Behind The Raise With Firepower Capital

Photo (left to right): Anthony Lipschitz, Partner, Private Equity, Jared Kalish, Partner, Private Capital, Ilan Jacobson, Founding Partner & CEO. Credit: Firepower Capital.

This morning, Toronto and Montreal-based Firepower Capitalannounced the closing of a pool of committed capital earmarked for private equity transactions.

The raise is part of the expansion of Firepower’s private equity division, which operates independently from its private debt funds, as well as its advisory divisions focused on mergers & acquisitions, corporate finance, and big data analytics.

Anthony Lipschitz, Jared Kalish, and Ilan Jacobson lead FirePower’s private equity division and through their work at Firepower have partnered with portfolio companies such as Last Call Analytics (exited to Ample Organics), Interwork Technologies (exited to Climb Channel Solutions, a subsidiary of Wayside Technology Group, NSDQ:WSTG), BATL and Konfidis.

The CVCA caught up with the Firepower private equity team to find out more about the raise, the division’s thesis and their thoughts on the investment climate moving forward.

Tell us about Firepower Capital, its history, role and vision.

FirePower was formed over 10 years ago. For most of its history, it has provided M&A and general corporate finance advisory services to Canadian companies in the lower-middle-market. This segment is typically serviced by individual advisors, very small firms, or accounting firms. Our firm was built on solving the problem: ​“how do you provide a new ​‘level’ of advisory services to smaller companies?”

We have met this challenge through scale, achieved by (i) making significant investments in technology and process, underpin the way that we originate and manage deals; (ii) building a corporate culture that celebrates team success rather than rainmakers; and, (iii) starting new divisions that leverage the initial building blocks that supported the advisory services business and complement it.

These new divisions are (i) private debt business that we started 4 years ago, which provides loans up to $40m in size; (ii) our private equity business that we started 2 years ago, which this is new pool of capital will support; and (iii) our big data analytics consulting business that we started in mid 2019 and is now growing rapidly.

We are big believers that being successful entrepreneurs ourselves gives us a significant edge to understand and provide exceptional service to our clients who are entrusting with material transactions along their entrepreneurial journey.

Our vision is to continue to become the go-to resource for Canadian entrepreneurs in the lower-middle-market when they are preparing for and considering transformative transactions. The team has growth to 35+ professionals in Toronto and Montreal across those divisions.

Let’s dive into the capital pool’s thesis.

We aim to build a portfolio of five to seven platforms, each with an enterprise value of up to $40 million.

To understand our thesis, its important to recognize how we view ourselves. We believe we are first and foremost entrepreneurs. In fact, the way in which we structured this capital pool has some unique characteristics that enables us to build a team that operates centrally, and on a scalable basis, provides active ongoing support to portfolio companies.

The thesis is not driven by sectors and is driven by the belief that there is a need in the North American lower-middle-market for an active, long-term private equity owner and operator of businesses that entrepreneurs enjoy partnering with, and working with in the trenches on thorny operational issues — not Bay or Wall Street deal guys who show up at quarterly board meetings. Resolving complex operational or strategic situations is one of the few reliable ways that private equity firms can make significant returns.

The second component of the thesis is that we’ve observed that most private equity firms naturally look for easier circumstances to be involved with. We on the other hand welcome a wide range of circumstances, from complex turnaround situations for which we have extensive expertise to steady-growth succession, requiring creative solutions.

Can you share a bit about a couple exciting portfolios or exits?

FirePower has bought and sold companies for its own account for a number of years, with portfolio companies such as Last Call Analytics (a beverage & alcohol SaaS platform, exited to Ample Organics), Interwork Technologies (a cybersecurity software distributor, exited to Wayside Technology Group, Inc. NSDQ:WSTG), BATL (the largest network of axe-throwing venues in the world) and Konfidis (a tech-enabled brokerage for residential property investors). These companies all share a central theme in that they required a partner who is willing to get deep into their sectors, leverage our collective experience and focus on rapid growth.

What do you see as the evolution of the firm?

Ultimately, our objective is clear. We want to be the firm that Canadian entrepreneurs think of when contemplating a transformative transaction. That means strengthening the ecosystem: our evolution is both expanding our set of services (as we did in 2019, for example, by launching our data analytics consulting practice) and quite simply getting better at what we currently do – if we are able to serve our clients better, we believe that success comes naturally.

How do you foresee conditions and needs for private equity moving forward? Given the pandemic, can you tell us how you anticipate the investment climate playing out in the near and long term?

Private equity has been reshuffled pretty hard with the pandemic. The vanilla buy-outs have vanished since March, firms had to develop new investment strategies and structures. The race to less cyclical sectors is unsurprising, of course. Everyone is trying to do deals – they know corrections like this is one of the great ways to buy inexpensively – but it’s our view that sellers are reluctant, because they are adjusting to their own new normal and they know that buyers are expecting a COVID ​“discount”. So, it’s taking a bit of time to get both sides to come closer. There is a ton of cash on the sidelines and it has to go somewhere… we think buyers will blink first. We do think that those willing to be patient and to work deeply alongside the potential partner companies will have an edge.

What are you particularly excited for regarding the firm, the investment community in Canada, and specific sectors?

Relative to the rest of the world, Canada offers compelling opportunities for upside and an operating environment that is stable and welcoming. One could always argue for this or that to change, but we like the jurisdiction we’re in as a PE firm. An ageing population, climate change, income inequality, racial justice, technology, sovereign debt loads, COVID, etc. are all top of mind, and we are adapting and challenging our strategies and community involvement by inviting different viewpoints, and keeping an open mind. It also helps that Canada is seen as a stable player in a global market that is subject to massive gyrations at the moment.

Ultimately, though, we are self-aware enough to know that predicting the future is extremely tricky. So, our PE group solves first and foremost for teaming up with great ownership or management teams and being phenomenal partners to them. That usually takes care of upside.