Money Magnet Lifts the Veil of Secrecy from Private Equity

"I owe a great deal to the financial investors who gave me their time to tell their stories," said Jacoline Loewen at the launch of Money Magnet. "They lifted the curtain of secrecy that the media love to discuss."
Jacoline says she learnt three things:

First of all – the finance people are generally wonderful. They are dolphins rather than sharks and they love business. The partnerships created by private equity deals I have watched unroll, really do create jobs, pay taxes and build Canadian companies out to the global market.

Secondly: the people most likely to benefit from private equity – business owners – tend to be the people who know the least about this type of financial partnership. Private equity partners get a company focussed on transformational growth and allows all sorts of ways for owners to get money out of their business to pay for retirement, family trusts. Anyone relying on traditional bank debt – it’s just like smoking – you are stunting your growth.

Thirdly: private equity is the way for Canadian companies to survive this global market.
When Ace Bakeries recently sold to an American private equity firm, I called Linda Haynes and asked her if she had looked at any other options – such as Canadian private equity. She said no. As with most entrepreneurs, her passion was bread not the money of the business.

I wrote Money Magnet to try and get Canadian business owners like Linda Haynes to see that Canadian money is here and that instead of selling out to the Americans, we can build iconic Canadian brands that go out to the world – like IMAX, Lululemon, Cirque du Soleil, skidoo, Four Seasons. All of those began their journey of growth when the business owner decided to put their ego on check and say “I can move over and share the steering wheel. I can bring in private equity.” And by the way, the biggest PE deal in the world’s media this year was Canadian, not the KKRs of America!

The hardest part of writing this book was getting a shared definition of what the heck is private equity. I asked Angels, VCs and professional fund managers. All had different answers. But the best was “Private Equity is the energy brought to the company”. That energy is what is priceless and very hard for outsiders to understand. Today in this market, as we see the East pick up the baton from the West’s economy, it is scary times. But remember, the last big smack down in 2000 was when Lululemon, Google, Paypal and countless others were working with their private equity partners. There’s lots of money out there for you.

Takeover Fever in Small-Cap World

A modern day investment banker and Jean-Jaques Rouseau have very little in common, but they would both agree that all is in flux.  Last week every investment bank in America went the way of Yankee Stadium.  The movement of the markets finally overwhelmed all of the banks and they have all sought the security and stability of commercial banks.  Private equity funds have found it difficult in the last few weeks to close deals, most notably Private Equity Partners' close of target Informa PLC.  Reports suggest that banks were not able to provide enough senior debt to leverage the deal.  A familiar story.  

According to this report from the Financial Post, small to mid-market firms continue to aggressively pursue buyouts.  These deals require far less debt to execute and can rely more on mezzanine financing to structure a deal while securing the required returns.

The Day the Baton Passed

Michael Power is with us today as guest blogger. He has a take on the world economy that every North American should understand:

As a sporting spectacle, the Beijing Olympics exceeded even the advanced hype. But, as the images fade, we should remember that this contest was not the only one of Olympian proportions to be playing out in the world. There is also an economic marathon taking place between runners in the West and those in the East, a national relay race that will eventually see the baton of economic primacy being carried – symbolically that baton having been dropped by the US Men’s and Women’s Teams in the 4x100m relay heats in Beijing – by China. The final medal table of the 29th Olympiad may yet come to symbolise the start of this hand-over process.

Final Medals Tally
1 China
2 United States
3 Russian Federation.
4 Great Britain
5 Germany

Many in the West probably still think – and the lazy love of the familiar more than brute logic is often the father of such thoughts – that the West’s current economic malaise is nothing more than a very bad case of cyclical flu. In such a context, aspiring Western politicians will continue to peddle promises to build a better tomorrow: witness Barack Obama and his “Yes, we can!” pledge. By contrast, few will dare articulate just how structurally passé the West’s current model might soon be and therefore just how difficult delivering on those electoral promises could become.

Overriding the forebodings of that small clique of Westerners not in denial, the ‘yes we can’ apologists for the West still dominate the airwaves of CNBC and Bloomberg. Those daring to suggest that something more seminal might be happening are usually dismissed as the economic equivalent of doomsday merchants wearing “End is Nigh” sandwich boards.

I believe profoundly that the essence of what makes mankind such an optimistic species is our dogged faith in the idea of “hope springs eternal”: indeed Obama’s book captures this determination in its title, “The Audacity of Hope”. For it is humanity’s pre-disposition to dream of a better tomorrow that is the source of that river of human endeavour that irrigates the seeds of a brighter future. And so powerful can be this confidence, it can cut gorges through the granite of counter-logic in forcing its way to the greener pastures of progress. But hope alone cannot guarantee progress and the wellspring of industriousness that feeds the West’s river is not nearly as plentiful as it used to be. Instead, today’s sweaty optimism rises most abundantly where the sun also rises: in the East.

In this game-changing world, a few commentators – George Soros, Marc Faber and Jim Rogers – have suggested that the West is in its worst financial crisis in 30 years precisely because the economic baton is being passed from West to East. As the great economist, Joseph Schumpeter, might have noted, perhaps we are at a crossroads in history where Western destruction is now being offset by Eastern creation. In our far from decoupled world, the West’s economic yin cannot change without impacting the East’s economic yang, and vice versa. So as one zone waxes, the other wanes.

On the one side, the West (and especially its Anglo Saxon heart), by living way beyond its means on the chimera of easily available credit, ever rising household indebtedness and ever increasing fiscal and current account deficits, has enjoyed many decades of prosperity. And, even in the wake of the credit crunch, most Westerners still believe that this model of prosperity is both soundly-based and sustainable. The last year has proved to us it is not.

On the other side, the East (and especially its Chinese heart), by living well within its means with a high domestic savings ratio (45% in China compared to a negative rate in the US), regularly running current account surpluses and maintaining high levels of foreign exchange reserves (the Greater China Club – China, Hong Kong, Taiwan and Singapore – now have over $2.5 trillion) has deferred consumption today and, by funding investments from these savings, set about building a better tomorrow. Indeed, the same time, a not insignificant portion of the East’s savings have also been diverted to plug that savings gap in the West and especially in the US.

By postponing consumption for well over a decade, the East’s hoped for tomorrow has now started to materialise in a better today – Beijing’s emerging splendour is surely evidence of that! And despite the desire by some of the East’s Old Guard to extend its era of abstinence, many Asian governments are now encouraging their constituents to enjoy a bigger share of the fruits of yesterday’s labours. This suggests that the Asian model – one based not upon self indulgence but rather self denial – may ultimately not be sustainable either.

The near mirror-image of these two faces of post-1989 global economic development – one built on using debt to consume tomorrow’s income today, the other built on using today’s savings to build an income-rich tomorrow – was a convenient liaison whilst it lasted, but eventually the complementarities of this so-called Bretton Woods II arrangement were outweighed by its contradictions.

Destabilized by the detritus of the past year’s credit crunch, the unstable equilibrium that arose from this fantastical arrangement has started to implode. Whether the West overindulged or the East eased up on its self-denial is a moot point. Either way, both ways, the one side no longer got all it wanted from the other: perhaps the East saw the West’s thirst for its exported manufactures being slaked, or perhaps the West saw the East’s demand for its debt instruments decline.

As one side pulled back, by definition, so too did the other: the credit that the East extended to the West had been recycled by the West to buy products from the East, thereby creating arguably the largest vendor financing scheme in history. Reduce the flow of one and you necessarily reduced the flow of the other.

And the result of this reduction? The West in particular is enduring the cold turkey shakes that follow the quick withdrawal of the amphetamines of easy credit. For its part, the East is being forced to move beyond an era where “we make TVs and Americans watch them” to one where they too are tentatively starting to become tele-addicts, which is to say ‘consume’.

Invariably a Newer World is emerging, one where the Western consumer will no longer be able to live off the back of the Eastern saver. And this world will be one where the Western consumer, sans that Eastern credit, will no longer be able to afford an ever increasing standard of living, at least until that consumer has broken his addiction to debt and rediscovered the magic of saving.

Not so in the East. By spending more and saving less, the make-up of Eastern economic growth will change, even slowing from its current plus 10% levels. But, given the scale of reserves the East has squirreled away relative to the emptiness of the Western larder, the East has the wherewithal to keep its GDP growing, its currencies strengthening and its wealth accumulating and do so far more rapidly than will henceforth be possible in the West. Thus will play out the particulars of how the baton of economic leadership will pass not between hands but hemispheres, from West to East. Indeed, China will overtake the US in terms of industrial output next year.

History, with its tidy desire to pinpoint such watershed events, may yet decide that the time and the place when this baton began to be passed was 8pm on 08.08.08, as the Olympic Games opened in Beijing, China.

Where were you when this historic moment happened?

What Every Business Owner Should Know

Why is it that smart business owners resist the idea of bringing in investment partners even if those partners will make them far richer than they could believe possible?

What are the four questions every investor will ask as you present your business and the money you will need to take it to the next level?

What are all the forward thinking owners lookin ginto private equity right now, before they need to retire?

Find out the answer at this radio interview broadcast by the show called Small Business, Big Ideas as David Cohen interviews Jacoline Loewen, author of Money Magnet and partner with the private equity investment company Loewen & Partners.

The Renaissance of the Platinum Age

Though he does point out that it may not be for another year, David Rubenstein co-founder of The Carlyle Group, mentioned last week that "the greatest period [for private equity] is probably ahead of us as you will see the industry coming back into the Platinum Age".  This is not surprising. As noted in previous weeks in this blog, private equity firms are currently raising incredible sums of money right now; when these funds will be discharged is anyone's guess, but informed opinions, such as Mr. Rubenstein's, point to a renaissance in about a year.  

This is not to say that the industry has fallen flat on itself this year, it has simply come to more reasonable levels of activity, compared to years prior.  We saw the prices paid for firms in buyout deals rise significantly last year.  Josh Lerner of the Harvard Business School noted that EBITDA multiples were, on average, 8.3 times earnings before interest, taxes, and depreciation/amortization, however, this was in an environment where returns generated by firms were 25% on average and as much as 40% in the upper stratospheres.  Over the next year, returns are expected to come down from their 25% average to around 14%; still respectable outperformance, but not at the leverage-induced performance of last year.  However, the private equity industry is not experiencing the same hang-over as some of the banks that are forced to write-down significant portions of their balance sheets, but the effect of the tightened credit market is sobering, causing many to point to happier times when billion-dollar buyouts will once again spread the elixer of good fortune.

Finding Private Equity Investors

The number one issue for every entrepreneur is money - getting money, raising money, or convincing investors to give you money - that according to Jacoline Loewen who is one of the Nation’s best known advisors to entrepreneurs who seek capital, venture captial and private equity.business pod cast. Loewen & Partners raises capital for companies with revenues over $10 million.
Listen to Robert Gold to talk about Jacoline's latest book, Money Magnet, which explains how to find private equity investors. This lively interview will appear in a future episode of the BusinessCast podcast.

The UK's Telegraph is reporting that TPG Capital has raised a $20 billion fund, one of the largest ever raised; Blackstone raised the world's largest ($21.7 billion) in August, and Goldman Sachs raised another $20 billion last April.  So what is going on?  Aren't private equity funds suppose to be dwindling without access to the credit they so desperately need from the banks? Apparently not.  

The credit crisis has created enough uncertainty in the public markets that investors are looking to private equity funds for the stability they crave.  Of course, it may be a while until we see the blockbuster, highly leveraged, billion dollar buy-out deals that we saw in 2007's "summer of love" (some say another year), but this does not mean that private equity funds are not active, quite the contrary.  

These funds continue to buy the collateralized debt obligations (CDO) that the banks so desperately look to offload.  Last month Lone Star was the latest private equity fund to buy CDOs from a distressed vendor, Merrill Lynch.  The financial firm sold $7 billion worth of CDOs at 22% of their face value to Lone-Star.  These deals make a very small splash in the pages of newspapers today; part of the credit is due to PE professionals' growing media-savvy in their efforts to keep their faces from front covers, and partly due to the complexity of these deals that really do not make for engaging reading in 500 words or less.

Entrepreneurs have set skills for a set size of business

Terry Matthews is quoted in Report on Business magazine, "I'm increasingly convinced that being an entrepreneur-the first time-is circumstantial. But being a serial entrepreneur is something that I truly believe is deep-rooted in the individual." Terry goes on to explain that the start up stage involves a whoel different set of skills to once the company has matured and is running with set systems.
My book, Money Magnet, spends a whole chapter taking business owners though the concept that their skills which got them to where they are may not be the skills they need to take the company to the next stage of growth - hence, invite in private equity partners. Visit my book's website for a free download of this chapter. http//www.moneymagnetbook.ca
Terry is with Celtic House, one of the top funds for IT companies who are also featured in Money Magnet.

Walking Away from a $3 Billion Deal

Interesting article in the Harvard Business Review online about ABRY, a media-focused private equity firm started in 1989 whose partners managed to raise way more money for their latest fund than initially planned.
What would you do?
John Loewen says, "As you know, partners receive fees for the cash managed and that brings a huge issue of taking this money while knowing you perhaps may not be able to place the money."
This article and case study takes you through the moral points and how they were navigated by this fund - which was ethically prudent.
Now how about the media headlining this story of private equity walking away from a money-for-jam situation?
Nope, not that interesting beacuse no heads rolling or blood letting.

Western Downward Drift and the Olympics

Welcome to guest blogger: Dr Michael Power - Investec Bank:

For the marketing and the sheer entertainment value - the Beijing Olympics exceeded even the advanced hype. But, as the images fade, we should remember that this contest was not the only one of Olympian proportions to be playing out in the world at the time. There is also an economic marathon taking place between runners in the West and those in the East, a national relay race that will eventually see the baton of economic primacy being carried – symbolically having been dropped by the US Team in the 4x100m relay race in Beijing – by China. The final medal table of the Beijing Olympics may yet come to symbolise the start of this hand-over process.

Many in the West probably still think – and the lazy love of the familiar more than brute logic is often the father of their thoughts – that the West’s current economic malaise is nothing more than a very bad case of cyclical flu. In such a context, aspiring Western politicians will continue to peddle promises to build a better tomorrow: witness Barack Obama and his “Yes, we can!” pledge. By contrast, few will dare articulate just how structurally passé the West’s current model might soon be and therefore just how difficult delivering on those electoral promises could become.

Final Medals Tally Total:
China 100
United States 110
Russian Federation 72
Australia 46
Korea 31

Canada 14

Overriding the forebodings of that small clique of Westerners not in denial, the ‘yes we can’ apologists for the West still dominate the airwaves of CNBC and Bloomberg. Those daring to suggest that something more seminal might be happening are usually dismissed as the economic equivalent of doomsday merchants wearing “End is Nigh” sandwich boards.

I believe profoundly that the essence of what makes mankind such an optimistic species is our dogged faith in the idea of “hope springs eternal”: indeed Obama’s book captures this determination in its title, “The Audacity of Hope”. For it is humanity’s pre-disposition to dream of a better tomorrow that is the source of that river of human endeavour that irrigates the seeds of a brighter future. And so powerful can be this flow of sweaty optimism, it can cut valleys through granite mountains of counter-logic in forcing its way towards the greener pastures of progress. But hope alone cannot guarantee progress and the wellspring of industriousness that feeds the West’s river is not nearly as plentiful as it used to be. Instead, today’s sweaty optimism rises most abundantly where the sun also rises: in the East.

In this game-changing world, a few commentators – George Soros, Marc Faber and Jim Rogers – have suggested that the West is in its worst financial crisis in 30 years precisely because the economic baton is being passed from West to East. As the great economist, Joseph Schumpeter, might have noted, perhaps we are at a crossroads in history where Western destruction is now being offset by Eastern creation. In our far from decoupled world, the West’s economic yin cannot change without impacting the East’s economic yang, and vice versa.

On the one side, the West (and especially its Anglo Saxon heart), by living way beyond its means on the chimera of easily available credit, ever rising household indebtedness and ever increasing fiscal and current account deficits, has enjoyed many decades of prosperity. And, even in the wake of the credit crunch, most Westerners still believe that this model of prosperity is both soundly-based and sustainable. The last year has proved to us it is not.

On the other side, the East (and especially its Chinese heart), by living well within its means with a high domestic savings ratio (45% in China compared to a negative rate in the US), regularly running current account surpluses and maintaining high levels of foreign exchange reserves (the Greater China Club – China, Hong Kong, Taiwan and Singapore – now have over $2.5 trillion) has deferred consumption today and, by funding investments from these savings, set about building a better tomorrow. At the same time, a not insignificant portion of the East’s savings have also been diverted to plug that savings gap in the West and especially in the US.

By postponing consumption for well over a decade, the East’s hoped for tomorrow has now started to materialise in a better today – Beijing’s splendour is evidence of that! And despite the desire by some of the East’s Old Guard to extend its era of abstinence, many Asian governments are now encouraging their constituents to enjoy a bigger share of the fruits of yesterday’s labours. This suggests that the Asian model – one based not upon self indulgence but rather self denial – was ultimately not sustainable either.

Dragons' Den recommends Money Magnet

CBC is kindly featuring Money Magnet on their blog for the terrific reality show - Dragons' Den.
As you know, I have written about the show in this blog and have included a special section in Money Magnet for the contestants.
For those entrepreneurs interested in braving the Dragons' hot breath in order to fund their companies, I have covered off the questions the Dragons want answered before opening up their cheque books.
There is also a summary of the winner of CBC's competition, Trent Kitsch, and his perceptions of raising money before and after Dragons' Den.
If you are a business owner and are contemplating how to grow your business, do pick up a copy of Money Magnet as it will change your perspective on what is possible.
Do not rely on traditional banking for your business because it is just like smoking - it stunts your growth.

How financial tools destroy your capacity to do things

A recent HBR article from January 2008 Harvard Business Review has a provocative piece by innovation guru Clay Christensen and a couple of colleagues called "Innovation Killers: How financial tools destroy your capacity to do new things." I have the greatest of respect for Clay Christenson who does hit the nail on the head every time with his analysis of business. His critique of the limitations of DCF analysis is applicable to private equity deals, hence my interest.
Since my MBA and time at Deloitte, I have always been skeptical toward financial analysis and the reverence to which it is held.
While DCF analysis has its place, its limitations should be recognized. One problem is that fact that most DCF models are built on status quo assumptions (or growth projections) that don't account for the strategic and competitive curve balls. I would add that there is also the issue of garbage-in, garbage-out: the less you know about what's likely to happen (as is the case with new lines of business), the less reliable the output of your DCF model becomes.
I see the problem to be that instead of acknowledging this limitation, many finance geeks embrace the modeled output as Holy Writ. Besides being a false data crutch, it squeezes out consideration of other "softer" factors (like my favourite - non-quantifiable synergies)that are every bit as worthy of consideration. Pick up my book, Money Magnet, which deals with all of this in far greater detail.

War and Private Equity

Last week, Private Equity Hub's Dan Primack interviewed Michael Bleyzer, CEO of Ukrainian-based private equity firm SigmaBleyzer, to discuss the impact of the conflict in Georgia.  Though Mr. Bleyzer admits that the Georgian market has not drawn much of his interest, he does point out that an aggressive Russia cultivates politically-driven volatility in the large country that remains unattractive to him.  Naturally, he advises to stay away from sectors vulnerable to political or oligarchical influence, (i.e. energy, defense, etc.).  British Petroleum can attest to this, of course.  However, he does mention that though the "Bear" may be winning the fight to expand its regional sphere of influence, this is raising moral considerations for investors when considering to put their money in the country.

These sentiments do contradict reports from big institutional investors, such as Credit Suisse, on Russia (a member of the famous BRIC nations) but it is difficult to argue with a professional that is "in-country", operating in the region, looking to make returns from the best risk/return opportunities.

Private Equity Update

Banks have been in fashion for some time now.  A rare thing.  Papers are filled with glamourous headlines announcing the latest billion dollar "Writedown" or "Loss".   A year ago it was billion dollar "Deals".  It would seem that the bank's cousin, private equity funds, is also suffering from the same bad press.  Many in the newspaper business are assuming that because of the lack of credit, private equity is at a stand-still, licking its wounds from failed projects. This is not true.  

Private Equity's strength is its versatility.  As the banks began shutting the door to LBOs in late 2007 and selling debt at a discount to shore-up some cash, private equity funds abruptly changed course and bought much of that debt, and continues to do so today.  

Currently, some of the most activity is focused on infrastructure.  Around the globe, 71 funds are raising US$90.8 billion to invest specifically in infrastructure, a particularly stable investment with steady cash flows.  Private equity professionals are looking to outmaneuver any market volatility by preparing to support the CAD$150-billion that must be invested over the next 20 years to meet Canada's growing demand for electricity.  

It would seem, then, that the industry of private equity is never so much under attack as it is remobilizing and assessing new fronts of opportunity.  The only thing that is permanent now for these bankers and fund managers is having to cope with being splashed all over the front pages.  If David Rubenstein is any indication, it seems they will be able to adjust to this as well.

Don’t only hire the top students

In a recent article, MacLean’s magazine threw a stone in the waters of education with a story about C students who grow up to become captains of industry (or Presidents of the USA.)
According to the senior president of a top Canadian bank, head-hunting only top students can be limiting. “During my Masters program, the academic superstars loved working on the sheer beauty of a math simulation, but people like that are a better fit in research and can add much more in that role.”
According to John Loewen of Loewen & Partners, "To move beyond the mechanical stage of corporate finance you need to be smart enough to create the product, but you must be able to communicate your ideas to your peers, team manager and larger groups. If you get into a boardroom and freeze in the headlights, then you will stay at the product level. I would much rather hire an interesting, energetic person than have the whole team be top graduates. I look at the drive of the person."
To rise to leadership roles, you need the energy to create a long-term relationship with clients; to get them to reach into their pocket and pay you cash for your technical skills and ideas. This client-cash transaction is the toughest part of business, one that most working Canadians do not do if they work in research, government, marketing or a team supporting the actual rain makers. A cold, naked, money focus is the life blood of a business, yet few can do it. It is done by those with resilience and that means high EQ (emotional intelligence) and as Jacoline Loewen, author of Money Magnet, points out - those with resilience get to raise capital to grow their companies.
The owner of a fund, Richard Wernham, filled his entry level jobs with only the top academic students from universities. After a few years, he noticed a disturbing trend: although these bright sparks could do the complex work assigned, they did not take risks, try fresh ideas or push for change. Without this creative tension the business was not evolving. When the fund owner sat down with his senior team and analyzed the reasons, he threw out their hiring criteria and began again. Sure, they wanted recruits who could handle the technical work but they also needed the self confidence to tackle incoming problems in new ways. The traditional “learner” may not have the inner rebel required to challenge the way things get done.
“The trouble with a top student is that they have bought into the system” says the management guru Tom Peters. “Crazy is the friend of innovation. Your people need to question the boss and speak up.”
Richard Wernham put his money behind his recruiting philosophy by starting a school with the vision of educating children to grow into well rounded, confident adults and leaders of tomorrow. Part of the curriculum is to spend time camping and canoeing in the Canadian North. There, it’s the great equalizer as children step away from the comfort zone of Lululemon identity brands to pitch tents, paddle canoes, swim in murky lakes, swat mosquitoes but most important of all, sharpen up those EQ skills with fellow campers. It is the quintessential Canadian cultural rite of passage – singing songs around camp fires with your mouth full of smores and burnt marshmallow.
Immigrant parents, new to Canada keen to see their children become leaders in Canadian business are strongly advised to pack off their children to summer camp - even the day camps - and watch the growth in their children. They will absorb Canadian values of taking personal risks but with awareness and co-operating within the group, not just working for their own achievement.
So parents concerned that little Jill or Sarah is not number one in the class, take a chill-pill and get her booked into a camp for next summer. Broaden her character and who knows where she will lead.

Are You Being Crowded Out?

Canadian business owners are realizing that the world is indeed flat and that no matter how much they try to ignore other competitors, it is getting tougher, meaner and just not as nice out there.

What to do?

"If you are a business owner," says Jacoline Loewen, author of Money Magnet, "There are so many more options for you. It's not all bad." One of these is to take on private equity partners who can see if your competitive pool is too crowded and it's time to find a new spot. These partners are not just lending you money, they are actually partners too and have an incentive for your to grow the business, not just pay back the loan.

Is Social Networking Over-Hyped?

It seems as though every second start-up business is about social networking.
Is it over-hyped?
Is it like a movie with famous faces but no plot?
Just remember, high tech has always been over-hyped, whether for cars, phones or electricity, the Internet, or the current new bubbles of alternative energy and climate change.
As discussed in the new book on private equity, Money Magnet, companies put their business plan together, obtain funding from venture capitalists, open an office, and hire engineers and PR types. They talk up their technology and hope that the Bay Street analysts will declare the new product a world-changer.
"The technology for social networking is just beginning," says John Loewen of Loewen & Partners. "It will be a world changer. No longer just for swapping music files or photos, business people are using social networking to market and communicate."
Just as Nicholas Negroponte predicted in his 1995 best seller, Being Digital, the three separate industries of computers, broadcasting and publishing have merged. Imagine a Venn diagram, which Negroponte describes as three teething rings – the interactive world, the entertainment world, and the information world. The convergence of these three giants – who had power comparable to Soviet-controlled industries – changed how decisions are made regarding who gets published and what gets broadcast. The impact on society has been extraordinary.
To access this ocean of information, we are all hooked into a giant grid by means of various devices – iPhone, Blackberry, laptop, car navigation system or TV. It gives us marketing, entertainment, business access, our child’s latest school marks and social connections to school pals from thirty years ago. Technology does determine the future of the human race but as we have learned over the course of history, the social bits around the technology are more critical.
“To control or not to control?” is the question asked by parents watching what appears to be the slothful, antisocial behaviour of their online children or by anxious employers eyeing their staff online during work hours. Yet this social networking allows staff to play, explore, take journeys far from the office and bring back useful nuggets for your next marketing piece or customer sales presentation. Merging your soft (people) with the hard (technology) is good business and if you are worried, remember, the more you use the reins, the less they’ll use their brains. China has developed MBA schools to teach these soft skills, encouraging employees to think for themselves. Xiang Bing, Dean of the Cheung Kong Graduate School of Business, talks about the hard-working ethics of the Chinese and their excellent technology but also points out the challenge of further developing their soft skills.
Less democratic governments are anxious about social networking. Many are trying to control this sharing of ideas and have convinced Google to co-operate in censoring online access to content. Thank heavens Canada seems to have more confidence in the ability of its people to maintain harmony despite the blogging of nutjobs or hate-mongers.
Are people sitting inside their four walls connected to this giant grid but not getting outside to meet real people? Yes, but they are also meeting others from far away neighborhoods that they will never visit and they can read blogs by people with radically different political views. All of this may raise their blood pressure but it surely develops mutual understanding. These online journeys and conversations are teaching people more about social interaction and how to argue a point. Up until now, fake personas and fake names have been used by many online people and anonymity - not owning your own words - is one of the biggest contributors to the rudeness on comment sections of blogs. It seems that people have forgotten their manners (I’m being kind here in assuming they had them in the first place); they quickly move off the debate topic and resort to name calling: “Gawd, Joey99, how do you put your pants on in the morning?”

I am still waiting for the business version of YouTube with real names only, so we can do without the juveniles and can we get some grown up brand names while we are at it? Saying Twitter, Dig this or Bebo makes me laugh!

Absolutely, social networking is a great journey, but do keep your real life. My sons have assigned me a “technology hour” when I’m at home so that I don’t bury myself in blogs. It seems they understand this technology thing better than I do

The Secret to a Great Board Meeting

It’s eat lunch or get eaten for lunch and in this dog-eat-dog world company owners need an edge. Setting up your own advisory board can be a powerful boost to your company performance but the challenge is enticing these senior business experts to show up at your meetings repeatedly, not just for the one time. Besides setting a well-timed agenda, the biggest secret to running a successful board meeting is the food.
It is extraordinary how people bond over the sharing of an interesting meal. Somehow, the breaking of bread gets people to relax and know each other better. Think of a dinner party you attended with like-minded people and how you came away inspired by the conversation. The food probably was good, setting a caring atmosphere. Look at Harry Potter eating weird, vomit flavoured candy with his newly made friends on the train to Hogwarts. What about the Klingons sitting down to dinner on the starship Enterprise with Captain Kirk, eating their foul food with their mouths wide open while claiming that Shakespeare stole all those plays from them? OK, maybe that didn’t go as well, but you get the point. Food is a shared experience which can add sparkle to an otherwise tedious event.
For your advisory board meeting, there is no need to order in pizza or soggy sandwich wraps. That signals tired ideas and soggy thinking. Get out of the box and head over to Pusitarri's, Soby’s or Loblaw's where you can purchase pre-made snacks which are delicious and different from the usual business fare. Mark McEwan, Chef Proprietaire of North 44, is opening up a ready-to-go-meals store in Toronto at Bayview and York Mills which will be terrific incentive to attend after-five meetings. Check out web sites, such as Canadian Living with Elizabeth Baird, to glean ideas of simple but unique platters of finger foods. The goal is to keep it simple but make your advisory board think they are on the dock at Muskoka watching the sunset while enjoying the company of good people.
Be sensible. An overly lavish spread may raise eyebrows, causing your board members to silently wonder if you are developing an Enron style of entertaining with the budget to match. The recent G8 summit held in Japan received criticism for the eight course banquet put on for the country leaders and wives by the Japanese leader but given at a time of food shortages around the world. Point taken. But does the G8 meal really symbolize a “let them eat cake” attitude to the poorer people in the world? Are any of those G8 leaders supping on rice wrapped in seaweed also deliberately starving their citizens? Let’s compare the G8 leadership of their populations with Bob Mugabe’s treatment of the people of his nation, the beleagured Zimbabwe. He has managed to take Africa’s bread basket and crush it to a smoldering wreck. Yet Bob managed to snag a free trip to the United Nations’ Food Conference held in Rome. He deserves a quick trip to the guillotine for that callous attitude, along with whoever issued the invitation.
Peter Handal, the head of Dale Carnegie, suggests that setting up the meal at your important meeting as a buffet because people are not stuck in their seats from the start. Not only does this keep everyone fresh, but they can network more with each other. If you plan a little in advance, your advisory board meeting could turn out to be the most valuable meal this year.

Carlyle Learns Bitter Chinese Lesson

In 2005, the Carlyle Group agreed to pay $375 million for Xugong Group Construction Machinery, however, according to the Financial Times report, it soon became a contentious issue that the Chinese government was pressured to block by nationalistic groups.  The asset was considered a strategic asset that was being sold at a bargain price.  The deal fell through this week, in what many consider a culmination of the difficulties of doing business in China.

Private Equity Hot for Infrastructure

In 2005, there were four infrastructure-focused private equity firms in the market looking to raise $US 1.8-billion, this year there are a record 71 such funds.  An article in The Globe and Mail reports, these funds have emerged as a result of the recent volatility in the market, energy infrastructure companies and power utilities have become highly valued for their stability, long-term cash flow, and lack of correlation to other investments including equities and bonds, according to this report.

Hudson's Bay Acquired by NRDC Equity Partners

Established in 1670, Hudson’s Bay, North America’s oldest name in retailing, is now one of its newest private equity acquisitions.  The company was acquired this week by NRDC Equity Partners for an undisclosed amount, according to The New York Times.  A significant change initiated by the private equity firm will be to reduce the flagship store in downtown Toronto from 900,000 sq. ft. to 300,000 to 400,000 sq. ft.  

Oh no - not another crisis

"Warding off the next wave of banking crisis is the incoming challenge," says John Loewen of Loewen Partners. Top financial companies are stepping forward and not waiting for government to try to restore investors' brittle faith in global markets.
The Globe & Mail reports the financial leaders met in Washington to draw up recommendations that seemed pretty basic such as have a risk committee that understands the parameters of acceptable risk.
"Another point that rather floored me," said Jacoline Loewen, author of Money Magnet, was to do your due diligence. I guess with these "pass the parcel" debt structures which sent off the loans to other financial institutions, employees got lax because they didn't think the parcel would land back in their lap and blow up.
I am glad to see that business is getting ahead of the regulators because Sar-Ox has meant that the New York Stock Exchange plummeted in IPOs listings while London's AIM rocketed. Here's more:

Although some have interpreted the report as a pre-emptive move to avoid the burden of more regulation, he IIF was quick to insist that this was not an effort in self-policing, and promised to work with regulators on new rules to benefit the industry.
But there are limits to what central banks and market officials can do, Mr. Waugh said in an interview. “Prescribed regulation hasn't been very successful in averting crises and probably never will be.”

Outdoor Living Builds Business Skills

The definition of a Canadian, according to the late Pierre Berton, was "somebody who knows how to make love in a canoe." That confidence in managing the outdoors so as to achieve a desired goal is also an enduring characteristic of great leaders.
The CEO of a large construction firm told me about his travails in hiring the right CFO for his high growth business. “Once I know they can do the finance requirements, then I want to take them outside and back up a tractor trailer or get them in a canoe and capsize it in the middle of the lake.”
“Why on earth would that add to the skills of a CEO?” I asked.
“Because that is about being able to cope when suddenly pushed out of your comfort zone,” he said. “How do you react? Do you freeze and avoid? Or can you calm yourself and decide on a rapid course of action where you might not have all the answers? Are you willing to try the untried but keep your head?” Someone who has done outdoor living – camping, fishing, hiking – is used to planning, organizing and doing. There is also the confidence that they can manage if they run into an unknown situation. To head off into the outdoors, you can not help but develop these qualities.
Interesting enough, out of the 294 candidates selected to be NASA astronauts between 1959 and 2003, over 200 had been active in Scouting (and 11 of the 12 astronauts to moonwalk were scouts). A key goal of scouting is to develop confidence with being outdoors. The majority of the team of NASA astronauts in the early years were also from farming backgrounds. A farmer deals constantly with big weather pattern changes and incoming disasters. They have to be able to make a plan even when threatened with ruin.
The most famous Eagle Scout was the first man on the moon, Neil Armstrong. His ability to manage looming disaster came during his historic landing on the moon. As the spacecraft headed for the Tranquility Base landing site, Armstrong saw they were on crash course with a boulder that had not shown up on the surveillance photographs. The computer had 2K of computer power and was unable to manage the change. Armstrong had to recalculate (with a slide rule, sans calculator), flip off the computer and land the capsule himself. It was Neil Armstrong – calm and capable of dealing with difficulties – who saved the situation.
Even if your sons can not join the Scouts, we are fortunate in Canada to have such easy access to the great outdoors. There are fully guided canoe trips given through community centers for those parents not comfortable going to Algonquin Park on their own. Fishing trips with overnight stays are also a great family vacation sure to be remembered.
Many schools are making outdoor camps part of their curriculum. Some MBA schools run leadership programs using outdoor experiences to remedy the common complaint of the risk adverse attitude of graduates by beefing up “take action” skills.
Maybe it is not such a crazy idea to ask your potential new hire, “Have you ever been in a canoe?”

Eddie Weinstein Does Green

Have you seen Home Depot’s latest newspaper advertisement? It’s a cartoon of a big box looking at an almost-weepy planet Earth and saying, “We’re not going to use pesticides anymore.” It took me a few seconds to get it; there is extraordinary power when the message coming down from the big box store is that green is “in”.
Generally speaking, entrepreneurs are at the top of the heap in the world of business (yes, above all the investment bankers and government officials who think they are in business but have never had a paying customer in their lives). Being ahead of the crowd is the small to medium enterprise’s business and many have been living green for decades – because they like it and it makes good sense for the future.
Eddie Weinstein runs Globe Electric, a family business that manufactures light bulbs for green living, and supplies big box businesses such as Wal-Mart. He says that as these enormous retailers choose to go green, they will change consumer lifestyles dramatically. When Wal-Mart asked Eddie for green bulbs, he had been working on building a green lifestyle for more than three decades, and therefore had the ability to manufacture enough product.
Like so many of the entrepreneurs I meet, Eddie is someone who gives back every chance he gets. Last year, he invited David Suzuki to speak at a large function, and he chuckles when he recalls how David shook his hand and said, “So you’re the guy who’s been getting rich from green.”
Eddie is gracious enough not to blast Suzuki, but I shall.
Eddie has a tough business and serious competition. He has worked at it since the age of 18 by getting out there himself and building relationships with retailers, both small and large. He chose to reinvest his own money in his business when he probably could have slept better by putting that cash into Albertan oil stocks or Research In Motion. Contrary to Suzuki’s thinking, getting rich quickly does not happen easily in business; even RIM endured a 20-year uphill ride, and was not generally supported by Canadian investors until Americans noticed the company.
Entrepreneurs live green, not because it is legislated, or because activist customers yell, but because they like it and tend to be decades ahead in their thinking. Back in the 90s, one of my clients, Spiros Pantziris, rebuilt Spintex, his second generation family business of yarn manufacturing, to be green. Spintex takes factory floor clippings of cotton T-shirts and strips them back down to base fibres to be spun again into coloured yarns. This means less dye and less cotton wastage. The factory even captures the waste wisps and clumps them into something that looks like what my cat coughs up. Except they are pellets the size of hockey pucks. These are shipped to local farms.
“Cows eat this stuff?” I asked, anxiously.
“It is cotton – a plant,” Spiros gently reminded me with a smile. When the call came from Target that they wanted green yarn for fishermen’s sweaters, Spintex was ready.
The maharishi of green entrepreneurs, Michael de Pencier, bases his business philosophy on the concepts outlined in a book by Jared Diamond, Collapse: How Societies Choose to Fail or Succeed. One of his companies is a green fund called Investeco, which acts as a private-equity partner in companies such as Eco Drycleaners, a user of environmentally-friendly chemicals. As de Pencier says, “Green living makes sense and smart businesses get green.” Thank you, David Suzuki.

Private Equity Weekly Review

BCE has received confirmation from Industry Canada that all the conditions laid out in the decision of April 8, 2008 have been fulfilled. The marks a positive step towards closing the deal as all regulatory hurdles have been overcome.

Private equity is seeing some healthy signs of recovery as private equity giants like Blackstone, Carlyle, and Bain all made acquisitions this week. The largest deal was made by Blackstone that made a $1.67 billion buyout of Apria Healthcare Group, which was followed by PepsiCo Inc.’s acquisition of JC Lebedyansky, a Russian juice company. See a list of last week’s largest deals here:

Tremors from the credit crunch can still be felt to this day in as far away places as Japan. Deals are getting done, but at lower multiples. Before the liquidity problems in the market, prices paid were at multiples of 10x the annual earnings of Japanese companies. D&M Holdings was sold to Bain this week at 6.7x. This is an indication of not only how much competition there is in the market for good deals, but of the large sums of capital competing for the same prizes.

By Jeff Watson, Loewen & Partners

Private Equity Digs Deep Down Under

A report from Australia confirms that private equity is continuing its metamorphosis as it seeks innovative means of reaching targeted returns. The private equity market is still active, though not to the same degree as 12 to 18 months ago. Firms are continuing to work on their portfolio companies, complementary acquisitions deals for existing portfolio companies, and of course, the growing popularity of acquiring distressed debt.
Posted by Jeffrey Watson, Loewen & Partners

Make the world a better place

"In a way, the world is a great liar. It shows you it worships and admires money, but at the end of the day it doesn't. It says it adores fame and celebrity, but it doesn't, not really.
The world admires, and wants to hold on to, and not lose, goodness. It admires virtue. At the end it gives its greatest tributes to generosity, honesty, courage, mercy, talents well used, talents that, brought into the world, make it better.
That's what it really admires. That's what we talk about in eulogies, because that's what's important.
We don't say, 'The thing about Joe was he was rich.' We say, if we can, 'The thing about Joe was he took good care of people.'"—Peggy Noonan, "A Life's Lesson," wrote this at the passing of one of her journalist colleagues, Tim Russert.
I credit Peggy Noonan for Ronald Reagan's success as she wrote many of his speeches, bringing back that combination of big vision but pulling it back down - like a kite string - to how the big idea applies to each of us.
Are you using your talents to build up the people in your team, to create a great place to work and in your own way, making the world a better place? If so, hats off to you. Keep going.
The private equity money will recognize your tenacity to keep adapting to how to apply your talents to make the world a better place. This spirit is the essence of good management and good teams get the best finance partners.

Is Your Company As Much Fun?

I recently ran a strategy workshop for a large NGO. They get given a cool $11 million grant from the government every year plus their work contracts are bought by the government. That is a lot of support from tax payer money. The NGO staff work in a beautiful office building and the culture exudes quiet competence. Their skills and staff are impressive and I have to say, I had a great time working with the top team. What a lovely group of happy, proud and smart people.

Attending the strategy workshop was a branding expert. As the top management team went through their branding exercise, choosing key words to describe their business, this consultant talked about MARS - the venture capital incubator for uprising start ups. He spoke about how there is a sense of urgency with crackling energy in the air. The core brand MARS has developed is "speed to market". The brand expert could see that the NGO needed that same fire to the feet urgency to get their many products to market rather than dotting every i and making it 100%. In the real world of finding customers to transfer their cash from their wallet to your hand, there is real pressure.

This NGO might want to be speedier but everything in their business model cuts them the slack to not feel pressured about making money from satisfied clients. They are enjoying making Canada a better place - seriously - and they have made Canada a better place in their way. Plus their culture is very supportive, making it a truly marvelous place to work. Except that employees now push back at any mention of the D word - dollars.

I think we all need to understand the enormous differences in culture that develops and grows from the forces and demands exerted on the staff and owners. In the case of the NGO, there ain't ever going to be a sense of urgency because if some division has a shortfall, guess what, it doesn't matter. The bank is not going to threaten the owner and the staff will get their payroll paid. Where is the force to push for urgency?

These not-for-profits provide a great job environment. I looked around the room at the impressive team. They were more intellectually rigourous and more open to discussion of sticky issues than many management teams. It was almost like being at a Club Med resort because everyone was so relaxed and - hey, tomorrow was another day making a difference for Canada.

When I work with early stage companies, there is none of that laid back, let's think about it and reach consensus attitude. It's time to make money or bust. It's a fight every day. That's why MARS has to make "speed to market" a core part of its brand rather than making Canada a better place. There is just not the luxury of being socially responsible.

Is it dangerous for the Canadian economy to have so many great people working in these tax backed companies rather than having to make their way in the commercial world? Maybe these NGOs are keeping the great talent for themselves rather than the economy which makes the revenue to pay the taxes that then get passed to the NGOs. Whatever. I honestly can say I enjoyed myself so much I think I'm going to get myself a job at a not-for profit. Then I can stop worrying about making customers satisfied.

Mind of the Entrepreneur

Eager to start my entrepreneurial career, back in the early days, I asked a seasoned entrepreneur what founding a company felt like. I think I expected him to use words like “Freedom!” “Excitement!”, “Satisfaction!”
Instead, the main word I recall from our lunch was “Ignorance.” Specifically, he related to me a cautionary tale: The best talk he’d heard at a conference on business start-ups he’d recently attended focused on ignorance as the key to entrepreneurship. What the conference speaker meant was that if the average entrepreneur truly knew how hard it would be to build a company, nobody would ever begin. It takes ignorance to want to start a company from scratch.
My friend’s weary look, four years after founding his company, told me he wasn’t kidding. In all my excitement to begin, I’m pretty sure I had no idea what he was talking about.
A few weeks later, I visited my bank manger.
Before I even sat down, she commented to me: “You’ve got the grin of someone who just started her own company.”
“Yup!” I said, smiling.
She said, wisely I now understand, “You’re going to lose that smile. But hopefully, some day, you’ll be able to get it back.”
The optimism of that meeting has not left me in the subsequent years, but I have certainly had the smugness challenged. I’ve come to appreciate their thoughts. Business is tough and not for the faint hearted.

Returns for Private Equity Will Surpass 2007

Stephen Schwarzman, CEO The Blackstone Group, a private equity firm, says that now is a good time for deals in the industry. Despite turmoil in credit markets and weakness in the U.S. economy, according to Mr. Schwarzman, returns for deals made now could far surpass the deals of 2007.
“The heyday of 2007 was pretty remarkable in terms of the kind of credit one got,” Schwarzman says. “It’s unclear whether the deals done during that period will offer the best returns for private equity investors.”

- Jeff Watson

Worries of Limited Partners

Reuters published a story this week discussing the growing concerns of Limited partners – large pension funds and other institutional investors that pour money into private equity funds. They are worried that their returns are at risk as buyout firms drift from their expertise amidst the credit crisis. Some buyout firms are now starting to pursue investments in emerging markets, taking minority stakes in public companies or buying debt of their portfolio companies.

- Jeff Watson

Investment Banking Fees Plummet

In his blog, Taom Traulli notes that bulge bracket investment banks have seen their advisory fees fall significantly. Goldman Sachs, an investment banking firm, earned $1.5 billion in fees last year. This year that number has fallen 77% across the industry.

- Jeff Watson

BCE will reward shareholders

According to David Friend of the Canadian Press, investors are shying away from BCE stocks and the risks of its current quagmire. He goes on to point out that though the stock price is likely to fall because the chances of another potential buyer entering the fray seems unlikely, there is still an upside according to an analysis of BCE's position in the latest issue of the Investment Reporter, an industry newsletter.
"Should the takeover fall through, BCE shares would likely drop, but after that, they should recover. After all, BCE would likely reward its shareholders with a special dividend, higher regular dividends or share buybacks," the publication said.

- Jeffrey Watson

Private Equity's Image

Private equity has an image problem with unions and employees of the big, public companies who say that PE destroys wealth by stripping out company assets and downsizing. One of my favourite PE people is David Rubenstein, head of one of the largest PE firms in the USA, Carlyle. He has a quiet sense of irony and self depreciating humour clearly evident as he he asked, "What, no demonstrators?" referring to the crowds following him around to public appearances. He gave a speech describing PE to the new President of the USA. Peter Lattman at the Wall Street Journal tells us about his 10 points to make to Barrack Obama next January, 2009.
Probably the big plus about PE is that, as David Rubenstein of Carlyle says, is that it is not your father's PE. In other words, that Gordon Gehko type barnstorming share holders' meetings and selling off the company assets is not today's PE fellow. Here's a taste of what the WSJ reports on David Rubenstein's speech:
No. 1: This is not your father’s private-equity industry. Rubenstein would remind the leader of the free world that the industry has grown tremendously and now is a vibrant part of the U.S. economy.
No. 2: Private equity is the principal source of high returns for pension funds. Don’t think about the Schwarzmans, Kravises and Rubensteins of the world when you think about making changes to the private-equity industry. Instead, think about the pension funds and the people with stakes in them.

Check out the article and read the blogs below to see just how misinformed smart WSJ readers can be.

Would You Invest in This Man?

Welcome to Guest Blogger - Ingrid Mida Masak.

In all the research I did this week, I am left with a tremendous sense of respect for Yves Saint Laurent and his revolutionary fashion ideas and proven business success. There are many lessons to be learned from the career of this talented designer:

1. A degree is not required.

Yves only attended the prestigious Chambre Syndicale school of haute couture for three months before quitting. He emerged as a promising young designer by winning the first prize for a cocktail dress design in a contest sponsored by the International Wool Secretariat. He was only 17 years old when he was hired by Christian Dior.
2. Be innovative.

YSL was one of the first to use couture as a laboratory. Although many of his design innovations endure today, he was not without his share of flops. As I mentioned yesterday, his introduction of street fashion in 1962, ie., the leather jacket for women, was considered a failure and resulted in his dismissal from the house of Dior. As well, he included knickerbockers in his collections more than once. During an interview on France-Info radio, his business partner Pierre Berge said "Saint Laurent was a true creator, going beyond the aesthetic to make a social statement. In this sense he was a libertarian, an anarchist and he threw bombs at the legs of society. That's how he transformed society and that's how he transformed women."
3. Failure can be the path to something bigger and better than you ever imagined.

After YSL was dismissed from Dior and conscripted into military service, he was hospitalized for depression and subjected to such horrors as electroshock therapy. Enduring the public humiliation of being fired and the shame of being in a mental hospital did not mean the end of Saint Laurent's career. Without this break from the house of Dior, it is conceivable that he might never have enjoyed the success that he did.
4. Know your strengths and find a partner whose strengths compliments your weaknesses.

Yves Saint Laurent was a true artiste - creative, sensitive, and fragile. Undoubtedly it was his partner Pierre Berge who was the mastermind behind the business success of the house. In 1966, the house of YSL opened the first ready-to-wear Rive Gauche boutique by a couture designer on the Paris Left Bank. This move was instrumental in the development of the idealogical shift that fashion was no longer just for the rich.These lessons are applicable not only to the big business of fashion but to the business of life.

In writing this post, I myself have learned about taking risks and living your dream. Merci Monsieur Saint Laurent! --

Posted By Ingrid M. to The Passionate Fashionista at 6/06/2008 08:42:00 AM

Does Private Equity Care About Public Relations?

While most of us private equity types can not jet over to Switzerland for the world’s top economic conference at Davos, we can now get a view into many of the panels with their “celebrity business people” thanks to You Tube postings. Here is one of my favourites featuring David Rubenstein of Carlyle, a top private equity firm in the USA. He explains why his company investments into private companies have done so well. Despite the charm offensive, the first questioner, a Spanish journalist still wants to know how private equity will affect unions. Rubenstein manages to show that private equity has a heart and a sense of humour.

It does raise the issue that private equity needs to do a better job with public relations and, as Rubenstein says, "talking about what private equity does and how it works." My book Money Magnet certainly recognizes that family businesses do not know enough about it and the broader options it offers. Rubenstein does go on to emphasis that the name private equity is a bad one as when they bought Hertz from Ford there was far more disclosure required as it was no longer buried in a large company's financial statements. The same laws and legislation applies to privately owned business as to the public ones. Just because a company partners with private equity does not mean it is spirited away to a deep, dark cave.

Link:Watch Davos.

Such Shocking Performance!

I chatted to a fund manager about the fact that 90% of Businesses in the USA are Still "All in the Family" or family owned. In Canada the figure is given as 75% to 80%. This is still very high. When I made a call to a my friend, Mr. Fund Manager, he had his worthwhile version of why this is the case:
Me: So why are 90% of all business in America held by families and are private?

Mr. Fund Manager: Because the returns are generally too low to cover a true imputed cost of capital (currently some 9% - 3.5% risk free rate plus 5.5% equity risk premium - for an ungeared company) - markets would not stomach such underperformance....
Me: I think it's more about not wanting anyone else to hold the steering wheel - power and control. Still...I am stunned by this figure.
Mr. Fund Manager : Perhaps that too. But I am always amazed at how most private companies ignore the true cost of capital (because then can get away with it!) and as such produce little positive EVA...
Me: Yes - VERY true. I hate to be sweeping with generalizations but what you say is valid. Private business owners generally do not look at cost of capital or EVA. Only one CEO has even mentioned that on a first meeting when we discuss how to access capital.

Mr. Fund Manager: Interesting point. So what’s new at your end?

Me: We are getting a flood of new private equity funds hitting the market and calling us for companies.

Mr. Fund Manager: So much for the slow down. Are you free for lunch next week?

What's Wrong with Canadian Private Equity?

Another one bites the dust - one of my favourite Canadian success stories is Ace Bakeries which just sold to an American private equity fund. Caroline Alphonso tells the story in her article in The Globe & Mail. Linda Haynes is the partner (wife) of Martin Connell and they are at retirement age so, understandably, want to sell.
At the risk of sounding xenophobic - OK, I'll spit it out. For crying out loud, why not give Canadian private equity a chance? IMAX, another beloved Canadian icon, was sold to American private equity partners and it was a rocky ride and we are all watching Lululemon. In comparison, private equity companies here in the Canada do a great deal for their companies. If there is a bump in the road with Ace Bakeries, it's a plane flight from Chicago to sort out the hassle and is there the same emotional commitment? Adam Smith, my favourite Scottish writer of The Wealth of Nations, was actually a professor of philanthropy. Yes, he was and it taught him pay a great deal of attention about this emotional side of humans and how it drives our work.
This emotional underlay, is the foundation of his book which is still a definitive text on how companies grow and how they get extinguished. Linda and Martin talk about their philanthropy in the Globe & Mail interview, but I would ask how much they thought about their employees and the Canadian economy by selling to American investors when there are so many fine Canadian private equity companies? Did they even try?
OK - I spoke to Linda and she tells me that one of their Board members had a relationship with a company in Chicago and they found a private equity buyer. There were 40 companies bidding on ACE. The private equity firm that bought ACE from this auction is not in the food business. I guess if you are selling, Linda tells me it's like an old affair - it's over, move on, no looking back. I get that - fair enough.

The Delecate Art of Delegating

Throwing that ball up and passing it to your people to catch is tough. Delegation is a thorny issue for many bosses who prefer to do the job themselves. But a good leader gets more satisfaction when able to get others to do tasks at expected high standards.The worst thing a boss can say is "It's going to take me two hours longer to explain this to my employee than if I just do it myself." Then you justify this to yourself: The quality and standard is better, plus the job is done.

But what about the employee? Where is their challenge, their opportunity to grow?The owner of a teen computer camp shared with me his frustration over his staff and their botched efforts at doing the job. How could he motivate his team to work at, or close to, his level? If the boss had used a little bit of emotional savvy, he would have seen the employee physically deflate, her spirits sinking faster than when the judge told Paris Hilton she had to do time, again.

What this approach to delegating misses is that a few hours of rigorous coaching will save hundreds of hours over the next year, freeing up time for revenue- generating tasks and for taking more responsibility yourself. A reputation for teaching is gold. Star performers gravitate toward companies that train skills and push them to embrace scary tasks that challenge. Bill Gates, despite his questionable haircuts, set an outstanding performance level for programmers; this itself attracted talent. But Gates was able to balance the creative tension of setting the standard by encouraging the programmers to meet – and overshoot – expectations.

As the boss, your role is to instill the highest standards of performance and adherence to a shared vision of excellence. Only then can you up the ante and really let go. If you are having problems delegating, mull over these three questions:

1. Am I recruiting in the same old places, in the same old way? I read a business plan for a nail manicure franchise and was astounded by the suggestion to hire university students part time. That's when it hit me that many more people are going to university and ending up in low end jobs. To help their graduates, universities have terrific job posting internet services. The teen tech camp owner hired students from Waterloo's co-op program who were thrilled to work in a tech environment rather than flip burgers (or paint nails).Make it a rule to hire people who are smarter than you. In the interview, talk about the high level of work expected until their eyes pop. The stars will be excited by the expectations, and you don't want the ones who say "no" anyway.

2. Have I really defined my standards?The process of delegating is as fragile and complex as weaving a spider's web. How are you going to teach your skills and level of expectations? How can you illustrate how the end result should look? How can you make sure employees get the job done – building a web to catch the flies – even if it's not quite how you would have done it yourself?With an early-stage business, such as the teen tech camp, there may not be enough in place to show how to do the job. Asking employees to come up with their role and the end result that they think is expected is one way to build up a training culture. Another tactic: Don't underestimate the role of storytelling and myths in building the results you expect. For centuries, little children have been told fairytales to prepare them for "real" life. It works. Business magazines are full of tales of how an employee ran through a burning building for their client. Get one of these stories in your culture too.

3. Am I prepared to let go?Ask yourself this: Do I really step away when I delegate? Once I've set the standards, do I really let go? Alarm bells should go off if you hear your employees saying, "We know you are just going to change everything we do anyway."

Working with managers and being one myself, my experience is that disasters happen when I have not been clear about the end result and I keep popping my head in randomly, interfering with the process.