Frank Vettese: Private equity has an undeserved bad rap – especially in Canada
Greater infusion of capital and resources will help improve Canada’s productivity
No one doubts the value of innovation. It’s one of the major drivers of productivity, which fuels the economy and determines a country’s standard of living. Overcoming the productivity challenge will make the difference between Canada continuing to post lack-luster results as a resource extractor, or emerging as a serious competitor in the global economy.
Among the barriers to improved productivity identified in Deloitte’s Future of productivity report is the lack of available risk capital. We have many firms with great potential across the spectrum of size and industry. But many can’t access the traditional capital markets due to perceived risk of failure – and others need additional resources, like management guidance and data analytics. Among the solutions to Canada’s productivity challenge put forward by the report is a greater infusion of capital and resources from a variety of players, including private equity (PE).
How has the nature PE changed in Canada?
Frank Vettese, a senior leader in Deloitte’s Financial advisory practice who specializes in mergers & acquisitions and private equity, believes that this source of capital has an undeserved bad rap. Linked to the business model employed by private equity firms in the 1980s and 90s where de facto U.S. Republican candidate Mitt Romney built his career, PE has become synonymous with a “take no prisoners” approach. “There have been many instances of private equity firms buying up companies only to extract the value,” says Vettese. “But in recent years – especially in Canada – the nature of private equity has changed.”
Investors are now looking for ways to enhance the value of a company rather than simply to cash it in. Today, PE is focused on professionalizing management, investing in the business and driving improved performance. “Realistically, to make money in PE these days you need to be focused on operational enhancement, not ‘quick flips,” Vettese says. Many PE funds are hiring operational talent and putting resources to work on portfolio companies.
Proof positive: PE’s ability to create new value
Recent Canadian examples offer proof of PE’s ability to create new value. The sale of Husky to OMERS and Berkshire resulted in a significant transformation, as did the purchase of CBI Health Group. In both cases, the PE purchasers helped the business create a stronger platform for growth by applying best practices and product enhancements.
The biggest PE success story in recent years, however, was the takeover of HBC by NRDC. Although a Canadian icon, HBC had become tired and non-competitive. Anyone who has set foot in the revamped stores can attest to the dramatic transformation that has taken place.
“We need to support the PE industry and help it overcome the ‘bad guy’ reputation. In any takeover, change is a constant. But when PE turns a faltering company into a healthy, competitive one, that’s a good thing,” says Vettese. “Canada is urgently in need of investors willing to support promising organizations and seed them with the right resources. PE is a solution, not a problem.”