Presentation to Toronto Chapter Financial Executive ...

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Presentation to Toronto Chapter Financial Executive ...

  1. 1. Presentation to Toronto Chapter Financial Executive International Canada Jim Leech – Senior Vice President, Private Capital October 19, 2004 Your First Call
  2. 2. Overview <ul><li>Teachers’ Private Capital </li></ul><ul><ul><li>Our business </li></ul></ul><ul><ul><li>Representative transactions </li></ul></ul><ul><li>Overview of “Private Capital” market in Canada </li></ul><ul><ul><li>Private Equity </li></ul></ul><ul><ul><li>Mezzanine </li></ul></ul><ul><ul><li>Venture Capital </li></ul></ul><ul><li>What you should know when dealing with Private Capital providers </li></ul><ul><li>Questions from you </li></ul>
  3. 3. <ul><ul><li>Teachers in Ontario have had pensions since 1917 </li></ul></ul><ul><ul><ul><li>Run by government ministry </li></ul></ul></ul><ul><ul><li>OTPP created in 1990 by transferring $17 Billion </li></ul></ul><ul><ul><ul><li>Sponsors: </li></ul></ul></ul><ul><ul><ul><li>Government of Ontario and Ontario Teachers’ Federation </li></ul></ul></ul><ul><ul><ul><li>Independent Board of Directors </li></ul></ul></ul><ul><ul><li>Responsible for retirement income of: </li></ul></ul><ul><ul><ul><li>154,000 teachers </li></ul></ul></ul><ul><ul><ul><li>93,000 retirees/families </li></ul></ul></ul><ul><ul><ul><li>91,000 former teachers </li></ul></ul></ul><ul><ul><li>Assets of $79 Billion (June 30, 2004) </li></ul></ul><ul><ul><ul><li>Equities – 49% including Teachers' Private Capital </li></ul></ul></ul><ul><ul><ul><li>Fixed Income – 21% </li></ul></ul></ul><ul><ul><ul><li>Inflation Sensitive – 30% including real estate </li></ul></ul></ul>Ontario Teachers’ Pension Plan Board
  4. 4. Teachers' Private Capital Portfolio Total - $4.4 Billion (plus $1.77 Billion unfunded commitments) June 30, 2004 $1.50 B $0.28 B $0.52 B $0.67 B $0.61 B $0.71 B $0.15 B $0.003 B
  5. 5. Types of Transactions <ul><li>Private Equity </li></ul><ul><ul><li>Primarily Buyouts or Expansion Capital </li></ul></ul><ul><ul><ul><ul><li>LBO/MBO/MBI’s: non-core divisions of large companies </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Growth capital for private companies, including acquisitions </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Add-on acquisitions for existing portfolio companies </li></ul></ul></ul></ul><ul><ul><li>Private Investment in Public Equities (“PIPEs”) </li></ul></ul><ul><ul><ul><ul><li>Strategic block investments </li></ul></ul></ul></ul><ul><ul><li>Going Private Transactions </li></ul></ul><ul><ul><ul><ul><li>Undervalued public companies </li></ul></ul></ul></ul><ul><ul><li>Balance Sheet Recapitalization </li></ul></ul><ul><ul><ul><ul><li>Good business; Bad balance sheet </li></ul></ul></ul></ul><ul><li>Venture Capital </li></ul><ul><ul><ul><ul><li>Early stage companies </li></ul></ul></ul></ul>
  6. 6. Components of our Business <ul><li>Private Equity (Direct, Funds & Co-Investments) </li></ul><ul><ul><li>Equity </li></ul></ul><ul><ul><ul><li>Mid-cap and larger investments - $40M to $500M </li></ul></ul></ul><ul><ul><ul><li>Exercise control with like minded investors </li></ul></ul></ul><ul><ul><ul><li>Target returns: 20-30% </li></ul></ul></ul><ul><ul><li>Mezzanine </li></ul></ul><ul><ul><ul><li>Flexible structuring - $40M to $100M </li></ul></ul></ul><ul><ul><ul><li>Adjunct to equity investment or “structured” equity </li></ul></ul></ul><ul><ul><ul><li>Target returns: 15-20% </li></ul></ul></ul><ul><ul><li>Funds </li></ul></ul><ul><ul><ul><li>Access to markets we cannot source internally </li></ul></ul></ul><ul><ul><ul><li>Private equity and mezzanine fund investments - $50M to $500M </li></ul></ul></ul><ul><ul><ul><li>Target returns: 20-30% </li></ul></ul></ul><ul><li>Venture Capital </li></ul><ul><ul><ul><li>Fund and co-investment strategy: Funds - $10M to $50M </li></ul></ul></ul><ul><ul><ul><li> Co-investments - $3M to $5M </li></ul></ul></ul><ul><ul><ul><li>Target returns: 30% plus </li></ul></ul></ul>
  7. 7. Private Equity What do we look for? <ul><li>Partners </li></ul><ul><ul><ul><li>Invest with like minded partners </li></ul></ul></ul><ul><li>Management </li></ul><ul><ul><ul><li>Experienced, strong team </li></ul></ul></ul><ul><ul><ul><li>Financial commitment </li></ul></ul></ul><ul><li>Stable Industry </li></ul><ul><ul><ul><li>‘ Real Economy’ industries with stable or growing cashflows </li></ul></ul></ul><ul><li>Niche </li></ul><ul><ul><ul><li>Industry leader with sustained competitive advantage </li></ul></ul></ul><ul><li>Governance </li></ul><ul><ul><ul><li>Appropriate practices </li></ul></ul></ul>Alignment of Interests
  8. 8. Private Equity Selected Investments
  9. 9. Private Equity Selected Transactions <ul><li>Shoppers’ Drug Mart </li></ul><ul><li>Maple Leaf Sports and Entertainment </li></ul><ul><li>Osprey Media </li></ul><ul><li>LBO: non-core asset of IMASCO in 2000 </li></ul><ul><li>Invested $150M in equity as part of $2.6B buyout with KKR </li></ul><ul><li>Taken public in late 2001 (continue as shareholder) </li></ul><ul><li>Public to Private: invested in 1994 buyout of Toronto Maple Leafs / Maple Leaf Gardens </li></ul><ul><li>Add-on investment to purchase Toronto Raptors and Air Canada Centre in 1998 </li></ul><ul><li>Restructured ownership (58%) in 2003 </li></ul><ul><li>MBI: in 2001 invested $45M as part of a group led by Michael Sifton to buy Hollingers’ local Ontario newspapers </li></ul><ul><li>Funded prorata share ($27M) of add on acquisition of Canwest newspapers </li></ul><ul><li>Taken public in 2004 (continue as shareholder) </li></ul>
  10. 10. Private Equity Selected Transactions <ul><li>Yellow Pages Group </li></ul><ul><li>Trimac Corporation </li></ul><ul><li>Vincor </li></ul><ul><li>LBO: non-core asset of BCE in 2002 </li></ul><ul><li>Invested $320M as part of $3B buyout </li></ul><ul><li>Taken public in 2003 (continue as shareholder) </li></ul><ul><li>Public to Private: privatization of large publicly traded trucking company in 2000 </li></ul><ul><li>Committed $60M as part of $540M transaction alongside management </li></ul><ul><li>MBI: management led buyout of public company division in 1993 </li></ul><ul><li>Taken public in 1996 </li></ul><ul><li>Exited in 2002, after 9 years invested in company </li></ul>
  11. 11. Private Equity Selected Transactions <ul><li>Samsonite </li></ul><ul><li>Worldspan </li></ul><ul><li>Parmalat Canada </li></ul><ul><li>PIPE to recapitalize: acquired control with Ares and Bain </li></ul><ul><li>Invested US $42.9M in 2003 (subsequently increased to US $48M) </li></ul><ul><li>LBO: acquired non core asset of three airlines in 2003. Co-led with CVC </li></ul><ul><li>Invested US $137.7M as part of $1.1B buyout </li></ul><ul><li>Recapitalization: Structured, underwrote and syndicated new capital structure ($610M) </li></ul><ul><li>Retained $350M of mezzanine debt </li></ul><ul><li>Fixed Income retained $180M of senior debt </li></ul>
  12. 12. Venture Capital What we look for? <ul><li>Strategy </li></ul><ul><ul><li>Fund and co-investment strategy (only invest with Fund Partners) </li></ul></ul><ul><li>Fund Partners </li></ul><ul><ul><li>Fund investments range from $10M to $50M </li></ul></ul><ul><ul><li>Targeted to telecom, information technology, biotech </li></ul></ul><ul><li>Co-Investments </li></ul><ul><ul><li>Initial co-investment $3M to $5M – up to $20M over life of investment </li></ul></ul><ul><li>Criteria: </li></ul><ul><ul><li>Demonstrated history of above average returns over long term </li></ul></ul><ul><ul><li>Operational and financial expertise </li></ul></ul>
  13. 13. Venture Capital Selected Investments Cambrian
  14. 14. Venture Capital Selected Transactions <ul><li>TimeStep </li></ul><ul><li>Cambrian </li></ul><ul><li>FastLane </li></ul><ul><li>HotRail </li></ul><ul><li>Extreme </li></ul><ul><li>Packet </li></ul><ul><li>Devices </li></ul><ul><li>Initial investment made in 1997 alongside Newbridge Networks </li></ul><ul><li>Invested $1.4 million over several rounds of financing </li></ul><ul><li>Company acquired by Newbridge Networks in 1999 </li></ul><ul><li>Initial investment of $2.1 million made in 1998 alongside Celtic House </li></ul><ul><li>Company acquired by Nortel Networks in 1998 </li></ul><ul><li>Initial investment made in 1998 alongside Celtic House </li></ul><ul><li>Invested $6.3 million over several rounds of financing </li></ul><ul><li>Company acquired by Quest Software in 2000 </li></ul><ul><li>Initial investment made in 1999 alongside Woodside Fund </li></ul><ul><li>Invested $10.8 million over several rounds of financing </li></ul><ul><li>Company acquired by Conexant in 2000 </li></ul><ul><li>Invested $0.5 million in 1999 alongside Celtic House & Kodiak Venture Partners </li></ul><ul><li>Company was acquired by PMC Sierra in 2000 </li></ul>
  15. 15. Venture Capital Selected Transactions <ul><li>Eyetech </li></ul><ul><li>Ista </li></ul><ul><li>Topspin </li></ul><ul><li>Entrisphere </li></ul><ul><li>Infinera </li></ul><ul><li>Invested $1.6 million in 2001 alongside Alta Biopharma Partners </li></ul><ul><li>Signed large partnership with Pfizer in 2002 and taken public in 2004 (continue to hold shares) </li></ul><ul><li>Invested $4.8 million in 2002 in a PIPE transaction alongside Sanderling Ventures </li></ul><ul><li>Sold significant portion of shares </li></ul><ul><li>Invested $2.7 million in 2002 alongside Accel Partners (other investors include Redpoint Ventures, Meritech Capital Partners and Advent International) </li></ul><ul><li>Signed reseller agreement with IBM in 2004 </li></ul><ul><li>Invested $7.1 million in 2002 alongside Accel Partners </li></ul><ul><li>Other investors include Benchmark Capital and CrossPoint Venture Partners </li></ul><ul><li>Invested $3.5 million in 2003 </li></ul><ul><li>Other investors include Kleiner Perkins Caufield & Byers, Benchmark Capital, Accel Partners and Sutter Hill </li></ul>
  16. 16. Teachers' Private Capital Understanding Our Business Maximize Operating Value Exit VALUE CAPTURE (6+ months) VALUE CREATION (5+ years) Due Diligence & Negotiation Acquire Identify Opportunities Structure <ul><li>Strategy </li></ul><ul><li>Management </li></ul><ul><li>Governance </li></ul><ul><li>Assure Implementation </li></ul><ul><li>Monitor Ownership </li></ul>
  17. 17. Teachers' Private Capital Summary <ul><li>Large pool of capital (initial and follow on investments) </li></ul><ul><li>Long-term investment horizon </li></ul><ul><li>Independent (no secondary agenda) </li></ul><ul><li>Not operators, supportive of management teams </li></ul><ul><li>Add value at Board level </li></ul><ul><li>Successful track record (over 25% return since inception ) </li></ul>
  18. 18. Canadian Private Capital Market Total Capital Under Management by Private Capital Market Segment; 2003 Total Amount $48.6 Billion © 2004 Macdonald & Associates Limited. All rights reserved.
  19. 19. Private Equity in Canada Private Equity Capital Invested © 2004 Macdonald & Associates Limited. All rights reserved.
  20. 20. Private Equity in Canada Continued… * Excludes Teachers’ Private Capital % Years 2.9 10.7 10.4 16.4 © 2004 Macdonald & Associates Limited. All rights reserved.
  21. 21. Private Equity in Canada Continued… Private Equity Players Caisse TD Capital Callisto Teachers’ Edgestone Torquest > $50 Million $25 – 50 Million < $25 Million Schroders CAI 13 US Firms OMERS/Borealis Kilmer Onex Scotia Capital (?) Clairvest
  22. 22. Mezzanine Financing in Canada Mezzanine Capital Invested © 2004 Macdonald & Associates Limited. All rights reserved. <ul><ul><li>Mezzanine Players </li></ul></ul><ul><ul><li>TD Capital </li></ul></ul><ul><ul><li>McKenna Gale </li></ul></ul><ul><ul><li>Brascan </li></ul></ul><ul><ul><li>Edgestone </li></ul></ul><ul><ul><li>CCFL </li></ul></ul>
  23. 23. Venture Capital in Canada $2.7B 815 $5.8B 1006 $3.7B 743 $2.5B 681 $1.5B 616 $0.8B 379 © 2004 Macdonald & Associates Limited. All rights reserved.
  24. 24. Venture Capital in Canada Continued… * Excludes Teachers’ Private Capital Years Investment Returns for Venture Capital June 30, 2004 © 2004 Macdonald & Associates Limited. All rights reserved. 4.3 1.8 -10.3 -1.2 % 9.5 5 3 1
  25. 25. Venture Capital in Canada Continued… <ul><li>Market Environment </li></ul><ul><ul><li>Contrast to US Venture Capital </li></ul></ul><ul><ul><ul><li>Not as badly hit in Internet / Telecom </li></ul></ul></ul><ul><ul><ul><li>No $ overhang </li></ul></ul></ul><ul><ul><ul><li>No succession issues </li></ul></ul></ul><ul><ul><ul><li>Fewer exit opportunities </li></ul></ul></ul><ul><ul><li>Clusters of excellence </li></ul></ul><ul><ul><ul><li>Montreal – Biotech </li></ul></ul></ul><ul><ul><ul><li>Ottawa – Telecom </li></ul></ul></ul><ul><ul><ul><li>Vancouver – Fund cells </li></ul></ul></ul><ul><ul><li>No experienced practitioners </li></ul></ul><ul><ul><li>Need to build new Canadian industry </li></ul></ul>
  26. 26. <ul><li>Institutions have Alternatives </li></ul><ul><ul><li>Real estate </li></ul></ul><ul><ul><li>Hedge funds </li></ul></ul><ul><ul><li>Commodities </li></ul></ul><ul><ul><li>Timberland </li></ul></ul><ul><ul><li>Infrastructure </li></ul></ul><ul><ul><li>Private equity </li></ul></ul><ul><li>Cannot build an industry on “tax incented” money </li></ul><ul><li>Poorly conceived legislation E.g. business income trusts, QLP </li></ul>Private Capital in Canada
  27. 27. <ul><li>Be prepared </li></ul><ul><ul><li>realistic business plan </li></ul></ul><ul><ul><li>management team </li></ul></ul><ul><ul><li>governance </li></ul></ul><ul><ul><li>due diligence </li></ul></ul><ul><li>Understand return objectives </li></ul><ul><li>Largely staffed by financial engineers </li></ul><ul><li>Hate surprises / sudden changes in direction </li></ul><ul><li>Treat them as a partner </li></ul>What You Should Know in Dealing with Private Capital
  28. 28. Questions
  29. 29. Teachers' Private Capital It all starts with a call… So make us your First Call. (416) 730-5359 [email_address]

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