Brookfield’s mighty fine year

Louisiana-Pacific is coming close to wrapping up its acquisition of Ainsworth Lumber (TSX: ANS), a Vancouver-based manufacturer of homebuilding products. The US$1.1 billion deal, announced in Sept. 2013, will be the largest private equity exit from a Canadian-based company in nearly a year.

That will be a feather in the cap for the private equity team at Toronto-based alternative asset manager Brookfield Asset Management (NYSE: BAM) (TSX: BAM.A) (Euronext: BAMA). The firm’s Brookfield Capital Partners II fund is the current majority owner of Ainsworth, after taking a stake in the company through a recapitalization deal in 2008.

The Ainsworth deal was just one of a number of headline-grabbing events for Brookfield in 2013.

The company also announced the sale of Longview Timber and Longview Fibre Paper and Packaging in two separate transactions. Brookfield bought the two as a single Wisconsin-based business in 2007, which it then restructured to create independent timberland and manufacturing entities. The PE team went on to execute a turnaround of the manufacturing business.

Longview Fibre Paper and Packaging was purchased by KapStone Paper and Packaging in July for a little over US$1 billion. Not long after, Weyerhaueser bought Longview Timber for US$2.6 billion. The two deals, which gave exits to Brookfield’s PE, timber and infrastructure funds, generated gross proceeds of close to US$3.7 billion. After repayment of debts and distributions to third-party investors, Brookfield netted about US$850 million.

Performance at this level is music to the ears of LPs, and a boon to the private equity or alternative asset fund that happens to be raising new capital. Not surprisingly, Brookfield also had momentum in that realm in 2013.

Last April, Brookfield disclosed to peHUB Canada that it had recently closed its third partnership focused on mid-market buyouts, consolidations, restructurings and turnarounds in Canada and the U.S. Brookfield Capital Partners III raised a total of US$1 billion in commitments from a mix of pension funds, insurance companies and other institutional investors.

Brookfield Place 3Fund III was raised without benefit of the Ainsworth or Longview realizations. However, the PE group already had a solid track record. Senior managing partner Joe Freedman told peHUB Canada that gross returns of the fully-realized first fund were 2X with a 30 percent IRR. And at the time, Brookfield Capital Partners II had returned substantially all LP capital, primarily through two exits and cash-flow dividends.

The PE fund’s closing was followed a few months later by the close of Brookfield’s fifth timber partnership, the US$1 billion Brookfield Timberlands Fund V.

And in October, the firm put the finishing touches on Brookfield Infrastructure Fund II, which raked in a whopping US$7 billion from over 60 institutional LPs. Focused on investments in global transportation, renewable power, utilities and energy assets, Brookfield Infrastructure Fund II exceeded its original US$5 billion target, as well as capital committed to Fund I, which closed at US$2.7 billion in 2010.

Taken together, Brookfield PE and other private alternative asset funds attracted a total of US$10.5 billion in 2013. A large portion of this money came from Brookfield Asset Management itself. For example, the latter supplied about one-quarter of Brookfield Capital Partners III, and 40% of Brookfield Infrastructure Fund II.

Considering the time and energy an investor must put into large-scale liquidity events and fund closings, Brookfield would likely be forgiven if it had fallen short on its investment activity.

But it didn’t. For example, the newly-minted Brookfield Capital Partners III in May undertook its first new platform investment, acquiring the Canadian logistics operations of Nebraska’s Millard Refrigerated Services, and creating a new company,  Brookfield Cold Storage. It also signaled what is perhaps a new interest in the mining sector, extending US$130 million in debt financing to North American Palladium, a precious metals producer which has a flagship Lac des Iles mining project in Ontario.

The firm also completed deals involving long-standing portfolio companies. Insignia Energy and Second Wave Petroleum, both Calgary-based oil and gas producers, were taken private in 2013.

Additionally, another portfolio investment, Ember Resources, completed a major US$214 million add-on acquisition of energy assets owned by Houston, Texas-based Apache Corp. Ember, a coal-bed methane business with headquarters in Calgary, was bought by Brookfield in partnership with ARC Financial, KERN Partners and members of the company’s management team in 2011.

In fact, the firm told peHUB Canada that Brookfield Capital Partners III and its co-investors have so far invested, or committed to invest, well over $1 billion in assorted transactions.

All-in-all, Brookfield had a mighty fine year in 2013. Which makes one wonder what the firm will do for an encore in 2014.

Photo of investor on mountain top courtesy of Shutterstock

Photo of Brookfield Place courtesy of Shutterstock