Michael Cook, one of the three co-founders of Equicapita reports “The partners of Equicapita believe that Canadian small, medium enterprise (“SME”) private equity is a very compelling opportunity as investors can benefit from both the generational transfer of ownership SMEs as boomer entrepreneurs retire and competitive pricing due to the “nano-gap”.
Cook went on to explain the concept of the nano-gap “Nano-gap is the term coined for the limited amount of investment capital dedicated to the SME space. We believe the combination of the boomer retirements and the nano-gap will provide competitive pricing and generally higher returns in SME private equity over the next decade as compared to other segments in the private equity universe, a conclusion that we believe is supported by historical return data in the Canadian SME space to date.”
Equicapita is a Calgary-based private equity fund focusing on acquiring Canadian SMEs that can generate strong, sustainable cash flow from their operations in niche markets. Equicapita generally seeks to acquire businesses:
– at what it believes are reasonable prices;
– with a demonstrated history of free cash flow greater than $1 million per annum;
– with a durable competitive advantage;
– that operate in industries that Equicapita believes have sound long-term macro prospects;
– with ongoing participation of senior personnel;
– with the ability to maintain the cash flow without disproportionate amounts of new capital
– where Equicapita can partner with management and align their interest with Equicapita through tools such as earn-outs, vendor take backs and management incentive plans;
– to be held for the long term;
– where there is some potential to grow sustainable free cash flow, but where that growth is not essential to generate suitable returns.”
Equicapita believes that there are compelling reasons for making private equity investment in the Canadian SME market which is experiencing one the largest generational transfers of wealth as boomer entrepreneurs retire and sell their businesses. The investment has a number of key drivers including:
– Generational opportunity to acquire “baby boomer” SMEs: There is a demographic opportunity to capitalise on the accelerating turnover of baby boomer owned, western Canadian SMEs. According to CIBC “An estimated $1.9 trillion in business assets are poised to change hands in five years — the biggest transfer of Canadian business control on record.”
– Attractive target market: There is a private equity funding gap in the $2 to $20M range is often referred to as the “Nano Gap”. This creates an attractive environment to acquire low cost, stable cash flow streams.
– Valuations: Current trailing cash flow valuations are artificially low, incorporating weak 2008-10 operating results post credit crisis.
– Market access: SME investments can generate high returns but these investments are difficult for retail investors to make directly. Equicapita provides retail investors with access to this asset class.
– Buy and hold strategy: Equicapita will not adopt the traditional PE business model: acquisition, aggressive expansion capital, followed by an exit. Equicapita’s business strategy is to acquire mature, long-standing enterprises at reasonable valuations.
– Custodial model focused on cash flow farming: Equicapita is effectively ‘farming/mining’ long proven cash flow streams and does not depend on growth or exits to generate returns. Investors don’t have the risk of management having to do a long series of operational enhancements, recapitalisations or exits to realize returns (normal PE fund).
– Equicapita’s capital structure will allow it to deploy and realize substantial value from acquiring sustainable cash flow streams with minimal leverage, differentiating it from the traditional highly levered, 2/20 PE model which requires growth and exits.
This news release may contain certain information that is forward looking and, by its nature, such forward-looking information is subject to important risks and uncertainties. The words “anticipate,” “expect,” “may,” “should” “estimate,” “project,” “outlook,” “forecast” or other similar words are used to identify such forward looking information. Those forward-looking statements herein made by Equicapita, if any, reflect Equicapita’s beliefs and assumptions based on information available at the time the statements were made. Actual results or events may differ from those anticipated or predicted in these forward-looking statements, and the differences may be material. Factors which could cause actual results or events to differ materially from current expectations include, among other things: risks associated with the ownership and operation of businesses, including fluctuations in interest rates; general economic conditions; supply and demand for businesses; competition for available businesses; changes in legislation and the regulatory environment; and international trade and global political conditions. Readers are cautioned not to place undue reliance on any forward-looking information contained in this news release (if any), which is given as of the date it is expressed herein. Equicapita undertakes no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise.