November 12, 2018
Interviewed by: Privcap
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Powerhouses in PE: Up Close With a Veteran of Canada’s Middle-Market

Brent Belzberg, who founded TorQuest Partners in 2001, saw an opportunity to help entrepreneurs build and scale businesses into first-rate enterprises. His portfolio companies are frequently exited to American buyers who want access to the Canadian market. Brent sat down recently with RSM Canada’s Ben Gibbons to discuss the history of his firm, a recent exit in the building products space, and why he feels confident in the future of his firm.

Brent Belzberg, who founded TorQuest Partners in 2001, saw an opportunity to help entrepreneurs build and scale businesses into first-rate enterprises. His portfolio companies are frequently exited to American buyers who want access to the Canadian market. Brent sat down recently with RSM Canada’s Ben Gibbons to discuss the history of his firm, a recent exit in the building products space, and why he feels confident in the future of his firm.

Powerhouses in PE: Up Close With a Veteran of Canada’s Middle-Market

Ben Gibbons, RSM Canada:
My name is Ben Gibbons and I’m the National Private Equity Leader here at RSM Canada. I want to welcome Brent Belzberg, Founder and Senior Managing Partner at TorQuest.

Brent Belzberg, TorQuest Partners:
Nice to see you.

Gibbons: Why don’t you just start with [giving] me a little background around leading up to TorQuest and the founding of TorQuest.

Belzberg: Sure. TorQuest has been around since 2001. Prior to that, we operated in a public company called Harrowston, which existed from 1993 to 2001. Prior to that, I spent five years of my life restructuring a large, family-owned, big public company with $7 billion of debt. So, I’ve seen a lot of different sides to these transactions.

Gibbons: What was the vision you were selling with TorQuest at the start there? When you raised that $183-million initial round of capital, how did you differentiate yourself from the other private equity firms in the market at the time?

Belzberg: We believed that there was a big hole in the Canadian market for small, mid-market transactions. And the way we did them, we would do them different than others. We tried to believe that you could be a kinder, gentler, warmer group of people. And that would allow entrepreneurs to have confidence in you and to allow you to participate with them in transactions. I think it’s worked quite well.

Gibbons: In the time that you’ve been running TorQuest, since the early 2000’s, how have you seen the market change, especially in this middle-market space, where TorQuest obviously operates?

Belzberg: It used to be really easy, because when we first started, you could basically buy things at asset value and there was no source of equity capital outside the banks in this marketplace.

Today, it’s very different. There are a lot of players in this marketplace and lots of people who are here, participating in transactions. But we don’t see very many of them in the initial stages of a transaction because most of our transactions come out of relationships we built in Canada. So, we’re really happy that Americans are participating in the Canadian marketplace, because we get to sell them our businesses without them feeling comfortable that the Canadian currency isn’t a barrier and the Canadian legal system isn’t a barrier to that. Then, they wouldn’t participate in this country, and we wouldn’t be able to exit our transactions to them.

Gibbons: Can you talk us through, maybe, a recent deal and the highlights of how you got to the deal and how you got to getting the vendor across the line?

Belzberg: Sure. Our most recent exit is a company called Titan, which we sold a big, U.S. building products roll-out company. But, on the acquisition side, when we found it originally, a guy who we’d done some business with – who had originally been a golf pro and had a personal relationship with the CFO of a mid-size Canadian distributor of building products – had come to us, really to just to get to know us.

He walked in the door here – obviously, he had no idea what we would do and he told us his life story of how his customers had backed him to start a business that he owned 20% of, and his customers owned 80% of … when he first started, and he wanted to buy them.

So, we worked with him to buy that business and, at the same time as we closed that, buy another business in Western Canada and another business on the West Coast, all at the same time, all that were part of the same buying group. We bought them all together.

Belzberg: This individual who had brought us the transaction originally went from owning 20% of an Ontario business to 40% of a national business, which had huge EBITDA growth for him. We showed him how it could work. We helped him structure it. We helped him finance it and we helped him build his strategy around it. Within two years, we were seeing all kinds of American, big public companies rolling up, other building products companies, and we told him he might want to take advantage of it.

On the way in, there were no investment bankers involved and, on the way out, Jefferies out of New York was involved. Very sophisticated U.S. vendors were helping him put the transaction together.

Gibbons: When you’re in front of a vendor and a business owner that you’re potentially looking to transact with, how else are you winning against other private equity firms when you know you’re in a competitive situation?

Belzberg: People ask us that question all the time, and we say, “Our biggest competition is that the entrepreneur decides not to do a transaction.” Our biggest competition isn’t another Canadian private equity fund that is doing the same things. We tend to do transactions that have entrepreneurial transitions in them so, therefore, the risk associated with them is that you often have a 65 or 70-year-old guy, or woman, who doesn’t have succession in their family, doesn’t have a unbelievably strong CFO and can’t easily put their numbers in book. So, with help of people like you, they can do it, but it’s hard to put them in a roadshow because they’ve never done this before. They’ve probably never done an M&A transaction before inside their companies. So, for us, that’s an opportunity. For others, that’s frightening, because you can’t write a book, so we have to build the book from the beginning ourselves.

Gibbons: TorQuest has to go out and raise money from its investors to obviously be able to do these transactions, so when you’re talking to the LP’s and potential LP’s, how are you talking to the differentiation at that point? Is it the same story you’re telling the vendors or is there a different story there?

Belzberg: Our differentiator to investors is the same as our differentiator to the people we do transactions with. We show respect. We show humility. We know there are cycles that will go up and down, that we’ve been at a very good cycle that there’s a chance that the next cycle won’t be as good, and that the differentiator we have is that we know the people we invest with.

Gibbons: You’ve mentioned before about exiting to the U.S. as something that you’ve obviously done before. Do you see that being a core tenet of opportunity going forward, particularly given where we’re at in the marketplace?

Belzberg: Our goal is to get our business to a place that it has great corporate governance, has great management and has done some M&A work, so it has lots of white space and lots of room to grow. So, who buys it is obviously someone bigger than us and someone who sees those opportunities going forward and wants to continue to take them. Often, that’s Americans who wouldn’t get exposure to these transactions at the stage where we see them, but then, once they’ve reached a state of maturity where there are still lots of growth opportunities, they’re happy to buy them. We’ve sold to Kelso. We’ve sold to Carlyle. We’ve sold to Metalmark. We’ve sold to a lot of U.S. private equity funds who wouldn’t have had the opportunity to see them at the stages we’ve seen them, nor would they be interested in buying them at the stages we’d seen them.

Gibbons: As every private equity firm has. Are there any specific, hard lessons you’ve learned along the way that you’ve certainly passed along to the younger people here at TorQuest?

Belzberg: Sure, and that’s why we don’t do resource businesses, because we know we can’t handle with leverage commodity cycles, so we avoid those. We tend not to do retail businesses that are fashion-oriented, because doing those things also requires a certain talent base that we don’t have and we never will develop in the size we have. We like businesses that we can take a long time to do the work to understand well. When we’re in fast-acting auction processes, we tend to make some mistakes around those things, so we avoid some of those as well.

Gibbons: Now, thinking about just the broader private equity market, given the time that you spent there, where do you see key changes happening over the next five to 10 years? Is there anything you see as … evolving the market on another level again?

Belzberg: There’s been a lot of capital put into the market, and a lot of capital put in by people who don’t understand that this doesn’t always go in one direction. Through the great recession in 2008, this asset class performed better than most other asset classes, so a lot of young people who invested through that timeframe didn’t realize that leverage has two sides to it. I think this asset class works really well for people who have a long view of how to build value.

I also believe it takes a long time to understand the nuances of this business, and that people who have been with us for 15 years are really better than they were when they started.

The thing I’m most proud about with respect to TorQuest is that the culture is embedded here. Every single person in this organization knows what TorQuest stands for, and the next generation will make this business way better than I made it.

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