Not all private equity deals are good deals

The big private equity stories get covered by the newspaper media because they are known by a national readership. In Chrysler's case, an international readership knows the compnay, maybe not the PE firm, but a huge number of people are paying attention. Here is a cautionary tale told by LOUISE STORY in the New York Times about the downfall of Chrysler and how on its way down, it pulled off the golden crown of one of private equity's kings. (Read it on NYT)

FOR Steve Feinberg, the onetime owner of Chrysler, the past year has been a crawl toward defeat. He lost billions of dollars. He lost prestige. He lost his privacy. And he ended up a ward and supplicant of the federal government.
"Cerberus did not have a clue about the automotive industry," said Don Johnson, a former Chrysler employee in Ohio. "I don't think anything could have been worse." Steve Feinberg on Capitol Hill in December, as lawmakers worked on a bailout for automakers. "From the day we bought it," he recently said of Chrysler, "we worked hard to improve it."
But, even now, Mr. Feinberg, a man who can play a decent game of chess while blindfolded, is hard-pressed to pinpoint many mistakes. Sitting in his office on Park Avenue, far away from the detritus that surrounds Detroit, he grows pensive when asked what he has learned from his audacious — and failed — effort to privatize and resurrect the legendary and deeply troubled auto giant. “I don’t know what we could have done differently,” he says, crossing his arms on his chest. “From the day we bought it, we worked hard to improve it.”
He pauses, pondering, as the clock ticks away. Then he shakes his head. “We were too optimistic on timing,” he says. “Maybe what we should have done was not bought it.” Mr. Feinberg took over Chrysler almost exactly two years ago, promising to revive the company. Chrysler filed for bankruptcy protection at the end of April. So how he and his private equity firm, Cerberus Capital Management, choose to describe their journey with Chrysler is a delicate matter.
If he says he should have shelled out more money to help Chrysler, he could face the ire of investors who have already suffered heavy losses on his gambit. If he says he should have simply dumped Chrysler’s auto arm, while clinging to its more promising finance unit, he could be accused of caring more about his wallet than he did about Chrysler’s workers and the automaker’s role in the economy.
Mr. Feinberg’s education at the hands of Chrysler, the government and economic reality is emblematic of the limits private equity players have encountered as they’ve sought to reap outsize returns while also contending that they had the smarts and managerial prowess to repair companies of any size. Not too long ago, some pundits and analysts wondered whether private equity firms — backed with a rising tide of easy bank loans — could gain enough traction to make runs at seemingly untouchable behemoths like General Electric.
When Cerberus began poking around Detroit, some at the firm said they thought that the American automobile industry was going to be the biggest turnaround story in history. In sessions with potential investors in the last few years, the Cerberus team came across as passionate, skilled and incredibly confident that they could succeed where others had failed. “I thought, wow, this really signals a real change in the landscape here,” recalls a person who attended a Cerberus session who asked to remain anonymous because of agreements he signed. “I guess it gave me hope. The auto companies needed an enormous amount of capital, and where else was it going to come from?”
John W. Snow, a former Treasury secretary in the Bush administration and Cerberus’s chairman, also heralded Cerberus as Chrysler’s savior, likening the firm’s investment to the government rescue of Chrysler in 1979. “Over 25 years ago, when Chrysler faced bankruptcy, it turned to the United States government for assistance,” Mr. Snow said at a National Press Club meeting in 2007. “Today, Chrysler again faces new financial challenges. But it is private investment stepping in to inject much-needed support.”
Cerberus and its co-investors ultimately invested $7.4 billion in Chrysler, a sum now worth an estimated $1.4 billion. Ideally, Cerberus hoped to wed Chrysler’s finance arm to another finance company it controlled, GMAC. To that end, the risks in Chrysler’s auto business were something that the Cerberus team thought it could manage and that wouldn’t stand in the way of making billions of dollars for investors. “This will go down as one of the investments made at the very top of the credit bubble,” Josh Lerner, a professor who studies private equity at the Harvard Business School. “They don’t look good. This will be a black eye on their record.” Indeed, GMAC and Chrysler became so weak that they needed $22.6 billion in government aid in the last year to stay afloat. For Chrysler and its workers, investors, business partners and customers, was all of that worth it?
Mr. Feinberg defends his actions, saying he did everything possible to help the company. Known for avoiding publicity, he says that he was naïve not to anticipate the public attention that would surround him once he bought Chrysler and that he would have avoided the investment had he known. “I always view the press as something for guys who were trying to do big things,” he says, perhaps overlooking that Chrysler was, indeed, a very big thing.
DON JOHNSON, a former Chrysler employee, says he worked on initial production of the Jeep Liberty at a plant in Toledo, Ohio, in summer 2007, when Cerberus won the right to buy Chrysler from Daimler of Germany. To the surprise of some, Mr. Feinberg managed to woo the support of the United Automobile Workers for the deal. But Mr. Johnson says he was always skeptical about the carmaker’s new owners. “Cerberus did not have a clue about the automotive industry,” he says. “I don’t think anything could have been worse.”
Still, if you peel back Mr. Johnson’s argument, you quickly find a story of an automaker that was already in peril by the time Cerberus came on the scene. For example, he says the body shop at his plant couldn’t produce Jeep frames fast enough to keep up with the paint and assembly lines. Instead of fixing the problem, he says, the factory paid the body shop workers overtime to come in Sundays to keep up. Cerberus took the helm about a week after Mr. Johnson’s team ran into problems with the Jeep. When Mr. Feinberg addressed workers at a town hall meeting at Chrysler’s headquarters in Auburn Hills, Mich., shortly after the deal, he spoke of his long love of American manufacturing, according to workers who attended the speech. In particular, he said he was proud to repatriate Chrysler’s ownership from Germany.
“Steve saw this as a huge patriotic opportunity, in addition to a great investment,” says Robert L. Nardelli, the former Home Depot chief executive whom Cerberus installed at Chrysler’s helm. Although some investors doubt that anything other than profits drove Mr. Feinberg’s investment, many say they believe that he was authentically excited by the prospect of reviving an American corporate icon — a theme that Mr. Feinberg is happy to support.
Surrounded by rifles, a motorcycle and model cars in his office, Mr. Feinberg mentions family members who have served in Iraq and a brother-in-law who worked at G.M. He apologizes for rambling and explains his motivation for investing in Chrysler: “I love this country,” he says. “I feel it’s been great to me. I had a great chance.” Still, Mr. Feinberg, 49, has spent years as a dealmaker. The son of a steel salesman, he graduated from Princeton in 1982, where he studied politics. He went into finance so he could pay off his student loans. He worked at Drexel Burnham, the investment bank made famous by Michael R. Milken before it collapsed, and then, after a brief stop at a smaller firm, he was a co-founder of Cerberus in 1992.
For years, Cerberus was largely a trading shop specializing in distressed debt. But by the mid- 1990s, Mr. Feinberg expanded into buying and selling distressed companies and hired dozens of seasoned corporate executives to run them. Chrysler was the biggest prize he had ever bagged, and many co-investors say they always believed Cerberus’s stake in Chrysler’s auto operation was never the main reason the firm was interested in the company.
According to five people who heard Cerberus’s Chrysler pitch, all of whom requested anonymity because of confidentiality agreements, Mr. Feinberg’s deputies valued the financing unit more than the auto operation. In fact, the deputies believed, the finance unit’s value covered the cost of buying Chrysler, making the car company something of a bonus — if that part of the investment worked out, great; if not, Cerberus could still profit on the finance unit.
Mr. Feinberg says he believed the automobile operation had great potential value, perhaps even more than the finance arm if Cerberus could put the automaker on the right track. But that meant he and Mr. Nardelli (who had never overseen a car company) had to effectively manage the auto operation — no small feat.
By October, only three months into Cerberus’s tenure, Mr. Johnson says it was becoming obvious to him and other workers that trouble was ahead. “We went from three shifts to two shifts to one shift within a year,” Mr. Johnson recalls. “Then there was just down week after down week.” To reduce expenses, Mr. Nardelli cut excess factory capacity and billions of dollars in fixed costs. He improved the interiors of several models, which bolstered some of its approval ratings.
But there still wasn’t a strong demand for Chrysler’s product line, which was packed with large vehicles like minivans and S.U.V.’s at a time when skyrocketing gas prices were making consumers interested in more fuel-efficient cars. The company was aware that its lineup was far too limited. And Cerberus sent Chrysler executives around the world to seek partnerships with foreign automakers like Nissan. The hope was that those companies would help provide a broader product line for dealers.
But there was not time for any of the efforts to bear fruit. Chrysler was burning through cash. “Once the car market stalled, the cash in the auto market evaporated,” says Maryann Keller, a longtime auto analyst and consultant, of Chrysler’s predicament. “The cash was leaving their balance sheet, and they weren’t selling cars to make money they could invest.”
That situation was made worse by hefty interest payments on more than $10 billion in debt that Cerberus arranged for Chrysler as part of the takeover, which left the automaker carrying piles of debt just as auto sales were about to plummet. While many private equity deals involved saddling companies with debt to pay off investors, Chrysler needed to take on more debt because it had so little cash on hand to finance its operations, some analysts say. The company paid back some of the debt in November 2007.
Ms. Keller says that the company that Mr. Feinberg took over was already suffering from myriad problems: a bad cost structure, a limited product line and no pipeline of more diverse offerings. In short, she says, Cerberus had simply bought “a basket case.” At the beginning of 2008, Mr. Feinberg sized up his investment in a private letter to his investors. “We do not need to be heroes to earn a good return on the investment in Chrysler,” he wrote. “We do not need to transition the car industry or even to return Chrysler to a much stronger relative position in the U.S. car market in order to be successful.”
His letter sent a chill around New York, where dozens of hedge funds had joined in his Chrysler bet. Although these firms had agreed to let Cerberus control decisions involving their investments, there was fear about how his harsh words might affect the industry’s image. After all, such a steely, hard-headed look at Chrysler didn’t mesh with the patriotic tone of Cerberus’s other statements about the company. Nor did it comport with the private equity industry’s broader arguments that its investments were good not only for its firms, but also for America. Cerberus, meanwhile, was unable to stop Chrysler’s downward spiral. Last fall, Chrysler and General Motors tried to merge their operations, a scenario Mr. Feinberg supported, but a deal could not be struck. And in November, Chrysler announced a huge employee buyout. Mr. Johnson, the worker at the Toledo plant, joined thousands of others who signed up.
“There was absolutely no hope” among employees accepting the buyouts, he says. Mr. Feinberg says that he sympathizes with Mr. Johnson, but that he also believes business restructurings are, unfortunately, often brutal affairs. “It’s demoralizing when things go down,” he says. “But that’s a turnaround, you know. Some guys make it; some guys don’t want to deal with it. This was the most difficult environment. You couldn’t think of a worse storm for an employee to have to live through.”
It was also, as it turns out, a bad storm for Chrysler’s owners. MR. FEINBERG, a longtime free-market enthusiast and a Republican who never envisioned himself needing the government for help, suddenly found himself running a company that needed federal support to stay alive. By early last December, with Chrysler bleeding cash, he had become a vocal presence in Washington, circulating around Congressional offices to get his story out. He even offered to put tens of millions of his own money into Chrysler, a move that would have been largely symbolic.
“He said his dad was a blue-collar manufacturing type,” says Senator Bob Corker, Republican of Tennessee, who often spoke with Mr. Feinberg. “You sit there and you talk to Steve, and you can tell he’s from a background that greatly understands what the American worker is all about.” But Mr. Feinberg soon found himself negotiating with government officials who understood what Wall Street was all about.
When Congress did not pass a rescue bill for the automakers, the Treasury Department stepped in, using financial authority it had already assumed from its bailout of the banking system. Cerberus’s fate moved into the hands of Steven Shafran, a Goldman Sachs alumnus who represented the government and was regarded inside Treasury as a tough negotiator.
Mr. Shafran forced Cerberus to accept a painfully low valuation of its GMAC stake. He also quashed arguments by Cerberus that Chrysler’s financial arm shouldn’t be responsible for paying back bailout funds provided to Chrysler’s auto operation. At some point in December, Mr. Feinberg began to realize that Cerberus’s investment in Chrysler’s auto operations was largely unsalvageable. In a phone call with Mr. Shafran about 2 a.m. on Dec. 19, he offered to simply give the car company to the government, according to five people briefed on the call.
Mr. Feinberg says he was offering Cerberus’s stake in the auto company to the government as a bargaining chit for negotiating with bankers, the union and others. But some Treasury officials were worried that he was simply trying to avoid leaving the finance unit on the hook for $2 billion of the $4 billion the auto operation received in federal aid.
Treasury officials declined Mr. Feinberg’s offer and also were so wary of his motives that they put in a rule requiring that federal bailout money provided to Chrysler’s financial arm could be used only to help Chrysler’s auto unit. Despite all of that back and forth, Mr. Shafran says he believes that Cerberus behaved professionally. “They were prepared to work closely with us to ensure a smooth landing for the car company,” he says.
When the Obama administration took over this year, Mr. Feinberg got a second chance to negotiate. He faced yet another Wall Street refugee trying to save the auto industry, Steven Rattner, as well as Ron Bloom, a former banker who worked more recently for the United Steelworkers union. Mr. Feinberg was particularly focused on decreasing the $2 billion guarantee the previous administration had wrung out of Chrysler’s financial arm. He eventually knocked that amount down by hundreds of millions of dollars after agreeing to give up some other things the government wanted — something Mr. Feinberg regards as a fair outcome.
“Basically,” Mr. Bloom says, “they realized they made a poor investment and wanted to end it in a decent way.” Chrysler filed for bankruptcy protection on April 30 to help clear the way for a merger with the Italian automaker Fiat. Cerberus now values its Chrysler stake at 19 cents on the dollar. It is a humbling and embarrassing figure for Mr. Feinberg. But it’s better than zero cents on the dollar, which is what his stake might have been worth had the government not bailed him out.
Mr. Feinberg and his colleagues at Cerberus maintain to this day that their time at Chrysler was, in part, a reflection of their patriotism — a view that some analysts find hard to swallow. “It’s hard to believe that any of these firms — including Cerberus — will be viewed as patriots in 10 years,” said John Rogers, a private equity analyst at Moody’s Investors Service, “because I don’t think their impact on any of these companies will be seen as so positive for the overall economy.”
Mr. Feinberg still begs to differ, saying his experience at Chrysler has left him feeling like a good citizen. “There were times we could have been tougher and pushed harder and gotten more,” he says, “but it wasn’t the right thing for the country.”

Government infrastructure spending has arrived

Aecon talks about the infrastructure industry in the second half of this year - looking good. http://tiny.cc/s6vma
The CEO, Scott Balfour, admits he is not sure if the rush of work is due to the government spending on infrastructure but that there is more work than they usually see. When I last heard Scott speak, it was to The Ticker Club, Toronto, and I was impressed with his positive energy and global perspective.

Here's part of the article:
By David Paddon (CP)
TORONTO — Canadian construction heavyweight Aecon Group Inc. (TSX:ARE) is finding new bidding opportunities are coming forward at an unprecedented pace that's likely the result of government economic stimulus packages, top executives say.
For the last six or eight weeks there have been significant new project opportunities every week that are "clearly being pushed as part of the stimulus package that we've been hearing so much about," Aecon president Scott Balfour said Wednesday on a conference call for analysts.
One analyst noted that some of the projects on Aecon's to-do list have been there for some time before the economic downturn and asked how much credit to give to the government stimulus spending.
"Truthfully, I don't know that it's possible for us to differentiate," Balfour replied. "Would all those projects still have been going but for the stimulus package? I just don't know."
But he added that the pace and number of projects coming forward at once has never been seen before "and so I can't help but believe that a lot of that is as a result of the incremental funding from the stimulus programs."
John Beck, Aecon's chairman and chief executive officer, said the Toronto-headquartered company is seeing an urgency to spend the money prior to March 31, 2011, the announced date for end of the federal stimulus program.
"And so there's a scramble. We're seeing that on some of the projects that may have been planned before," Beck said.

Unions lambast private equity

Here is an article in the New York Times ripping away at Private Equity by ANDY STERN, president of the Service Employees International Union. Read at WSJ:

May I add that this article is a great illustration at the disconnect between private equity and unions. Private equity's process is a black box for union leaders and an anathema, particularly to those who do not want to give up their 18 days paid sick day leave. As one commenter put it: "When Andy Stern and the SEIU subject their pension funds to the same oversight that he is suggesting should happen for private investors (as is the law), perhaps I'll take more seriously his analysis of how best to regulate capital markets."
Here's Andy:

While we’re still digging ourselves out of the greatest economic crisis since the Great Depression, private-equity firms are shoveling dirt back in the hole. Firm leaders still argue that the over leveraged, privatized and market-worshipping financial model they perfected—uninhibited by regulation and enforcement—is key to rescuing our nation’s banks.
Last month, the Federal Deposit Insurance Corporation (FDIC) released draft guidelines limiting the ability of private-equity firms to invest in failed banks. These new guidelines will ensure that the banks are well capitalized, that the details of their investments and loans, like those of any commercial banks, are made available to the FDIC, and that the FDIC and other agencies can prevent a rerun of the Savings & Loan crisis of the 1980s and ’90s.
Meanwhile, private-equity stalwarts have been arguing against those guidelines. If we are to believe these guys, any attempt to rein in private equity’s ability to invest in bank deals would stifle investment and hinder economic recovery.
They promise they’ll play by the rules this time, that we can trust them, that they’re looking out for taxpayers. But we’ve played that game before. And we learned ordinary Americans pay the price when financial markets are unregulated and over leveraged deals—which initially thrived—eventually go bust.
We lose our jobs as our employers cut back or are forced to close their doors altogether. We lose our retirements as the value of the stock market plummets, along with our investments and our pension funds. We lose our homes because we can no longer afford our mortgages after getting laid off or having our hours cut. We lose our recovery when banks cut off the credit our small businesses need to survive.
But hard-working people lose in more ways than this. As homes foreclose and businesses go bankrupt, states and cities lose tax revenue—resulting in cuts to services we depend on. That tax revenue could be used to provide health care for all, develop a new green economy, or foster a world-class education system. But instead of investing in our future, we end up bailing out a reckless financial industry.
Most Americans, like myself, believe in a pretty simple philosophy—that if you work hard and play by the rules, you should be able to get by and raise a family, send your kid to college, and retire with dignity.
That’s been the promise of America for decades—until a handful of people on Wall Street and in Washington figured out how to rig the system against us.
Nobody is trying to stop private-equity firms from making profitable investments. But we need to ensure that the decisions made by a few never again threaten our ability to provide for our families and win a better life for our children. The FDIC’s guidelines are, for two reasons, an important step toward protecting the economy from future financial recklessness.
First, banking is still a relatively new industry for private-equity investors. It’s therefore not unusual for the government to provide them with increased oversight, ensuring their new investments prove sustainable. Private equity’s recent track record suggests that it needs regulation on this front.
For example, the Texas Pacific Group’s (TPG) disastrous investment in Washington Mutual last year prevented the financial giant from raising additional capital until it was too late, resulting in its forced fire-sale to J.P. Morgan Chase. This wiped out TPG’s entire investment.
Then in May, four private-equity investors teamed up to buy BankUnited—a bank with $12.7 billion in assets and $8.3 billion in deposits—for only $900 million. The FDIC committed to share in 84% of the bank’s losses. Though taxpayers subsidized the purchase and took on most of its risk, private-equity firms stood to gain most of the profits.
Second, private equity’s entire business model is based on reworking the connection between risk and reward. In this case, they get all the rewards while the government and taxpayers take on all the risk. This is not the way to stabilize our banking system. The FDIC’s guidelines ensure that more risk is spread out among investors with less saddled onto the taxpayers.
These are the kinds of guidelines that the Service Employees International Union (SEIU) called for long before this economic crisis. SEIU wanted to ensure that private-equity firms wouldn’t continue to reap all the rewards of their investments while using workers and taxpayers as a backstop against potential losses and failures.
The FDIC’s new guidelines are a good first step, but full economic recovery will take more. We must continue to act more boldly and more broadly if we are truly serious about building a new financial model that rewards long-term sustainability over quick profits and fad investments.
As I said at the top of this article, Mr. Stern is the president of the Service Employees International Union.

Big brand private equity to get the upper hand

The Securities and Exchange Commission Monday released the full, 114-page documentation supporting proposals to ending pay-to-play problems at public pension funds that it made last month.
As sister blog Private Equity Beat points out, reports Scott Austin, the documentation affirms what many placement agents had feared after reading the short initial proposal from the SEC, which was somewhat vague: under the new rules, private equity firms would be banned from using placement agents to solicit business from government pension fund clients.
With regards to venture capital firms, which generally don’t use placement agents as much as buyout firms, this is especially troublesome to the smaller firms that rely on them to raise capital. If this ban does go through - the proposal will be open for comment for 60 days, it may give the so-called brand name firms even more of the upper hand. For reactions, read more in VentureWire….

An Act of God?

Those who know me personally will conclude (I hope!) that I am not the type prone to throwing shoes at the television, at least not as early as seven in the morning. So I must confess that, on more than one occasion in recent weeks, I have come perilously close to doing so. The object of my un-desire? The normally level-headed crew that run the Squawk Box morning show on CNBC Europe. Mea culpa; a day hardly passes when I have not been tempted to bung a brogue at the US CNBC crew who – with a few honourable exceptions such as Bob Pisani – are so smug, they cannot see an empty space let alone an empty glass without imagining an overflowing swimming pool. And, for the record, I only watch Bloomberg when I cannot get CNBC; Bloomberg’s Stars and Stripes cheerleading makes CNBC look sober, even sombre!
What is it that so gets my ire up? It is the idea, so widely peddled in the Western media and even sadly in the venerable Financial Times, that we are experiencing a GLOBAL financial crisis. NO! NO! NO! What is happening is first and foremost a WESTERN WORLD financial crisis, a world where Japan is arguably not merely a but the founding member. More people live in countries that will see their nation’s GDP grow this year than live in those that will see it contract. As John Stopford so eloquently put it: “It is the Developed World that is experiencing an Emerging Market crisis.” Yes, of course there have been repercussions for most of the rest of the world, not least in (why am I not surprised?!) that “wagon-still-hitched-to-the-wrong-ox”, South Africa. But in Asia – where the world’s newest economic locomotives are stationed – and Latin America, Russia, the Middle East and much of the rest of Africa – home to the world’s main ‘coal trucks’ – these repercussions are much more akin to the buffetings one might feel when a hurricane passes five hundred miles away: the effects wear off quite quickly.
For completeness however, note that some emerging markets – the passenger cars of Eastern Europe, the Baltic States and Mexico – are marooned in a siding by virtue of being hitched to the ‘out-of-steam’ Puffing Billys of Europe and the US respectively. Unable to be lower cost than Asia, no longer able to sell their migrant workforce into their bigger, richer next-door-neighbours, these emerging markets have found their place in the world’s value adding hierarchy undermined from all sides. In Eastern Europe and the Baltic States in particular, chronically high cross-border, cross-currency debt burdens owed to Western European banking houses mostly in the form of house mortgages are threatening to precipitate maxi-devaluations and sovereign defaults. If Latvia goes, which Eastern European and Baltic houses of cards might tumble down in its wake?
Most other emerging markets however are still moving forward precisely because their houses – be they financial or residential – have not come tumbling down. Of course, as is now well known, in the West, the houses of Lehman’s, AIG, Northern Rock, Fannie Mae and Freddie Mac have been razed to the ground whilst the houses built by the likes of Pulte, Lennar, Horton, Beazer and Taylor Woodrow have crumbled in value. Given the interconnectedness between the financial health of the typical Western banking house with the typical Western residential house, and the fact that the failure of the one has hastened the fall of the other and vice versa, was it any wonder we witnessed a plague on both these Western houses? By contrast, the banks of emerging market locomotives and coal trucks may well be boring but at least in their world, one can still say they are as safe as are their houses (though I fear this simile may have outlived its usefulness! As safe as the Bank of China, perhaps?!)
So why do so many blinkered financial commentators in the West make the mistake of assuming that their current financial crisis is everyone’s financial crisis, that it is truly global?
The first answer is that many hardly recognise that there is a bigger world out there beyond the end of their own national noses – to borrow the title of a Michael Jackson song, they seem to assume “We are the World”! Wrong; they are not, never were and never will be. Indeed, as much as it may gall those who sit in their home-biased business Western TV studios to admit it, there is a whole New World out there beyond the West, a world wherein arguably the greenest pastures open to mobile global capital now lie.
Secondly, these commentators assume that because they are the centre of global finance (which for now they are but, given recent events, this status is now living on borrowed money and so on borrowed time), they jump to the conclusion that what is rotten in the core must by definition be rotten everywhere. Wrong again; yes, the periphery has inevitably been bruised but it is by no means bowed; indeed, much of it is already showing signs of restoring its much higher growth trajectory when compared to the now “Turning Japanese” West. Perhaps their misconception is wrapped up in a naïve and indeed even patronising belief that what afflicts the risk-free (except that it is no longer risk-free!) rate at the centre could not but hurt the higher beta periphery even more. (As a friend in London harrumphed, admittedly in a good-natured jest: “Good God, man, are you trying to tell me that our former colonies are now doing better than we are? What is the world coming to?” What, indeed.).
Thirdly – and Western politicians use this ‘logic’ even more than do its financial commentators – there is a “get-out-of-jail-free” card that suggests if the Browns, Sarkozys and even the late-lamented Bushes can cast their domestic crisis as truly global, they can claim that its causes are largely “beyond us” so, they hope, absolving them of any blame. Like a real tsunami, they must have hoped that if the financial tsunami could be cast as “an act of God”, Western voters would not take out their anger on their Governments. So far, Anglo-Saxon voters are having none of it: “Chuck the incumbents out” has become their rallying call.
As US Republicans have learned and the UK Labour Party has already experienced in local polls and is sure to experience in national polls next year, democracy hath no fury like a house-owner scorned.
But of course, this crisis was not an act of God; it was wholly an act of man and Western politicians of all political persuasions as much as those who elected them in the first place were and are still deeply implicated in this tsunami’s formation.

Our guest blogger is Dr. Michael Power. Dr. Power may be reached at:
email address: Michael.Power (at) investecmail.com

Trading Places

Speaking to the recent International Economic Forum of the Americas held in Montreal, World Bank President Robert Zoellick commented on how lots of countries around the world would like to trade places with Canada, even though we did not escape the effects of the global economic downturn (our higher resource–driven “beta”.) He added: “Canada has had a fiscal policy managed in its budget pretty soundly over the years”.
The continuing test of this fiscal soundness lies ahead. In the meanwhile, Goldman Sachs singles out Canada as among the first of the advanced economies to emerge from recession. Respected David Rosenberg, now returned home to be the chief economist and strategist at Gluskin Sheff & Associates, sees us not having the structural fiscal deficit problems of the U.S. and being well positioned as the economic power shifts towards Asia and China. Reflecting its confidence, the Fidelity mutual fund group has set up an on-site research Team Canada. Expressions of confidence like these keep on growing.
Inflation and its possibly devastating consequences may seem a distant problem at a time of still-serious recession and economic slack. Federal Reserve Chairman Ben Bernanke and Bank of Canada Governor Mark Carney do not seem unduly worried shorter-term. At latest count the annual Canadian inflation rate had dropped to a 14-year low of just 0.4%, and four of the provinces, among them even Alberta, had sunk into deflationary territory. Nevertheless, while it may not be an immediate problem, no serious investor should ignore the elephantine inflation risk. Even if months or years early, it seems none to soon to begin taking precautionary action, adjusting investment strategies and re-examining asset mixes in this probability.
On the fixed income side, the renowned Bill Gross of PIMCO, the world’s largest bond fund, strongly recommends a shortening of term to maturity. For my part, I now prefer not going much beyond bonds (and bond ladders) of a five-year maturity – and always A-rated. For taxable Canadian investors in need of income there are now attractive resettable (5 year) preferred shares issued mostly by the banks, but also by others. And most definitely not to forget the inflation defence offered by companies that pay and continuously increase their annual dividend payouts.
Our guest blogger is Michael Graham. You can reach him at:
Michael Graham Investment Services Inc.
Tel: 416 360-7530 Fax: 416 360-5566
E: Michael@grahamis.ca
Website at www.grahamis.ca

You can't grow your economy if you can't grow the revenues

Here is a great summary from Lynn Lewis at Scotia McLeod. You can reach Lynn at: [lynn_lewis "at" scotiamcleod.com]

North American markets have continued to trade in a very tight range this week as we have heard good news and bad news stories. Following some proclamations last week that the recessions for Canada and the U.S. are supposedly over, markets rocketed higher on the expectation that economic growth is going to be strong and sustainable for the rest of 2009.

The TSX Index is getting closer to its recent high from June 10, while U.S. indices have broken through their recent highs since the market downturn last fall. The calls for the end of the recession are based on the technical definition of a recession in that some economists are predicting marginal if not breakeven growth for Canada and the U.S. in Q3; but those economists are also adding the caveat that while growth may return, the recovery will be difficult as unemployment is expected to rise further, home prices may continue to struggle in the U.S. and you'll still have a financial system that is on government assisted life support for some time.

Lynn says, "I add these caveats as they are a warning to us as investors not to get too carried away with how high we take the markets since this is not just an economic downturn we've witnessed, but a financially structural problem that is going to take years to fix."

This does not mean that markets can't appreciate over the next year or so, but it does mean that we should not see the magnitude of appreciation we've witnessed in previous recoveries when the economy expanded but the financial system was in much better condition.

We also saw the U.S. Case-Shiller Home Price Index report for May where a year over year decline of 17.06% was registered. This was better than the 17.9% decline that economists were forecasting, but let me be clear while this number is improving, it is still awful. All in all we are still cautiously optimistic.
General Commentary from Gareth Watson, CFA
An almost US$4.00 per barrel decline in the price of crude oil on Wednesday sent the TSX lower by 115 points or about 1%. The weakness was not contained just to energy but to other commodity prices as rumours continue to come out of China indicating that the Chinese government may be changing loan policy in an attempt to slow the pace of economic growth in an attempt to avoid any type of asset pricing bubbles in the near term.

Since China has basically been the place where everyone is pointing to for growth, any indication of lending restrictions or signs of reduced lending is definitely going to make investors think twice about piling into economically sensitive areas of the market such as oil, gas and base metals. The Energy subsector was easily the weakest on Wednesday followed by Materials and then Financials (even though some Canadian banks finished higher).

In fact only three sectors managed to post gains including Industrials, Consumer Discretionary and Consumer Staples. Wednesday was the second day of triple digit losses for the TSX as investors are realizing that valuations may be too optimistic at this stage of the economic cycle. Today is an exceptionally busy day for corporate earnings in both Canada and the U.S. We've had some companies already report in the U.S. this morning and we continue to see the recent trend of beating on the earnings line but missing on the revenue line which means we can't be too excited about these results as it would appear as though the earnings are being driven more by cost cutting than by revenue growth.

There definitely have been some companies that have beaten expectations on both lines, but there are others do exist where cost cutting appears to have been the theme for the quarter. You can't grow your economy if you can't grow the revenues.

Selling your business

If gaining access to funding is the biggest initial stumbling block for small businesses, managing growth is certainly the most significant second-stage challenge.
Countless businesses, in spite of showing early promise have failed for one of many growth-related reasons, from lack of cash flow and skills to poor management expertise or insufficient infrastructure. But perhaps the biggest culprit is an unwillingness or inability on the part of the business owner to relinquish the iron-fist control that they grew used to exercising (and which was essential) when the business was growing.
Unable to spread themselves across all areas of the business but unwilling to delegate tasks to others, such entrepreneurs doom their businesses to failure. Either that, or they end up selling to someone who can run a growing operation.

Bay Street Broads Club

I admire the CEO of 85 Broads, Janet Hanson and was delighted when one of my brilliant team members, Winnie Chou, sent me this article on Janet.
Her comments on putting family and relationships at the same level as their career would have been chum to the sharks backin the Ninties. I am so glad to see someone being honest about how family and love are important. As Janet puts it, "She did not want to be someone's rich aunt." It shows that the choices for women can be managed because Janet is her daughter's rich mum! Shows that it can be OK to seek happiness.
Janet's a Columbia MBA, the first woman in Goldman Sachs' history promoted to sales management, founder of a $3B asset management fund, a published author, philanthropist, mother and more.
You can also read Janet's Q&A in full on The Doostang Blog.
Here's a quick summary:

Tell us about 85 Broads and why you started it. I set out to solve a problem.
When I left Goldman Sachs in 1993, I was leaving the world I had known and loved for 14 years to stay at home with my two young children. I wanted to know what the markets were doing, I wanted to be “in the game” but instead I was at home wishing I wasn’t. I founded 85 Broads (which is a humorous play on Goldman’s street address in Manhattan) to re-establish a connection between women who were “alumnae” of the firm with women who were still in the building. You have had a very successful career in finance.

Can you elaborate on your decision to go into that field, and give us perspective on that choice?
I won the career lottery after I graduated from Columbia Business School at the age of 24 – I became an associate in the Fixed Income Division at Goldman Sachs. It was just an amazing time to be at the firm. Being in Fixed Income Sales played to my competitive strengths – I thrived because I was challenged every single day to push myself. It was incredibly hard work but it was also incredibly rewarding. The 2-year investment banking stint as we know it isn't a pervasive option for top grads today. What advice do you have for members who are facing this tumultuous job market early in their careers? My best advice: be willing to really push yourself – whether you’re doing a 2-year stint with Teach For America or 2 years as a banking analyst, this is how young people can truly differentiate themselves. If you can figure out how to live and breathe the company’s “mission,” you will earn the respect of the people who hired you and invested in you. And lastly, when you’re young, if you do nothing else, figure out how to leverage your college alumni network. That is the single best resource you have and it’s free. Like you, many of our members have elected to further their education with an MBA.

Women have made strides in business thanks to trailblazers like you. What advice would you give to the high-achieving women on Doostang who hold career success as a core value?
We have a favorite expression: “read the ending first.” Being driven in your career is great as long as you have your eye on what else will be critical to your happiness 5 or 10 years down the road. I left Goldman Sachs when I was 35 because I had no social life whatsoever. I was on track to be made a partner within a year or two. I left the firm just as my career was going into high gear so that I could concentrate on how to be in a successful relationship as well as have a successful career. Five months after I left, I came back to Goldman in a part-time job in Personnel. My friends thought I was absolutely insane. But less than a year later, I married Jeff Hanson, who I worked with in Personnel. Even though he wasn’t a “big hitter” by Goldman standards, he was brilliant and fun and we built an amazing life together. I left Goldman Sachs because I didn’t want to just be someone’s rich aunt,! I wanted to have a family AND a successful career. My approach was a bit unconventional but it worked – Meredith and Chris Hanson are the loves of my life. They are the reason I’m still happily “in the game.” Bottom line, I had the guts to know that to be happy I needed a successful career AND a great family. That is not work/life balance. That is work/life optimization.

What are some common mistakes you've observed in interacting with top grads just starting out, as well as the hiring managers who recruit them?
It is critical to figure out how to relate to young people – the smartest thing a hiring manager can do is solicit candid feedback from the young people they hire. These kids are absolutely whip smart. They are the best educated, best traveled generation ever. And they learn fast so it’s imperative for managers to keep them intellectually engaged and motivated. That is their single biggest challenge.

In a recent interview for the Huffington Post, you talk about "reading the ending first" in job search. What does this mean for our members who are actively looking for new opportunities?
It means acquire real skills which will make you eminently more qualified. If I was a young person today I would want to have killer computer skills so that I could analyze data and information better and faster. That doesn’t mean you have to be a programmer. It means knowing how to use technology to your greatest advantage. Anyone over 40 years old is probably not that familiar with how to use SEO or the newest social media tools which could give their companies or organizations a real competitive advantage. Young people, if they’re smart, will use this “edge” to make themselves invaluable in any career path. Older people are at a severe disadvantage which young people can exploit (in a nice way). That is a co-mentoring opportunity if there ever was one.

What does career management mean to you?
I will always be grateful to Nancy Reagan. When she was First Lady, she was asked by the press how she would tell young people to steer clear of drugs. Her answer: “just say no.” She was derided in the press for that rather simplistic response but guess what – saying “no” is actually one of the most important skills you need to master in order to have any semblance of happiness – particularly as you get older and are likely juggling career and family responsibilities. Jeff and I launched Milestone Capital so we could spend more time with our kids and have complete control of our own destiny. We worked like absolute dogs but we never looked back. In 2004, I left Milestone and went to work for Lehman Brothers to hedge our downside risk if our business started to falter. But as everyone knows, stuff happens. That and there are no guarantees in life. If I had to do it all over again, I would have banked! a lot more of my income from Goldman which would have given me many more options down the road.

To read more:

But You Knew This Already...

Here's a great Global Recession Chart from Moody's Economy.
Check out Nigeria - it's all that oil helping things? Is our Canadian government being too quick to say things are turning around?

Inflation beaters - Canada rocks

A reality is that politicians are seldom courageous enough to run on a platform of raising taxes to reduce deficits and pay down debt ─ and almost certainly not now.
Much easier to pay lip service to debt and deficit reduction at a price of inflated money supplies and tolerable inflation; in other words, to monetize the debt. However, the risk in this approach is of inflation getting out of hand, and in the extreme becoming hyper-inflation.
In historical terms the catastrophic collapse of Weimar Germany wasn’t all that long ago. Earlier this year, Zimbabwe, another hyper-inflated country, got to printing bank notes in denominations of up to one hundred trillion dollars, worth about US $30 at the time.

(As a side note, when I left Zimbabwe thirty years ago, I got two US dollars for every Zim dollar - Jacoline Loewen).

Imagine how China would feel if it’s estimated $2 trillion worth of U.S. Treasury bonds (purchased to help the U.S. fund its massive trade deficits) were redeemed in a currency debased anything like this. If there is one thing we should have come to realize it is that the Chinese are no pushovers.
Of course, something this extreme couldn’t conceivably happen. Nor should it, given the U.S. economy’s famed entrepreneurial drive and its enviable record of adjusting to new economic circumstances and growing afresh. Warren Buffett is one who believes America’s best days could yet lie ahead now that it is confronting its challenges “with knowledge”. I especially liked his latter reference, also having long learned never to sell an irrepressible America too short.
A much more palatable, middle-of-the-road option for debt and deficit-strapped governments would be to boost the productive capability of their economies. If inflation is defined as too much money chasing too few goods and services, and economies everywhere are awash with stimulus and deficit money, why not raise the output of goods and services to balance the two better. This way there would also be a cap on prices – and on inflation. The way to achieve this better balance? Encourage cost-saving, productivity-enhancing investment in new plant, equipment, systems, infrastructure – in everything!
In his admirable work, John Aitkens, investment strategist at TD Newcrest, sees a half-speed economic recovery accompanied by a full-speed boost in productivity. He reminds that when this happens the bottom-line impact on corporate profits can be tremendous.
Clearly, the greater the debt and deficit burdens, the greater the inflation threat. The IMF debt-to-GDP danger benchmark is 60%. In Britain and Japan this ratio is already at or close to 100%, in the US approaching 80%. In Canada by comparison it should remain in the low 30% range even allowing for the increased deficit-funding debt issues to come.
Unlike most other G8 and OECD members, Canada did save for a rainy day by using that string of past budget surpluses to pay our national debt a long way down. Not too many years ago we too had exceeded that dangerous 60% high water marker, but no longer.

Thank you, Paul Martin!
Canada’s continuing relative fiscal strength cannot be over-emphasized. Where a U.S. budget deficit of $ 2 trillion would be 13% of GDP, Canada’s at $50 billion will be closer to 3%. The same with the respective national debt burdens - theirs 80%, ours 35%. For this reason alone a resurgent Canadian dollar represents a problem of strength (not of weakness), despite the shorter-term pressures it is putting on our manufacturers and exporters.

Ivey gets entrepreneurs beyond the classroom

Running a company takes a wide lense view of a business. Some business owners get a company passed down to them from their parents through succession planning while others start one themselves. "One in three dreams becomes a reality," says Karen Mazurkewich in the Financial Post.
Ricky Zhang, an MBA student at University of Western Ontario's Richard Ivey School of Business, has not yet graduated but he has already launched a financial-services company, Trans-Asia Investment Partners, with a plan to broker deals between Chinese investors and real-estate funds in Canada. Mr. Zhang, a former associate for AIG Global Real Estate Investment Corp., formulated a plan before starting classes in London, Ont., but he said school contacts were necessary to get it off the ground.
"The most difficult thing for me was in Canada, no one trusted me. I have no relatives here, so the school alumni is the only assets I could rely on initially," he said.
Mr. Zhang spent months in the classroom honing the plan. He and his team have identified two sources of revenue: Chinese investors who will pay his company a consulting fee and developers and fund managers in Canada who will pay referral fees and have lined up contacts with immigration agencies and foreign-study consultants.
Ricky had Ron Close to help him at Ivey:
"A couple of team leaders get religion about their idea and are excited enough to go out and try to raise financing," said Ron Close, a professor of entrepreneurship at Ivey, who helps students find mentors and money. The advantage of incubating a project inside school is that you have the time to work through the angles whereas "most entrepreneurs are winging it," he said. The downside is that some team members view it as an exercise and not a calling.

How not to waste your time

I wince every time I think of Peter Lynch’s put-down that if you spent five minutes with an economist you’d be wasting three. But in the summer of 2009, the truth is that no one, no matter how expert (and not even the World Bank), can forecast the future with any real conviction. The stock markets may be forward-looking barometers, but the economic data which they interpret with varying degrees of accuracy at the best of times are of happenings measured weeks or months previously. At this time there is just too much thin ice around for anyone to be foolish enough to stick their neck out too far.
Adding to the unease is a questionable economic recovery to date due solely to government stimulus spending and pump-priming on a pedal-to-the-metal scale as never before.
In other words, a recovery that is heavily induced rather than organic. When and by how much economies will grow of their own volition once they are taken off government life support remains very much open to question.
In turn, this begs the question as to how governments are going to exit their rescue strategies and face up to the twin challenges of the exploding budget deficits and soaring national debts they will have left them with. At some point central banks, too, must start tightening the system by raising interest rates, but then what?
Going into deficit is one thing, even when well-intentioned and necessary. Getting out of the extra deep holes that have been dug this time around will be another. It will be all the more difficult if self-supporting economic recovery is as anaemic as it looks like being in most of the OECD countries.
The BRIC block (Brazil, Russian, India, China) is another matter, as also should be Developing Asia in general. China’s infrastructure stimulus seems to be working well as growth forecasts for the world’s new economic powerhouse are hiked above 7%. The pattern is similar in India, but alas not in our artificially-supported world.
On his recent trip to China, U.S. Treasury Secretary Timothy Geithner was grilled by sceptical audiences on his government’s exit plan. He didn’t elaborate other than to answer there would be a plan , but the time wasn’t yet right. The subject of exit strategies was also raised at the latest G8 finance ministers meeting. After heated discussion, the International Monetary Fund was asked to research strategies to slim budget deficits and reduce government presence in the financial sector in a way that wouldn’t re-ignite a contagious made-in-America crisis that had spread worldwide.
Here in Canada, Prime Minister Harper says tax increases or reductions in program spending won’t be necessary to return to fiscal balance by 2013-14. In which case there would need to be strong and protracted GDP growth. However, many are openly questioning the rosiness of predictions that have been badly discredited since the assurances of last November’s Economic Statement morphed into a projected budget deficit of $34 billion, now further raised to a record $50 billion. Toronto Dominion Bank economists, in particular, maintain that the government’s forecasts are so far off that its cumulative five-year budget deficit projection could in fact turn out to be double the $85 billion forecast.
THEN AND NOW
Given the staggering levels of a U.S. deficit that could climb to the $2 trillion level, or 13% of GDP, it is probably best to assume the U.S. will remain in the red as far as the eye can see. Assuming he remains in office until 2017, Barack Obama could retire as a president who has only known deficits – and massive deficits at that! Similarly in Canada, a safe assumption would be that the red ink continues to flow at both the national and provincial levels until at least the Harper government’s 2013-14 cross-over target date, but probably well beyond that.
What a change in the fiscal “weather” over the past year, and in Canada in a matter of months!
What a far cry, too, from Ronald Reagan’s inaugural declaration that “Government is not the solution to the problem, government is the problem”, and his purported belief that the nine most terrifying words in the English language are: “I’m from the government and I’ve come to help”. This time a government that has come to help is also wielding a big stick, as banks, financial institutions and the automotive industry can feelingly attest to. Just ask AIG, Citigroup and General Motors, who are now also heavily government owned and controlled.
Obamanomics vs. Reaganomics?
Big government is a new fact of life investors will also have no choice but to adapt to. Jeffrey Immelt, the Chief Executive of hard-pressed General Electric, couldn’t have put it more expressively: “The government has moved in next door and it ain’t leaving”.
Our guest blogger is Michael Graham
You can reach Michael at:
Michael Graham Investment Services Inc.
Tel: 416 360-7530 Fax: 416 360-5566
E: Michael@grahamis.ca
www.grahamis.ca

A different approach to succession planning in a family business

This week on the BusinessCast, listen to Thomas Deans, a family business owner who sold his multi-million dollar company to a strategic buyer.
Tom is a good friend who I turn to for marketing advice and anything to do with family owned business issues. He has experienced all the fun and craziness of family business that is not always obvious to trusted advisers.
This is why his amusing but also practical book is a must for every lawyer, accountant and or finance expert. It's called 'Every Family's Business'.
If you're in a family firm and thinking of succession matters, this episode is for you. Robert Gold is the interviewer and he is an accountant asking the questions that most advisers do not ask at their peril.
Listen...

The Future is Tiny

The future is tiny, says Colin Campbell in MacLean's magazine. Colin tells us that it's not just cars that are getting smaller, it's the companies too.

If you think everyone in the auto sector is feeling grim these days, then you haven’t talked to John Vernile. The vice-president of sales at Hyundai Auto Canada says the recent turmoil has been nothing but good news.

Sales for the South Korean automaker are up “in every segment,” he says—amounting to an overall surge in sales of 20 per cent during the first half of this year. “When this downturn hit, it just dialled things up for us,” he says.

Thanks in part to the demand for Hyundai’s smaller cars, the company has suddenly emerged as one of the dominant players, not just in North America but globally. It’s now the fifth-largest carmaker in the world. In quality surveys, it ranks ahead of Toyota and Honda. Market share is up, sales are up, and opportunity abounds. Despite the tough economic times, “we quietly celebrate here,” says Vernile.

In the meantime, I read that GM has put out a Cadillac perfume - tell me that it's not true! Got to keep up to date with the consumers, I suppose. I can just hear marketing: Well, if you can't afford a car, you might as well smell like one...

Jacoline Loewen, author of Money Magnet, Attracting investors to your business.

Private Equity Deal Activity Remains Slow

Although US private equity (PE) mergers and acquisitions (M&A) activity is still quiet, PE firms, armed with cash, continue to look for opportunities to invest, according to Ernst & Young LLP's 2009 U.S. PE report (available at: ey.com/us/privateequity). PE participation in minority stake deals is returning after taking a back seat in 2005 through 2007 a period during when mega-deals were in full swing. In addition, government reform in healthcare and financial services may present investment opportunities.
"PE firms are sitting on a large amount of available cash. However, leverage is still almost nonexistent which is hampering deal flow and cash deployment," said Gregg Slager, America's Private Equity Leader at Ernst & Young LLP.
Announced US PE deal volume fell 42% in 2008 compared to 2007. This downward trend has continued into 2009 with 314 transactions announced through May of this year, the lowest five-month volume since 2002 (see data charts at: http://www.ey.com/US/en/Services/Specialty-Services/Private-Equity/Announced-US-PE-Activity).
"The bid-ask spread -- the price buyers are willing to pay and the price sellers are willing to sell -- hasn't narrowed. Until it does, activity will be slow," Slager added.
According to Ernst & Young LLP's 2009 US PE report, although PE firms have historically experienced the best returns from investments made during a down market, PE will be slow in returning to the M&A arena until the credit and capital markets recover.
Read the full article herehttp://news.prnewswire.com/DisplayReleaseContent.aspx?ACCT=104&STORY=/www/story/07-23-2009/0005065044&EDATE=
NEW YORK, July 23 /PRNewswire/ --

The economy matters for private equity

I have been following Arnold on Twitter. You know, Arnold, ex-Terminator and now governor of California. He has been sharing his budget pain and what he is trying to negotiate.
California accounts for 10% of the U.S. economy. It's state budget is about $125 billion and the deficit is about $25 billion. By law, California must balance its budget each year and the fiscal year ends June 30. Back in February, the Democrat-controlled legislature could not agree with Republican Governor Arnold Schwarzenegger on spending cuts, but it did agree to put a series of tax increases and borrowing schemes before the voters in a referendum. On May 19, all were defeated. California treasurer Bill Lockyer appealed to Washington for access to bank bailout funds, but he was turned down. He has since warned that the state only has enough cash to meet payrolls until mid-summer. We are all watching.
California matters because of its sheer size on the U.S. economy, and because 49 other governors are watching to see how Washington reacts to its budget crises. State governments are contemplating layoffs, program cuts, tax hikes, facility closures and other such measures all of which will cut in U.S. employment and consumer spending in the third quarter. Over the summer we will learn how these issues play out.

Tips for strategy

As investors evaluate business plans there are certain tests to pass.
No matter the size of company, the first test (besides the people) is around the strategy. One thing I have learnt is that the right strategy is unknowable in advance.
I would far rather see that the company has a strategy to learn, rather than a strategy to implement.
All industries are ripe for disruption and that counts whether it’s banking, computers, brokerage, private equity or even the venture capital industry itself. The odds do favour the incumbent but when a “sustaining” technology is introduced, this has the potential to disrupt the current scene. As private equity fund managers know; disrupter companies can be a great investment.
So what makes a good disrupter? Some are obvious but others, not so much. Here's a quick rule of thumb: If the company’s technology gives skills to a less wealthy and skilled large group of people; it is a good indication that it passes the investor test.
The technology has a higher potential to take hold and gain market share. Now you are talking.
If I were to give some advice to “disrupters” or those wanting to be disrupters, it would be that if a business model seems unattractive to the current dominant players, and clearly is not a sustaining technology to anyone else, then you are cleared for a green light.
Time to go for it!
If you want to ponder more on disruptive strategies, I recommend any of Clayton Christenen's articles.

Are you naive about the recession's end?

So it's official - The Conference Board reported that the recession is over, but don't be too quick to think everything will be hunky dory, cautions The Gartman Letter:

Firstly, however, we shall note that The Conference Board reported its Leaders, Coincidents and Lagging Indicators yesterday, with the former rising 0.7%, almost spot on as had been expected. We note that this was the third month in a row of increases, and historically three consecutive months in a row of advances is the sign that the recession is about to end.

By definition, the “Leaders” lead, and so those reliant solely upon the Board’s Leading Indicators are not prepared to join us in our statement that the recession has ended.

We’re “OK” with that.
More importantly to us, the Board’s Coincident Indicators in June fell modestly, losing 0.2%, while the Laggers fell even more, losing 0.7%. Thus the Ratio of the Coincident to Lagging Indicators rose yet again, not by a material sum, but it rose nonetheless. This is our favourite economic data point, and it has now risen for two months in a row. Historically, it turns “spot on” the turning point of the recession, although it has fired off one or two false signals in the past. However, when the Ratio turns higher coupled with a “spike” downward in weekly jobless claims, the Ratio does a truly spectacular job of telling us that the economy is at its worst levels and that a turn higher is hard upon us.
It has turned higher; that is all we need or wish to know. What we must also remember, however, is that the economic news shall remain horrid for several months yet for we must always remember that the end of the recession means that we are at the nadir of the economy. Things are at their worst at the lows.

Consumer psychology is months, if not a full year, away from turning for the better. Retail sales will look terrible for months; housing sales, although rising from their lows, will still be hundreds of thousands of units in annualised terms below the decent levels of two and three years ago; auto sales will seem horrid in comparison to those of ’05 and ’06 and ’07; unemployment is heading inexorably toward 10% or higher and will continue to rise long into ’10, but the worst is probably upon us now and better numbers lie ahead.

Thus, those who think that just because we have called the recession’s end to be upon us means that we shall see remarkably strong economic data points immediately are naïve and out-of touch historically.

Thanks to Scott Tomenson, Family Wealth Management. You can see more of Scott at http://www.jstomenson.ca/ and also
http://familywealthmanager.blogspot.com/

Stories of Private Equity

When the announcer yelled out, “The winner of the Media category, Ernst & Young Entrepreneur of the Year—Somerset Entertainment!” Andy Burgess grinned and bounded up to the stage to collect the award.
It all looked so easy to be standing there in a tuxedo waving the trophy, but this moment of appreciation came from painful years of slogging late into the night.
Andy Burgess is one of the owners of Somerset Entertainment, which produces and distributes specialty music to gift stores and other non-traditional retailers using interactive displays where you can push a button and listen to the CDs. They have 28,000 displays in over 18,500 locations that now include mass merchants and specialty stores.
With business and Juno awards filling their shelves, Somerset Entertainment did various acquisitions and moved from $5M in revenues to $11M, until eventually they were achieving $21M in revenues. They bought a distributor and, in 1998, levered up with four flavours of debt: term debt, debt at 17% interest rate, revolving credit, and a vendor take back loan. Then the cracks began to show.
The Buffalo distribution fulfillment center had been shipping comfortably to over 100 different retail points when Andy asked, “Can you do higher volume?” Naturally, they answered, “Yes!” when in fact that was far from the truth. Somerset had been a company with $8M revenues and $2M in EBITDA (earnings before interest, tax, depreciation, and amortization—see glossary) but had grown into the supply chain approach with a distributor turning out to be slow and with the uncanny ability to mess up orders. They would say they had shipped goods—the display case with CDs—and Somerset would then invoice the retailer who, it turnrf out, had not received anything except a bill. It was October—prime pre-holiday selling time with the Christmas season around the corner.
Not good!
American retailers are the toughest sons of guns and were furious at being bamboozled. They told Andy they did not get the goods, but then told him not to bother coming around any more—they were through. Yikes! In one fell swoop, Somerset had gone from being swift deliverers of orders to slow, unreliable duds.
“We hit $36M in sales with $8.5M EBITDA but our debt was at $15M and for the first time, we stressed about breaking covenants. We got a valuation of $15M and, with reluctance, we decided to go with a private equity investment of $21M.”
In hindsight, Andy says getting private equity was good for the owners’ motivation. It took the edge off the worry about money and retirement. “With private equity buying part ownership, we were allowed to take a large chunk out for ourselves straight away but still retain control. I had been working very hard and it was good to get $6M out for the founder and owners.”
The money meant Somerset could pay off their debt straight away and still have $4M to make acquisitions.
Andy says, “With that extra cash, we set up an office in Chicago that has turned out to be the vital springboard into the American market, taking Somerset to the next level. We’ve had a bad year in there, but we did not have to worry about the business blowing up. The peace of mind meant we could focus on battening down the hatches to the storm and finding a new way forward.”
The private equity partners proved to be great sounding boards when Somerset was making acquisitions. The investors were more aggressive in wanting growth but respected Somerset’s decision to step away from some identified targets.
“Also, when we nearly lost a key person,” Andy adds, “The investors did bring him around and get him to stay.”
Andy adds, “When you are an entrepreneur working your butt off, it is great to get that cash pay out as well as have cash to grow the business. With private equity you get the best of both worlds—the cash liquidity without the rigorous scrutiny of the public market.”
“Not every company can go public,” says Andy. “Private equity will transition you.” See if you can go public. Take Andy’s test and put the necessary tick marks next to your chart.
− You are making enough money to pay for public listing and accounting.
− You are profitable.
− You have a strong growth curve for your revenues.
− You have a decent management team.
− You are a good size.
Andy says, “At the time of the private equity deal, we were too small to go public. With private equity investors, we got to retain control and we got liquidity. Private equity took us back from the brink with risky debt and looming covenants. They were the stepping stone to getting big enough until in 2005, Somerset did our initial public offering (IPO). Selling those secondary shares was sweet, too.”
As Andy Burgess stood on the stage and let the applause of the audience sweep over him, it struck him how far Somerset Entertainment had come and what a ride it had been so far.

This is an excerpt from Money Magnet: Attracting Investors to your Business. Read more:

Women need to break through in banking

A new study finds no progress breaching top ranks despite industry's employment growth, says Dana Flavelle, Business Reporter for The Globe & Mail.
I must add here that I just finished a meeting with a South African finance expert who commented that although Canada is so open in business culture to people from anywhere, Bay Street is a tight knit group of Canadians. So, although this banking study focusses on women's difficulties in getting to the top, there are very similar issues for males not from the inner circle of Canadians. The South African went on to comment on how Wall Street is far more open to outsiders.
My question is does that make Canada's finance industry more secure and less likely to suffer Ponzi schemes and Enron debacles? Today, financial business is being done more and more with people you know. Perhaps the Bay Street inner circle does seem to work at keeping stability? I think we need to keep a great deal more in mind when reviewing these damning reports which make great press but are far more complicated with long term consequences we may not understand.
Here's Dana's article:
Stunned silence, groans of recognition and occasional laughter greeted the disappointing data and frank talk yesterday about women and the glass ceiling on Bay Street.
While Canada's banks have made progress promoting women in their other lines of business, in the rough-and-tumble world of stock and bond trading and private wealth management, they have made "virtually no gains," a study shows.
Part of the problem is the industry's lingering image as dominated by a "cigar-chomping group of men" where everyone works 15-hour days, Lynn Kennedy, managing director of foreign exchange for BMO Capital Markets, told a blue-chip luncheon at the King Edward Hotel, where the report was released yesterday.
The idea women need to network after office hours to get ahead is probably overrated, Kennedy added. "In those networks, I think we think a lot more goes on than actually does," she said to a burst of laughter. "I like to think I'm recognized for what I do during the day."
Still, stunned silence greeted the revelation that the latest study by Catalyst Canada found women have made no progress even as employment in capital markets at the management level grew 12 per cent to 16,300 during an eight-year period ending in April 2008.
Despite the stated support of senior bank executives, women remained stuck at 17 per cent of all senior managers, those with jobs that lead to a shot at the corner office, the study found. They made up 21 per cent of all middle managers. Even when support staff are taken into account, women make up just 40 per cent of employees.
"To say we are reporting progress would be overstating the data and before you blame the recession, the data was collected before it began," said Catalyst Canada vice-president Deborah Gillis.
"The truth is women have made virtually no gains," she added, sparking audible groans from an audience of 250 men and women who work in the capital markets industry. "There is still no one holding the title of chairman, president or chief executive officer."
Indeed, women may have lost ground since the credit crunch that began in the United States sparked a global financial meltdown and sweeping layoffs in the investment industry, the study's main client said in an earlier interview.
"We don't even know the impact of the enormous financial crisis. It's a huge concern for me," said Martha Fell, chief executive officer of Women in Capital Markets.
There is debate in some circles that more women at the top would have prevented the kind of testosterone-fuelled risk-taking that caused the financial crisis, Fell added. "I'm not saying I agree with that, but it makes you stop and think."
Catalyst Canada has long argued that presenting the data would lead to change and Fell said she is personally convinced that's the case.
However, she acknowledged in an interview the fact that four highly publicized studies of women in capital markets in eight years have produced little change raises disturbing questions.
"How the heck is this possible? Everything we're doing suggests we should have moved the dial by now," said Fell, whose non-profit advocacy group works with women to help them get ahead.
At least one bank, TD Financial Group, defended its record, saying women had made good progress in its other lines of business.

Finance Club For Women

For women meeting with private equity investors, you will be judged within the first five minutes. Will you convey confidence that you deserve to manage a whole lot of capital entrusted to you or will your body language say that you are not strong enough?

You may give off the wrong message without even opening your mouth.
Here's Forbes Woman's best advice for transforming your self-presentation into one that commands respect. Read more:
Raquel Laneri tells us, "Jeannine Fallon, executive director of corporate communications at Edmunds.com, learned this at a training course called "Women Unlimited," which she attended when she worked at Volvo 10 years ago."
"I distinctly remember one insight," she says of the session. "At a boardroom table, women tend to pile all their materials neatly and sit tucked into the table, while men tend to sprawl out, push away from the table, cross his ankle over a knee and lock arms behind his head. It was impressed upon us that the concept of taking up space correlates to the concept of dominance." The result? "I've never sat tucked into a table since."

Carey O'Donnell Public Relations Group, based in West Palm Beach, Fla., "many of us have no idea that our non-verbal cues are making an impact. There are thousands of micro-expressions, and people are reading these, even if they are only subconsciously translating these cues."
Some of the visual ticks common to women:
--Tilting your head--a sign of listening that can be misinterpreted as one of submission or even flirting.
--Folding your hands on your lap--hiding your hands under a conference table or desk, for example, signals untrustworthiness; a cue from ancient times, when men would reveal their palms to show they were unarmed.
--Crossing your legs--a sign of resistance.
--Excessive smiling--an indication that you lack gravitas and seriousness.
--Folding your arms in front of you--translates to insecurity or defensiveness.
--Playing with or tugging at your hair, jewelry or clothes--can signal distress or, again, be misinterpreted as flirting.

Well, now we know. I love to play with my jewelry so I had better cut that out! Check out the grumpy comments from men who came to the Forbes site to read the article. One fellow pouts,"If I had known this was body language for women, I would not have checked out this site." Poor man...

5 Items to have ready for an investor

You are going to have to do a lot more than pray for money when seeking investors. You are going to have to get "investor ready" as once they look at you, like what they see, then they will want a whole truck full of information...NOW.
I get asked all the time, "Where do I find investors?"
That part is easy, actually.
The question everyone should ask is, "what will get the investor to put cash into my business?"
This is the part which separates the men from the boys (and the women from the girls.)
Before you begin looking for people, get yourself ready. As sure as the sun rises in the East, there are items that us investors will require from you. First up, let's look at the 5 items about finances that we will need to tell us more about your business or idea:
1. The income statement is paramount.
If nothing else, if, at the very least, we can look at the income statement from one year of history we can judge how big the company is and how large of a financing it can generate. We would simply look at the earnings, calculate the EBITDA and get a rough idea of the general size of the company
Multiplying this by 6 times would give a very rough idea of the valuation of the company (enterprise value) and how much financing it can withstand. Some people are saying multiple it by 3 times but I think that is a little cruel.
2. The balance sheet is also very important.
From this we can determine the capital structure of the company.
3. Then there's the structure.
Looking at the capital structure allows us to determine what the structure of the financing might look like. It also allows us to determine a more accurate valuation (equity value) and determine the amount of dilution to management.
4. Cash is king, as the saying goes.
Cash flow statements can be derived from having both of these statements, but it is helpful in determining things like how much money management must invest each year to maintain the operations of the company.
5. We are history buffs for a reason.
History: we like to get three years. This is because at least three years allows an analyst to see any financial trends in the company. Having more than three years is even better, but three years is the minimum for noticing trends.


If you are wanting to learn more and get a simple explaination on this in far more details, check out Money Magnet: Attract Investors to Your Business.
It's written by J. Loewen and is simple and, surprisingly, readable because it is written for business owners.

What's a Great Job Now?

One of the hottest jobs for B-School graduates is Private Equity and this article in the WSJ is a good reflection of the trend. (If we count the resumes flooding our office, I would agree.)
I suspect many of these recently minted MBAs think that the private equity asset class is where the big salaries lurk and may be disappointed. Private equity is about far more than the money, the best PE people are fighters for the businesses they bring into their portfolios. They have to know the full range of business - in particular, cash flow. You can not get that from an MBA. Anyway, here's the WSJ article in brief:
"The percentage of graduates from the world's top business schools taking private-equity jobs has more than doubled in the past six years, according to the business schools' numbers.
"Financial News analyzed figures from five of the most popular M.B.A. schools:
- Harvard Business School,
- Stanford Graduate School of Business and
- the Wharton School at the University of Pennsylvania in the U.S.;
- the U.K.'s London Business School; and
- Insead, based in France and Singapore.
The percentage of Harvard M.B.A. graduates moving into private equity and venture capital has more than doubled, from 8% in 2003 to 21% among last year's graduates. In that time, the proportion moving into investment banking rose far less, from 7% in 2003 to 9% last year.
Data from Stanford showed a similar trend, with 9% of graduates choosing private equity in 2003 rising to 19% last year, compared with 4% and 5% for investment banking. Harvard supplied the highest number of M.B.A. graduates moving to private equity last year, with 191. Stanford was second with 72, ahead of Wharton's 45, Insead's 25 and London's 22.
Private equity's rise in popularity reflects the perception that graduates could make more money working in the asset class than in investment banking, but also follows substantial growth in the size of the private-equity market. However, an M.B.A. isn't a prerequisite for joining many private-equity firms. A sample of 10 large European and U.S. firms showed that 52% of the executives at partner level or above had obtained M.B.A.s.
Firms' Web sites showed French group PAI Partners had the lowest proportion, with 21%, or four of its 19 partner-level executives.The private-equity units of U.S. firms Kohlberg Kravis Roberts and Blackstone Group also had high proportions of MBAs among their senior staff, 61% and 63%, respectively.
Patrick Dunne, group communications director at 3i Group PLC, where 48% of partner-level staff had M.B.A.s, said: "For some people, [an M.B.A.] can be fantastically helpful -- for those without a finance background, for example, it can be a useful way of picking up necessary skills and knowledge."

How's your AQ?

I was reading the lists of the businesses that made it the Profit 100 fastest growing companies list, and I was reminded of one of Rick Spence's recent Twitter postings. He commented, "Being an entrepreneur is like being punched in the face, frequently, but to have the ability to keep on going."
Something like that.
Like Rocky, my favourite movie character, said, "It's not how hard you can hit, but how much you can take and still keep moving forward.
So, when I emailed the many entrepreneurs I knew from the Profit 100 list, I mentioned that their adversity quotient must be very high. Most of them understood what I was saying, but a few wrote back asking if this was their "pig-headedness" quotient too!
Here's a quick summary of AQ:
Adversity Quotient, called AQ, is like Intelligence Quotient or IQ.
AQ is the science of human resilience.
People who successfully apply AQ perform optimally in the face of adversity — the challenges, big and small, that confront us each day. In fact, they not only learn from these challenges, but they also respond to them better and faster. For businesses and other organizations, a high-AQ workforce translates to increased capacity, productivity, and innovation, as well as lower attrition and higher morale.

5 Ways GE is charging up their tired batteries

Jeff Immelt spoke before the Detroit Economic Club yesterday and I got summary notes from Judith Ellis via Tom Peters web site. Here is some of what he said:
"Many bought into the idea that America could go from a technology-based, export-oriented powerhouse to a services-led, consumption-based economy — and somehow still expect to prosper. That idea was flat wrong."
"Recently my colleague Peter Loescher, the CEO of Siemens, extolled the importance of Germany as an exporting country. In my career, I have never heard an American CEO say that the United States should be leading in exports. Well, I am saying it today: This country ought to be, and we can be, not just the world’s leading market but a leading exporter as well. GE plans to lead this effort. We have restructured during the downturn, adjusting to the market realities. At the same time, we are increasing our investments. We plan to launch more new products during this downturn than at any time in our history. We will sell these products in every corner of the world. We are creating a better company coming out of this reset. Similarly, America needs a dramatic industrial renewal. We have to move forward on five fronts."
First: Increase investment in research and development.

"GE has never forgotten the importance of R&D. Each year, we put six percent of our industrial revenue back into technology — so much that more than half of the products we sell today didn’t even exist a decade ago. As a consequence, we are a huge exporter… GE’s R&D budget has not been cut. And that’s a course of action I’d recommend to every company that wants to get through the economic crisis even stronger than before."
Second: America should get busy addressing the two biggest global challenges — clean energy and affordable health care.

"There is no question whether there will be break throughs in these areas — just by who and when. The leader in these fields will dominate the global economy in the decades that come."
Third: We must make a serious commitment to manufacturing and exports.

"This is a national imperative. "We all know that the American consumer cannot lead our recovery. This economy must be driven by business investment and exports… America has to get back in that game … and it starts with a strong core of innovation."
Fourth: We should welcome the government as a catalyst for leadership and change.

"There’s a long history in this country of government spending that prepares the way for new industries that thrive for generations. Think of the NIH or NASA, and all the new innovations that came out of these programs — from computing to communications to health care. America has that kind of chance with unprecedented levels of new government investment. ... The key is making sure those hundreds of billions of dollars fall on the fertile ground of innovation, and not bureaucracy."
Fifth: It is possible for a global business leader to also be a good citizen.

"We must partner in our communities. Big business should work with smaller companies in our supply chain to help them compete globally. And we should partner with local governments to fix our education system. In the end, business leaders are accountable for the competitiveness of their own country. We must say so publicly. This will not hurt our ability to globalize. Rather, I think it will make other countries admire our business leaders more. We must end the impression that American CEOs are short-term speculators."

Fighting words from Immelt and interesting themes.

Here in Canada, our Government is certainly listening and asking what they can do to help business. Government can play a big role in driving markets and being the first customer of size. At least Jeff Immelt is an American leader taking all the criticism about the US and, as a result, doing something differently today. Lead on, Jeff.

An equation for valuation

Mary Bitti has a good article in The National Post. Read online.
Armada Data Corp. is a bright spot in the auto industry. With car sales down 15% to 20% in the past three months and GM and Chrysler continuing their downward slide, Mississauga, Ont.-based Armada Data is enjoying a 40% to 50% jump in sales and a doubling of market share, and it has plans to expand through acquisition.
In its 10th year, the company listed on the TSX Venture Exchange in Vancouver, gathers new car pricing data and sells the information directly to new car buyers via Car Cost Canada.
"We help consumers save money by giving them the information they need to negotiate a better price," says Paul Timoteo, president of Armada Data. "In these times, people are shopping around more. The more research they do, the more they see the value in our service. We've seen a huge spike in sales in the past six months."
Strong sales plus a debt-free balance sheet have placed Armada Data in shopping mode, and it is now looking at potential acquisitions. "When it comes to assessing value, I know what to look for," Mr. Timoteo says.
Namely: the company's ability to grow; its market share; its rate of growth; its history of profitability, current profitability and potential for future profitability; and its debt load. That's the financial side. Then there are the less tangible questions such as: How uniquely is it positioned in the marketplace? Who are its competitors? How does it compare to those competitors? What kind of marketing initiatives is it involved in? How do consumers and investors look at the company?
"If your company is profitable, typically the market says your company is worth anywhere from five to 10 times its annual profit," Mr. Timoteo says.
"That said, if we feel that merging a company with ours will disproportionately increase the value of our company, I may be prepared to pay more than it's theoretically worth because I know together we'll grow faster than either of us would have on our own."
That is why Jacoline Loewen of corporate finance firm Loewen & Partners and author of Money Magnet: How to Attract Investors to your Business, describes valuation as an art not a science. "It's expectations. How you sell yourself is huge," she says.
"It's about a lot more than money. Sales revenues give you enormous credibility but many companies get investment without any revenues. Angels will want to help because they like you and your business. At the end of the day you have to be able to stand by your valuation, build a case for the amount of time you've put in, the goodwill of your brand, your intellectual property," Ms. Loewen says.
How you choose to build that case may take different approaches says Steve Gedeon, professor of entrepreneurship at Ryerson University's Ted Rogers School of Management.
"There are essentially three reasons an entrepreneur would put a value on their business: To attract investment or if you are selling shares or selling the entire company; in the event of divorce or for estate-planning purposes; or if you want to offer employees stock options," he says.
"There are many different ways to go about placing a value on the business. The valuation method you choose is the starting point for negotiation. Ultimately, a company is only worth what someone is willing to pay for it."
Mr. Gedeon outlines three approaches to business valuation:
-Discounted cash flow, which is the net present value of all future profits of the company. "The trouble, of course, is nobody knows what the future will hold," Mr. Gedeon says.
-Similar company transaction, where basically, you adopt the known price someone was willing to pay for a company like yours.
-Replacement method, which pegs value at the cost to recreate the company.
When it comes to startups a rule of thumb applies: "Early stage businesses that don't have revenue will never be worth more than $2-million," Ms. Loewen says.
To build value, Mr. Gedeon, shares this rule of thumb: "The larger your profits and the more stable they are, the higher the valuation. How do you build stability? Diversify your client base and increase your differentiation in the market."
For Mr. Timoteo, the key to being profitable is simple: "Either increase revenue or lower your expenses. If you can do both you're in good shape."
The National Angel Capital Organizations' Best Practices Guide for Angel Groups and Investors ( angelinvestor.ca/Best_Practices.asp)has a detailed review of valuation methods.

Kevin O'Leary hates private equity

Kevin O’Leary says that he hates private equity – he threw out this comment on Twitter (I am enjoying his tweets). In actual fact, with Kevin's trademark honesty, he hits on the truth.
I can get Kevin’s pain.
Private equity investing ain't for most investors because most people only want to give their money out for a year, and then they want to get it back.

Private equity’s horizon is a far longer arc so there's your first hurdle.

Then investors used to public markets want to be passive investors, putting in money but nothing else. According to his Twitter tweets, Kevin wants to sit on his dock in Muskoka, sipping wine, deciding whether to BBQ ribs or not, and collecting interest on his investments.

Quite right, Kev...don't we all?
Private equity is not the usual asset class or public market vehicle you can pick up or drop overnight. It is for the long term. For investors like Kevin who likes to have his money come home to visit Daddy once in a while, private equity (with its five year investment horizon) is simply too long term.

Yes, I hear you saying that the returns on the initial lump investment will be larger than the public market returns, but private equity investors also put a great deal of effort into building the business too (not as much time for the wine sipping and BBQing). For investors who do not know how to do strategy with the company management team, or do not want to attend board meetings or pick up the phone and help sales – leave private equity alone. You will only get more burnt than Kevin O'Leary's BBQ ribs.
O’Leary’s right – private equity is hard. Funny thing though, I think Kevin would be a great private equity investor as owners would appreciate his candour, his rolodex, his big vision and his energy. Now, with all this talk about ribs, I'm going for lunch.

How far do you go to invest?

How far from your office should you go to invest in companies? Would you be only interested in twenty clicks of Toronto or will you look past the Southern Ontario iron curtain?
Financial gurus are bellowing that the next twenty years growth will be in BRIC countries. "You need to move on to richer, more verdant pastures!" How will this play out for private equity?
Where to find growth is a pressing question and it is a difficult challenge for small PE firms. How will these Canadian private equity experts invest? Will it be directly into Indian and Chinese companies? The more likely scenario is to invest in Canadian companies doing business with BRIC countries?
I do know that the equity partners within a few hours drive are more likely to consistently show up to the Board meetings, contribute and even drive the strategy, get people into the office on Mondays to drive the action and generally make themselves very useful.
If the PE firm can do all of that even if far away, then terrific.
Here's Carried Interest chatting about his investment in an Australian company and they challenges he is learning about - including the language. Turns out that even though they speak English, "S'tralian has to be translated a bit. Read more...

Do this with your family

Do you remember a particular tree from your summers past? Is there a tree your family gathers beneath and has shared history with you? Here's your chance to do something with your family this summer.

A province-wide program to identify trees across the province with stories was announced today by Trees Ontario. The Heritage Tree program celebrates those trees that have cultural or historical significance to the community or province.
Heritage Trees could be those around which a community has held an annual picnic for the past 100 years, the tree that was planted to commemorate a coronation or other important international event, a tree that was planted to celebrate the life of a soldier or one in an historically designated neighbourhood. The trees should be part of the fabric of that community.
Anyone can nominate a tree by registering on the Trees Ontario Heritage Tree web site (http://www.blogger.com/www.heritagetrees.on.ca). A nominated tree is evaluated by a Trees Ontario representative based on the following characteristics: its historical and cultural importance to local and broader community; rarity of species; prominence based on size and age; aesthetics and/or artistic peculiarity; and its physical conditions and expected longevity. The evaluation criteria can be found on the Heritage Tree web site.
If the tree meets the above criteria, it will be placed into the Heritage Trees online database. If identified as a Heritage Tree it will also be recognized with a certificate.
A Heritage Tree is usually more than 70 years old. What sets them apart is the important cultural and historical significance they represent. “If these trees could talk, they could provide an intriguing history lesson about the people and land around which they are rooted,” said Michael G. Scott, President and CEO, Trees Ontario. “For the communities and people that enjoy, celebrate and nurture these green giants, they are a source of pride, full of rich memories and stories that they can now share.”
The Ontario Urban Forest Council’s (OUFC) Heritage Tree Toolkit formed the basis for the Trees Ontario Heritage Tree program. “The toolkit was developed in response to the public’s interest in identifying heritage trees in the community,” said Jack Radecki, Executive Director, OUFC. “OUFC is thrilled to be working with Trees Ontario to launch the online provincial program.”
“We are pleased to be working with OUFC to extend their Heritage Tree Toolkit into a province-wide program available to the public,” Scott continued. “We look forward to receiving nominations from across the province and to reading wonderful stories about important trees in our province.”
Trees Ontario has already begun working with other agencies to identify some trees that could be nominated. These are currently under review by Trees Ontario representatives and include trees from Aylmer, Cataraqui, Collingwood, Prince Edward County and Toronto.
Another important aspect of this program is the opportunity to collect seeds from recognized, native Heritage Trees, thus ensuring that the tree’s seeds live on. Trees Ontario plans to work with local communities to locate and collect these seeds. Growing trees from native seeds is important as those species have adapted to the regional environment over thousands of years and are more likely to survive.
For more information on Trees Ontario and the Heritage Tree Program, visit http://www.blogger.com/www.heritagetrees.on.ca.

Jack Welch gets into videos.

Listening to business leaders is a great way to leap frog your own company, and the business podcasts on iTunes are one way to get access to the best business minds in the world.
One of my favourite podcasts is Jack and Suzy Welch, listed under BusinessWeek. Each week, Jack riffs about business, with Suzy pushing for clarification. It's a great listen. Jack is now starting his online university and all I can say, this is the new way of education.
Here is the next level of Jack and Suzy's show.
RT @jack_welch: Web show- It’s Everybody’s Business (with Microsoft) View it here. http://bit.ly/6dCCF

Those tasty green shoots turn out to be weeds

Worries about the economy are keeping market analysts up at night. I appreciated getting a good news story from Lynn Lewis at Scotia Mcleod, Toronto to help understand the situation.
Green shoots turn out to be weeds, says Ross McKitrick, Financial Post:
The four problems are: the diluted balance sheet of the U. S. Federal Reserve; Obama's deficit binge; the growing wave of "Option-ARM" mortgage resets in U. S. real estate; and the California state budget crisis. We need to watch how these issues develop over the summer to know whether a recovery later this year will be possible. Those green shoots could be weeds.