Fortunately, as a Canadian investor you have options to make direct alternative allocations independently of your core pension plan holdings via Canada’s growing alternative market represented by Exempt Market Dealers.
Greg Tooth, a partner at buy-out firm Equicapita reports, "The alternative market in Canada allows retail investors to add private equity offerings directly into their investment portfolios. While this market tends to be focused on commercial and residential real estate offerings there are a growing number of more traditional private equity vehicles such as Equicapita raising capital in this universe. We created Equicapita to be RRSP eligible with a low minimum to allow qualified investors access to SME investments which are difficult to access through traditional channels.”
Equicapita is a Calgary-based buy-out fund focusing on acquiring Canadian private businesses 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 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 investments 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 capitalize 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.
- Buy and hold strategy: Equicapita does not use a traditional PE business model: acquisition, aggressive expansion capital, followed by exit. Equicapita’s business strategy is to acquire and hold mature, long-standing enterprises at reasonable valuations.
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,"