While U.S. private equity firms are a growing presence in Canada’s mid-market, not that many have taken the step of opening a local office to source deals and keep tabs on portfolio companies.
One of the few is Swander Pace Capital (SPC), a specialist in buyouts of lower mid-market consumer products companies. SPC opened a Toronto office seven years ago and hired Principal Valerie Scott, formerly a Roynat Capital managing director, to run it.
SPC currently has four Canadian platform investments: Kicking Horse Coffee, Lavo, Recochem and Voortman Cookies.
PE Hub Canada sat down with Scott and Managing Director Andrew Richards to talk about SPC’s Canadian investment strategy, deals and the recent close of the firm’s sixth fund.
Q: What prompted SPC to set up shop in Canada, and has the strategy paid off?
Richards: Swander Pace sees itself as a Canadian private equity firm. We’ve been investing here for over a decade, beginning with our investment in yogurt and dairy products maker Liberté [in 2004]. This and subsequent deals reinforced our view that the market is a very positive one for consumer companies.
Most Canadian businesses fit our target range of US$20 million to US$400 million in revenue. So it’s important for us to have a local presence that provides access to quality companies that exhibit strong growth potential.
We feel our success with platform investments has proven the value of this strategy. For example, we more than doubled the size of Liberté before selling it to Yoplait [in 2010]. And we significantly broadened the scope of Pineridge Bakery [which was sold to Aryzta for US$340 million in 2014].
Scott: The Canadian industry is small and some companies are hesitant to deal with a private equity firm. Over time, however, we’ve shown we can walk the walk. Since Liberté, Swander Pace has acquired a dozen companies, making us the most active consumer investor in Canada.
Q: It is said that Canada’s inefficient market gives local investors an edge in sourcing deal flow. Do you agree?
Richards: Canada’s market is more competitive than it was 10 years ago. As a result, companies tend to look as much for value-adding capabilities as they do investment dollars. We believe Swander Pace’s specialized focus sets it apart for the family-owned or entrepreneur-founded consumer companies of most interest to us.
Scott: We use proprietary networks to source deals. Awareness of Swander Pace in Canada’s tight-knit business community has increased due to our high-profile deals, such as Liberté and Pineridge. They prompted many more business owners to consider a divestiture with us.
Q: SPC’s most recent Canadian acquisition was Voortman Cookies in October 2015. What attracted you to it?
Richards: Voortman is a family-owned business that has over 65 years built a tremendous brand heritage in Canada. About 70 percent of its cookie and wafer product sales are in the United States, but we saw an opportunity to make the brand even better known there.
Consumer patterns are similar in Canada and the United States, but there are some important differences. A lot of the time we find that a successful growth strategy involves building out distribution and broadening the product line.
We’ll be doing both with Voortman. Swander Pace plans to invest in product innovation, distribution and marketing to stimulate demand. And we brought on a seasoned industry executive, Douglas MacFarlane, as CEO to help us do that.
Scott: I believe Swander Pace is valued as a steward of the companies we back. That was the case with Voortman. Its co-founder and CEO Harry Voortman wanted to partner with us because he saw that we shared his values and goals for the business.
Q: Earlier this month, SPC closed its sixth fund at US$510 million, exceeding its target. How did the firm achieve this result?
Richards: SPC Partners VI was raised quickly and almost exclusively from our existing limited partners, who increased their commitments. We feel this reflects the performance and consistency of the consumer space and the track record we’ve built over 20 years of deal-making.
Scott: I believe our success owes to Swander Pace’s approach to deals. We invest across the value chain, allowing us to invest in the best consumer companies and make the best of our partnerships. In Canada, we’ve invested in businesses of all types and sizes and utilized proven strategies to help them grow.
Q: Female PE investment professionals are relatively few in number. How do you feel about breaking that glass ceiling, Valerie?
Scott: I’m fortunate to be a part of a progressive firm like Swander Pace, where women make up about half of the investment team. Swander Pace didn’t set out to accomplish this, but instead sought to hire top talent in a collaborative environment. It turned out that many are women.
The glass ceiling is not unique to private equity. But private equity firms need the best and the brightest people, and they include women.
Photos of Andrew Richards and Valerie Scott courtesy of Swander Pace Capital
Photo of cookies courtesy of Voortman Cookies Ltd