow Jones Newswires; 416-306-2017;

monica.gutschi@dowjones.com

Jacoline Loewen, author of Money Magnet and Managing Director of Loewen & Partners, Private Equity, Toronto.

Can Green be profitable? Ask Al Gore, our first Green billionaire

Does being Green pay off?

Ask Al Gore - he's a billionaire from Green.

Al has figured out to make a profit from global warming and urging new behaviors on the rest of us. Environmentalists think that it’s a Disney movie and that we should use earth’s resources carefully because it is a good thing and tend not to think about how to use money as a motivator. For some of the environmental people, the words green and profits should not be said in one sentence. I wonder what they think of Al Gore's financial success.

For business though, Green is showing that it can be good business. Bullfrog Power released their list of the top 10 Green enterprises and Wal-Mart is top. They have discovered that Green means cost savings too. They are pushing inventory storage as far back to the supplier as they can. Instead of having a thousand delivery trucks come to a store half empty, they have 100 trucks. The real estate inside those trucks now becomes very valuable as now every inch of the pallet holding goods must be used. New boxes that lock into each other and are reusable and reusable pallets.

I was glad to see the City of Toronto is on the list as they are buying Gardens in the Air to put plants on roofs using the tax payers’ dollars to support Green products and develop a market to support their business. They have the biggest pockets and by being a first customer, can support a young industry grow and then bring down the costs.

Nortel Board thinks we are still in the dotcom boom times

With layoffs and pension losses, the Nortel Board should be managing the optics of bonus payments to top executives. This is not the dot com boom. We are in a new era where we are haemorrhaging jobs to countries where smart, educated people work hard for far less.

Nortel should have got the bail out not GM because it is new technology while GM is old technology.

Are these Nortel executives so talented? Well, yes, turnaround people are a rare breed so there is probably (hopefully) some truth there. I do wonder if the Nortel Board members have picked up the latest in compensation package trends. Roger Martin, University of Toronto, is saying bonuses should be tied to performance measures like customer satisfaction measures, not to increasing the share price.

How you pay people makes them mercenaries or patriots. Nortel executive is looking rather mercenary.

Would you pony up cash for a ski resort in a desert?

What does the billions of dollars bust of Dubai mean for North Americans? First of all, it is a reminder that our global economy is still fragile and interlinked. Secondly, it is the British banks who were one of the main lenders to the troubled, slowly deflating, glittering and formerly fabulous Dubai. So North America will be relatively unscathed.

Finally, for North American business, a strong message is to get back to basics where you know your clients.

The important question to ask is who is the customer? British banks made assumptions that the Dubai sheiks had oil, that the price of oil would continue to climb and so sure, they would be good to pay back the loans. These bankers did not do sufficient risk analysis.

The other critical question to ask is use of proceeds. Did these bankers ask, “What are you going to use the loan for?”

"Hmmm...let me see, you are going to build a ski resort in the middle of the dessert? How good will the pay back be for that expensive project?”

A little bit of market research would have helped. If a ski resort in a hot place was such a good idea, I’m sure Vegas would have done it already.

I also recommend the last question to ask is if you, the loans executive, personally, would make the loan. This is not in the manual. However, by briefly contemplating whether you would give your own money to the project idea does push your thinking to a more sensible place. This artificial question perhaps, but briefly gives an alignment of interests. Perhaps if the loans executives were asked to assign some of their bonus to the loan repayment, it might have saved the British tax payer (who are now the proud owners of said banks) yet more pain.

For North Americans, check your executive compensation packages. Study how these British bankers were being paid for the amount of loans they made. Were they made into mercenaries, more interested in getting paid a bonus than watching for clear signals the loan might not get repaid?

Now the British tax payer is backstopping these defaults, but they do not have a ski resort in the middle of the desert as compensation.

Dubai should not affect Canada too much. Canadian bank stocks have gone up and we have a commodity backed currency.

Is it time to invest in property?

Not a chance, the Canadian Mortgage and Housing Corporation is creating a Fannie Mae, Fannie Mac house disaster. This impending crisis should be front-page news.

Low interest rates and the government Canada Mortgage and Housing Corporation’s (CMHC) dramatic increase in mortgage backstopping for people who put only 5% down is creating a Canadian housing bubble that will echo that horrible popping sound of the USA housing market.

In January, CMHC was allowed to insure up to C$600-billion in mortgages, up from C$450 billion the year before. This was done in the dark days

Making housing affordable is a noble cause for any government or bank, however doing it by allowing for easy lending does not work at all and we see it in the US. All it does is let people borrow more ultimately as we are seeing right now, it is driving house prices skywards. It is a well meaning government program but it is distorting the markets. What it means for any tax paying Canadian is that housing risk is carried by the taxpayer here in Canada.

If you compare average salaries to average house prices it just doesn't add up, especially in bubble cities such as Vancouver. Clerks and baristas buying shoe box condos for over 300K is a disaster waiting to happen. In Vancouver it is going to end particularly badly, whichever way it pans out.

The CMHC has disturbing similarities to Fannie Mae and Freddie Mac which helped set up the US housing bubble. The issues raised were solvency because of the ease of credit, market distortion as well as the fact that CMHC represents an indirect and increasing bailout to Canada’s profitable banks.

In the end, someone ‘always’ has to pay. Otherwise, the result will be similar to the US with increased foreclosures and taxes. That someone is the tax payer. I don't want my children to have to pay for our train wreck. While I do enjoy the company of my sons, I don't want them living with me until they are in their mid-thirties.

The CMHC is a sacred cow and it needs to be barbequed.

Jacoline Loewen, private equity expert, author of Money Magnet, panel of CBC show - Dollar Signs with Dianne Buckner on at 1:30 Saturdays.