Perspectives from Private Equity Leaders…Who Just Happen to Be Women

There are women in Canada that wield significant influence in our industry that oversee millions and billions in assets. These expert opinions are needed now more than ever. Strategies are looking to adjust for where markets are heading and to focus on the many variables that will spell future investment success or failure.

Again, this year, to mark International Women’s Day, we’re uncovering valuable insights from leading women in our industry.

Separated by asset class in the CVCA membership, this article will explore the perspectives of leaders in private equity.

What is the most exciting trend right now in Canadian private equity?

The most exciting trend is the way we are doing business. Business is being conducted directly from our homes! We have sold companies, made new investments, and raised a fund, all using technology that is new to us. Technology has greatly increased the number of interactions that we conduct in a given day, resulting in huge productivity gains.

What is the biggest challenge facing private equity right now?

While the increased use of technology represents the most exciting trend, we also see the resulting side effect of dwindling face-to-face interactions as the biggest challenge. The foundation of our industry has been grounded in personal interactions – be it, meeting a management team, conversing with a seller, or collaborating as an internal team. We see the use of technology as a complement to, and not a replacement for, face-to-face interactions. While technology makes us more efficient, face-to-face interactions make us more effective, and the diminished ability to meet in person represents a significant challenge for our industry.

Which economic factors do you feel have the most impact on your fund’s strategy?

The prevailing low interest rate environment continues to inflate acquisition multiples, putting pressure on risk-adjusted returns throughout the industry. Given these market circumstances, we have evolved our strategy over the last decade to play in a market segment where we still perceive attractive valuations and returns.

What is the most exciting trend right now in Canadian private equity?

It’s hard not to mention the acceleration of digitization since the pandemic. A few changes we see that are clearly here to stay include an increased potential for remote work, e‑commerce penetration, digital tools in healthcare and automation. These changes are disrupting business models and bring both exciting opportunities and significant uncertainty. A critical component of our work in private equity is selecting winning management teams – that will be able to adapt in this ever-changing environment.

Another interesting trend playing out in the background in the Canadian private equity environment is the growing number of founder-led companies who are approaching retirement age. Close to 50% of the Canadian private-sector is driven by family-owned businesses – and with more capital raised locally in recent years, we see quality companies continuing to grow rather than being sold off. Part of our role is to help preserve the entrepreneurial dynamic and transition capital to the next generation – or another management team. External capital and advice from institutions like the CDPQ provides these businesses with the opportunity to grow – including by expanding internationally – and it’s now possible for our local leaders to dream big while keeping Canadian ownership and creating value here.

What is the biggest challenge facing private equity right now?

The hype around growth stories versus value is definitely a challenge, especially with Entrepreneurs seeing possible exits in public markets at unprecedented levels.

As an institutional investor who invests constructive capital, we need to stay disciplined and focused on business fundamentals and expected value creation to both balance risk-return and protect our depositor’s capital.

For certain sectors like renewable energy, the gap with public markets is really wide and we see it as an opportunity to leverage our expertise and move faster. With this ​“winners-take-most” environment – and low barriers to entry attached to digital models – we need our businesses to stay on the front foot and avoid missing this type of transition.

Which economic factors do you feel have the most impact on your fund’s strategy?

The ongoing low-interest environment remains a core aspect of our overall institution’s strategy – and has driven us to increase our exposure in emerging markets and find opportunities in the private sector, which has fewer financing sources competing.

Inflation also plays a role. If this is triggered by stimulus packages being used to support economic activity, it could create a deficit towards our pension liabilities. We, therefore, need to pay a lot of attention to the sectors where we want to be active, with a bias towards companies and assets that are well-positioned and can pass on inflation.

What is the most exciting trend right now in Canadian private equity?

There is always a lot of exciting things going on in the Canadian private equity market. One of the trends that we are most excited about at Birch Hill Equity Partners is the rapid acceleration of digital capabilities across industries. Digitization is transforming how Canadian companies in every sector operate, compete, and interact with their employees, suppliers, and customers. This upheaval has created meaningful growth and differentiation opportunities for our existing portfolio and has surfaced as a focus area of investment.

What is the biggest challenge facing private equity right now?

Without a doubt, the global pandemic has had a material impact on the private equity industry. High levels of uncertainty given the disruptions of COVID have made capital deployment and exits more challenging over the past year. This challenge has been further exacerbated by persistently high valuation levels, particularly in the public market. The average EV/EBITDA purchase price multiple for buyout deals continued to climb in 2020 supported by the increasing availability of debt.

In addition to credit growth, the growth in private equity allocation by pension funds pursuing yield in a low-interest-rate environment has outpaced the capital deployment. This unspent private capital (or ​“dry powder”) has made the market more competitive globally as well as in Canada.

Which economic factors do you feel have the most impact on your fund’s strategy?

Birch Hill is focused on the mid-market with a strategy to partner with growth-oriented companies in Canada and the United States. We invest across industries and thus are most influenced by macroeconomic factors. Canadian governments’ (all levels) debt levels, consumer sentiment, and availability of corporate debt are factors that have a material impact on our ability to deploy capital.