Business Development Bank of Canada has recruited a seasoned investment pro to help it carve out a role in Canada’s under-served growth equity market.
Last month BDC Capital brought on Elmer Kim as vice president, growth equity. The hire puts Kim at the head of a new investment platform, BDC Capital Growth Equity, intended to focus on the equity-financing needs of mature small and medium-sized companies.
Kim told PE Hub Canada the platform will address a key gap in the domestic market: minority equity that helps businesses scale up but keeps existing owners in the driver’s seat.
“We’re aiming at an area of high demand and short supply,” Kim said. “Too often companies in Canada are forced to bootstrap their growth because of a lack of available funding options. BDC’s response to this challenge will be a robust minority capital solution.”
Growth equity, often defined as falling between venture capital and buyouts on the risk financing continuum, is a relatively new field for BDC. Kim is starting off by fleshing out the details of an investment strategy and determining the resources to execute it.
Kim expects BDC to focus on companies with Ebitda of $1 million to $10 million, and may go as high as $20 million. Opportunities will be sought in a variety of industries and in all regions of Canada. Investment sizes are likely to range $5 million to $10 million per deal.
BDC will target companies that are looking for a stronger foundation on which to pursue high growth, Kim said. This will include everything from expanding operations and entering new markets to closing acquisitions. Businesses will also be supported in organizational changes, such as succession events.
BDC will invest growth equity over five to seven years, longer than the average hold periods of most PE firms. This is crucial for companies that “need time to drive growth” and secure “a path to liquidity,” Kim said.
BDC’s growth equity team will be housed in Growth and Transition Capital, a division that specializes in mezzanine, cash flow and quasi-equity financing. GTC currently manages a $700 million portfolio consisting of some 500 companies.
The team will source deals independently or in tandem with GTC’s debt side, which operates through a coast-to-coast network of offices, Kim said.
Deal flow is expanding at a fast clip, primarily through GTC referrals of businesses with risk-return profiles more inclined to equity funding than debt, he added.
“Our deal log is already stronger than I thought it would be at this point,” he said.
Opportunities are also expected to emerge from partnerships with other private equity firms. Early feedback from Kim’s market colleagues about BDC’s growth equity option has been positive and has included offers to collaborate on deals, he said.
Kim joined BDC after working for five years as a managing director at Roynat Equity Partners, a mid-market private equity firm affiliated with Scotiabank. Before that he served for more than a decade in senior executive roles at Whitecastle Investments, a family office active in a range of alternative investments.
Hiring for BDC Capital Growth Equity is currently underway. Recruitment is focused on investment pros with “deep buyout and private equity experience” of five to 10 years or more, Kim said.
PE Hub Canada profiled GTC in an interview with Managing Director Robert Duffy in November 2014.
Photo of Elmer Kim courtesy of Business Development Bank of Canada