Legal news and trends for Canadian in-house counsel and c-suite executives
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INDUSTRY SPOTLIGHT By Kelly Harris Private equity Thawing the freeze Every year Canadian hockey fans glue themselves to their television screens to see the moves their favourite team makes on trade deadline day. For some fans the moves are to bolster an already strong lineup to make a run for glory. For other, less fortunate fans, their team's goal is to trim, move assets for prospects or futures, with the goal of decreasing the bottom line, and shoring up the core group of players to be competitive in the future. It usually starts slowly, little deals a week or so before the deadline and then one team jumps in with a blockbuster, forc- ing the other leaders to follow suit. The rule is simple. If you have money to spend you can really make some hay. Much the same can be said for private equity markets in Canada today. Except, when it comes to private equity, there are no drop-dead dates to make deals to bolster the bottom line. So the lucky fund managers with cash on hand are left to seek out deals from companies desperate for capital, or desperate to get their house in order. Still, much like hockey teams, there are those who overvalue their assets, running the risk of having nothing when the get- ting is good, or holding out until they are forced into deeper holes, or hopefully, the market rebounds. "Things are relatively quiet now," says Gary Solway, Bennett Jones LLP partner and co-chairman of the firm's commercial transactions group. "I don't think it can stay that way, the status quo, there are too many companies marching toward the brink and they have to do something." Solway, a director of Canada's Venture Capital & Private Equity Association, describes today's market in an almost maca- bre way; equating those with cash on hand looking for deals, buying dying companies or non-core business units. "There are a lot of private equity firms out there that feast on corpses that are out there, the vultures of private equity funds, this is the sort of environment they like, where they go out and try to buy debt for pennies and try to make it worth more than that, or buy cast-off divisions of companies. . . . There will be private equity in the counter-cyclical market, where things are not going well as opposed to the private equity we had before, where guys were paying top dollar and buying things at the top of the market." There are deals getting done with companies having an eye on the future. Solway points out that the recently announced move by Kitchener's Research In Motion to buy Certicom Inc., one of the company's suppliers, is an example of a company taking advantage of the market to build. For every Certicom buyout there are many more deals companies and clients pon- der, but don't happen, Solway says. "There is a lot of uncertainty about everything. You can't count on anything happening the way you thought it would, you can't be sure you can borrow INHOUSE APRIL 2009 • 21