TriWest Capital Partners had an eventful 2017.
The Calgary private equity firm made two new platform investments, did a handful of add-on deals, and closed full or partial exits from three portfolio companies, one of them in a high-profile initial public offering.
Additionally, TriWest Capital Partners Fund V, which raised $500 million in 2015, reached its halfway point in deployments.
TriWest is a veteran of PE investing in Western Canada’s mid-market. Since it was founded in 1998 by a group of seasoned operators and financial executives, the firm has partnered with management teams of 39 companies, most of them in service, manufacturing and distribution sectors.
Like other investors, TriWest in recent years has navigated a frothier, more competitive market. Senior Managing Director Cody Church says the firm has met challenges by doubling down on proven deal-making techniques and executing a strategy he calls “winning on the edge”.
PE Hub Canada sat down with Church and Senior Managing Director Mick MacBean to discuss recent deals and the market environment.
Q: TriWest last year invested alongside Silver Lake and HarbourVest in Peloton Computer Enterprises. What drew you to the company?
MM: Peloton Computer Enterprises is a great Western Canadian technology success story. CEO Glen Gray and his brother Stuart, who grew up in an energy family with deep roots, launched Peloton [in 1991] to deliver well-data software solutions to exploration and production companies.
In the oil-and-gas sector, exploration risk, or the risk involved in discovering resources, has in large part been replaced by execution risk. Peloton’s data-management solution recognizes this by helping global E&P companies optimize their operations and more efficiently deploy capital.
The Gray brothers introduced TriWest to Silver Lake, and we quickly discovered they share an investment style similar to ours. It was a good partnership and all parties will work to support Peloton as the company seeks opportunities for organic growth through additions to the product line, as well as potential strategic M&A.
Q: The other platform investment in 2017 was Coast Wholesale Appliances. How did that deal come together?
CC: Coast Wholesale Appliances is a familiar name in capital markets because it was once an income trust [until 2014, when it was taken private]. TriWest invested as a result of a decision by the company’s longtime principals and senior managers to bring on a financial partner following a succession deal.
Coast sells a wide selection of quality, high-end appliances, mostly in showrooms in Western Canada. But its growth profile didn’t correspond with its tolerance for risk. TriWest will support Coast’s continued expansion in the region along with the pursuit of new opportunities in Ontario.
Our investments in Coast and Peloton bring Fund V portfolio companies to seven. Additionally, the fund is now about 50 percent invested.
Q: Four TriWest portfolio companies closed add-ons deals last year. How strategic were they?
CC: We spend a lot of time with management teams discussing ways the business can grow organically and through acquisitions. We conduct a thoughtful analysis, weighing each company’s strengths and weaknesses. The goal is to proactively find opportunities and, when we spot them, to move quickly.
All four acquisitions were very strategic and very accretive. Innova Global’s buy of Braden [from Global Power Equipment] made it the largest emissions-control and air-intake specialist for gas-fired turbines in the world. TriWest backed the deal with Export Development Canada as a co-investor and sub-debt provider.
MM: In another example, Trimlite [a maker and distributor of doors, decorative glass and millwork products] achieved significant synergies and vertical integration from its acquisition of Codel Entry Systems [from Prospect Partners].
And Triple M Modular’s buy of Britco [from WesternOne] was strategic because it added to the company’s modular-housing product line, enhanced manufacturing capacity, and opened up new markets.
Finally, Colter Energy acquired flow-back assets from Bonnett’s Energy, allowing for significant growth in the equipment fleet prior to much stronger utilization in the energy sector.
CC: Landmark Cinemas Canada was a small company when it had the opportunity [in 2014] to acquire the assets of Empire Theatres. We invested in that deal, which made Landmark the second largest movie-exhibition chain in Canada.
TriWest also committed substantial capital to Landmark’s continued growth. This excited the interest of Kinepolis [a Belgian cinema chain] because it saw Landmark as a potential starting point in Kinepolis’s North American expansion strategy. The sale generated a return expected in five years in only 3 1/2.
Source Energy Services [a proppant supply and oilfield-logistics company] launched an initial public offering because it had effectively outgrown its capital base. The IPO created a great platform for Source’s strategy, including $125 million for growth initiatives. It was enough to double the size of the business.
MM: TriWest also closed a dividend recapitalization of Northern Mat & Bridge [a provider of temporary access solutions]. When we invested in the company [in 2012], most of the customers were in the E&P sector. We achieved dramatic diversity in the sectors Northern Mat serves, making it a true industrial business.
The dividend recap returned 3x our original investment.
Q: When Fund V closed in 2015, it was TriWest’s largest to date. How has the fund’s strategy fared in the tough market environment?
CC: Fund V has worked out as expected. The bigger capital pool allowed us to write cheques 15 percent to 20 percent larger than in the prior fund. And we’re seeing deal flow in Western Canada that matches that increase.
Today’s market is the most buoyant I’ve seen in 20 years, and that’s reflected in valuations, which are the most aggressive I’ve ever seen. In addition, there’s ample competition at every turn. A complicating factor in Western Canada has been the economic uncertainty caused by weakness in the energy industry.
When values move up, there’s less room for error. You must have a high degree of conviction in your investment thesis. There must be more due diligence and more analysis conducted when selecting partner companies. It has to be close to perfect.
At TriWest, we believe in winning on the edge. That means sticking with our core focus of local, partner-oriented deals where the owner-operator continues to hold a piece of the business.
There’s also a silver lining in a challenging market: It has made our companies better. Our entire portfolio is now more efficient, more resilient and more creative. As a result, companies are well prepared to take advantage of the opportunities of a stronger economy.
Photos of TriWest Capital Partners’ sign, Cody Church and Mick MacBean courtesy of the firm.