April 6, 2015
Interviewed by: David Snow
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Why PE Shouldn’t Ignore the Caribbean

Many private equity firms have pre-conceived notions about investing in the Caribbean, and they ignore the region entirely. Canada’s Portland Private Equity saw an opportunity to invest in the Caribbean, including the National Commercial Bank of Jamaica and Columbus Communications, says the firm’s Michael Lee-Chin, who is from Jamaica.

Many private equity firms have pre-conceived notions about investing in the Caribbean, and they ignore the region entirely. Canada’s Portland Private Equity saw an opportunity to invest in the Caribbean, including the National Commercial Bank of Jamaica and Columbus Communications, says the firm’s Michael Lee-Chin, who is from Jamaica.

Why PE Shouldn’t Ignore the Caribbean
With Michael Lee-Chin of Portland Private Equity

David Snow, Privcap: We are joined today by Michael Lee-Chin of Portland Private Equity. Michael, welcome to Privcap. Thanks for being here.

Michael Lee-Chin, Portland Private Equity: Thank you very much, David.

Snow: You run a private equity firm that focuses on the Caribbean. You’ve spoken quite a bit about how wealth creation…or the opportunity to create wealth, often comes from a mismatch between perception and reality. Can you talk about how that principal applied to your decision to target the Caribbean as a private equity opportunity?

Lee-Chin: There are three pre-conditions that, when they are met, we get very excited about the opportunity to create wealth. The first [is] that there must be a difference between perception and reality. Because only when there is that information arbitrage can you get an advantage and have a definite opportunity to create wealth. That’s the first pre-condition.

The second pre-condition is, there must be inefficiencies that are pervasive. In fact, [a] better [word is] “dysfunctionalities,” because only when there are dysfunctionalities do you have an opportunity to create outsized wealth. Thirdly, there must be a lack of equity capital in the region, the industry or the sector because only when there is a lack of equity capital do you have an opportunity to create outsized wealth.

Snow: Fast forward to how a businessman from Toronto decided that he’s going to target the Caribbean?

Lee-Chin: I am from the Caribbean; [it’s] a market that we understand fully. We own the National Commercial Bank of Jamaica, which today has a 42% market share and is the most profitable bank in Jamaica. The bank was dysfunctional, basically. It had gone bankrupt. The government [of Jamaica] had to take it over. Jamaica is not the Mecca for equity capital. So there was a lack of equity capital. It met all three pre-conditions.

We were the co-founders of Columbus Communications, which in November, we sold $43 billion. What led us to get in the telecommunications business is we had owned a stub of an investment, which was a 35% interest in Cable Bahamas. And at the time—this was back in the mid-2000s—the incumbent telecom was charging us $48,000 per month for a T1 line.

So we decided we weren’t going to be paying the $48,000. We will build an undersea fiberoptic line from Miami to the Bahamas. When we made the announcement, the price was dropped. The monopoly incumbent dropped the price from $48,000 to $24,000. When we landed, the price was further dropped from $24,000 to $16,000. We came in at $6,000 per month, [at] which we were still able to make good margins. But the inefficiencies created by the thenincumbent monopoly created an opportunity for us to bring some competition to the table, which we did.

Snow: In talking to institutional investors about the opportunity in the Caribbean, are they often dismissive? What kinds of questions do they have about the Caribbean, since it certainly is not part of the brick conversation when talking about emerging economies?

Lee-Chin: Invariably, it’s dismissive. But what always has been a recurring thought to us is that Scotia Bank has been in the Caribbean, in Jamaica, since 1888. And the year before we bought National Commercial Bank, which was in 2001, Scotia Bank had—in terms of Jamaica—a 54% market share. So, the perception is—you’d not have thought that Jamaica would have been so important to Scotia Bank. That’s an example of perception versus reality. So yes, David, most limited partners, most funders, don’t understand what has historically been a very fertile and friendly place to do business.

Snow: Of course, when you say the Caribbean, it’s a large collection of geographically-dispersed island nations. Do you focus on just a few of those markets, the bigger ones, like Jamaica? Or do you find there is connective tissue, economically speaking, between many of these different countries?

Lee-Chin: We have to remember that our definition of the Caribbean isn’t just some touristresort islands. It’s the major Caribbean—all the countries in the Caribbean and bordering the Caribbean, which would include Panama, Columbia, Dominican Republic, etc. So the GDP is substantial, and the population is substantial. Yes, invariably, the countries themselves are not connected.

Snow: What kinds of opportunities are you looking for in your target countries? Are there specific sectors that are most attractive to your firm?

Lee-Chin: We are opportunistic, period. So we are in banking, insurance, telecommunications, poor generation, waste management and agriculture.

Snow: How does your deal flow work? Is it mostly through personal connections, or are there investment banks that broker deals in the region?

Lee-Chin: When you are in a region where a few families control the economies of the countries and if you are part of that echelon—[because] we own a bank, you immediately are part of that echelon—then, you see deal flows. Secondly, by virtue of the fact that we own the largest, most robust telecommunications infrastructure in the region, we are on the ground, in market. And we see deals much quicker than your typical private equity fund deal would see from New York. So we’re in-market players and being an in-market operator in numerous sectors gives us a leg up in terms of seeing the opportunities and, hence, a long and deep pipeline.

Snow: Do you even think about exit possibilities when you go into a deal? Or do you just think that if you build a valuable company, someone [will] want to buy it and you worry about that later?

Lee-Chin: If you buy right, there’s always an exit. If you buy right or you cover together what will become a very high-quality asset, then you’ll be well paid for that consolidation effort; Columbus being a good case in point. Most people wouldn’t have thought that there were $3billion deals to be had in the Caribbean. That’s part of the perception/reality efficiency. And it’s unfortunate that more people wouldn’t make decisions based on the reality. But therein lie our opportunities.

Snow: Do you have any competition in the private equity market in the Caribbean?

Lee-Chin: So far—

Snow: Is it mostly from families, or are there other private equity firms trying to do what you do?

Lee-Chin: There are not too many private equity fund funds in the Caribbean. But, yes, we do have competition. We have families who are well-heeled. We have individual pension funds. So, yes, but the private equity fund business in the Caribbean is not well-developed and, hence, the reason there are opportunities for us.

Snow: Talk about what gave you the confidence that the consumers would ultimately want this service, if you built it for them.

Lee-Chin: When you’re in developing countries and you have the perspective from being an investor in a developed country, it’s like you’ve seen that movie before. We saw the cable movie before played out in Canada, and, therefore we saw the ingredients for a replay of that movie. So we enabled the movie. We just pressed the start button.

Snow: Of course, Canada has a different level of GDP from places like Jamaica. Were you confident that you were going to be able to offer the service at a price that [would] be appropriate for that market?

Lee-Chin: Yes. Actually, the service we offer is, in many ways, more advanced than what we as consumers can buy in Canada. So yes, we were confident that we were able to come in at the price-point, which we did, that was competitive and enabled us to really grow our business and be able to reinvest our profits to the point where we were taken out by cable and wireless.

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