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March 18, 2002

Belzberg is Back, Running a Buyout Fund

About six months after wrapping up the sale of Harrowston Inc. – a cash rich, publicly listed management company that was acquired by TD Capital Partners last year – Brent Belzberg is back.

He has formed TorQuest Partners Inc., one of the number of new entrants into the world of private equity investing. That entity has just closed a privately funded buyout fund, known as TorQuest Partners Value Fund, LP. The fund – TorQuest is the general partner – garnered $135-million in subscriptions from a group of financial institutions.

The investors include four of the country’s largest banks, plus several large pension funds. And there is a chance that the fund may get a tad larger, given that it has just celebrated its so-called first closing.

Ontario Teachers Pension Plan Board is one investor. Merchant banking business is a relationship business. We have had a relationship with Brent for many years and it was a natural for us to back him when he sold Harrowston,” said Jim Leech, the plan’s senior vice-president of merchant banking. We have been involved in a number of transactions with Harrowston and our merchant bank has a lot of comfort in his investment style.”

Mr. Belzberg, who, while running Harrowston, was criticized for not investing in the so-called technology boom that swept the market a couple of years back, said the fund amounts to a back to basics investing.” We didn’t throw away dollars at that time. We protected our principal, and we are still around,” he said.

And that investing strategy paid off for Harrowston’s shareholders: over the period that it was public, the company posted an average annual compound return on book value of about 23%. For those investments that Harrowston realized, the annual compound returns were even higher at 44%.

Brent had an impressive record in creating shareholder value at Harrowston and he is one of the best deal-flow generators in the private equity business. We expect more of the same with TorQuest,’ said Steve Dent, managing director of TD CapitalCanadian Private Equity Partners, a private equity fund that raised $635-million last year – the largest of its type in Canada.

Mr. Belzberg and his team intends to use the proceeds to invest in about half a dozen deals. The group’s goal is to invest in businesses that provide opportunities for value creation through active management of the investment. Companies that can be regarded as middle and later stage” make up the potential investees. And, in certain cases, the institutions that invested in the TorQuest fund will be allowed to co-invest with the fund.

In all cases, the group intends to invest in such a way that the fund ends with control of the investee company.

Control is key,” said Mr. Belzberg, who is referred to as the Mayor by his good friend Chuck Winograd, the chief executive of RBC Dominion Securities. (Mr. Winograd said that he calls Mr. Belzberg the Mayor because he knows everybody. With him there are only two degrees of separation. I know him and he knows everybody.”)

Control was missing from most of the investments that were made during the Internet/technology craze, Mr. Belzberg contends. Those investments were made by either venture capitalists or merchant banks. While those investors generally compiled diversified portfolios, typically they lacked the ability to make things happen” when the investee companies got into trouble.

It’s valuable to have an active shareholder because they bring a perspective and the role as owner in realizing value,” said Mr. Belzberg.

Of course, he won’t be doing it all by himself. He has hired Eric Berke, who until recently was president and chief executive of Gustin Kramer Ltd., a Toronto-headquartered fully integrated private label manufacturer. (Among other products, it makes fabric softener sheets.)

Mr. Berke is an American who went to Boston University and has been in Canada since 1988. Aside from his academic credentials, Mr. Berke is also an operator.

As well, Mr. Belzberg has hired an associate, Alan Lever, who was previously an investment banking analyst with the Toronto office of Credit Suisse First Boston. Those two join George Rossolatos, who arrived at Harrowston two years back and then moved to TorQuest.

Mr. Belzberg is in the position of going out on his own because last spring Harrowston attracted the interest of Unity Capital, a merchant bank that wanted to break the company up and return almost $150-million in cash and near-cash to shareholders. At the time, Mr. Belzberg said: Not so fast. We are already working on a plan to realize shareholder value. And we will get you more than what has been offered.” And that’s what ultimately happened: TD Capital Partners agreed to buy Harrowston for $7.35 a share. When Harrowston’s extensive cash balances – of around $5 a share – are excluded, that price amounted to double the $6.25 a share offered by Unity. (Unity made its bid after acquiring a 10% stake in Harrowston.) Of the $6.25 offered, $6.15 was guaranteed, with the 10¢ a share being contingent.

Source: National Post Online