- Catalyst expected to launch new fund later this year
- Combative firm contemplating adding a mezzanine platform
- “I’m a pretty cuddly guy when you get to know me,” says Glassman
Newton Glassman is the loudest, most combative distressed investor in Canada.
Short-sellers of his portfolio companies are called to public debate. Courtroom spats merit lengthy op-eds and press releases. Competitors are harangued with self-serious pronouncements extolling the virtues of fiduciary duty or the piety of legal precedent.
But with all that bluster, Glassman has never had his picture taken. At least not for public consumption. The Canadian private equity chieftain wants to be heard, never seen.
“We’ve had people in due-diligence calls, some of our LPs, feedback from our LPs, and they’ll say, ‘so-and-so called and heard from other people that you’re so difficult, and a pain in the ass,’” said Glassman, the founder and managing partner of Catalyst Capital Group. “That’s probably the appropriate response.”
Being difficult has served Glassman’s investors well. Since he launched the firm with Gabriel de Alba in 2002, Catalyst’s five PE funds have grossed an aggregate internal rate of return of 24.4 percent, according to investor documents. Its most recent fund, which closed on $1.5 billion in 2015, was grossing a 145 percent IRR with a 1.6x multiple through the end of last year.
The firm returned roughly $700 million to its investors over the previous six months, de Alba told Buyouts, with much of that coming from the successful restructuring of Pacific Exploration & Production Corp. Pacific E&P listed on the Toronto Stock Exchange in November.
Another portfolio company, Gateway Casinos & Entertainment Ltd, is in talks for a sale-leaseback deal that values three of the company’s assets in British Columbia at around C$500 million (US$378 million).
And those heady returns arrived while one of the firm’s largest portfolio companies, publicly traded lender Callidus Capital Corp, fended off a short attack from rival West Face Capital. By the end of 2016 — roughly around when Pacific Exploration held its public offering — Callidus’s share price dipped to almost half its $14 listing price. The price has since recovered, to around $15.40 as of early June.
“Their most recent fund is off to an amazing start, like an unbelievable start,” one LP told Buyouts.
Three LPs who spoke with Buyouts said the firm will likely start raising its new fund later this year, and demand for space in the fund is expected to be considerable. But investor enthusiasm comes with important caveats.
“He was bright, hardworking, and his interpersonal skills were debatable,” says Paul Lowenstein of CCFL Partners, one of Glassman’s earliest bosses in PE. “I get called from potential investors in [Catalyst] funds. I say, ‘you should back him, but make sure he’s surrounded by very good people and that there’s balance in the fund. Because of the personality.’”
Nature of distressed business
“Active, distressed PE is different than any other kind of investing,” Glassman, who is 53, told Buyouts. “It is the only kind of investing I know where, by definition, we have people fighting for a larger slice of a shrinking pie. So it is, by definition, highly adversarial. It has to be. That attracts a very certain type of personality that has no qualms in protecting their rights, aggressively.”
Catalyst and its senior team intentionally shun the spotlight, as they once declared in an op-ed published by the Globe and Mail. But Glassman’s public aggression in the name of fund returns became a calling card as Catalyst’s ascent gathered steam.
The op-ed, which ran last March, was a coda to the tempest surrounding Canadian media and broadcasting company Corus Entertainment Inc’s C$2.65 billion acquisition of Shaw Media, whose assets included channels like Food Network Canada and HGTV Canada.
Both companies are publicly traded, and at the time of the acquisition both were controlled by the Shaw family of Alberta. Catalyst, a minority stakeholder in Corus, took issue with the inherent conflict of a sale that stood to enrich the Shaw family at the expense of Corus’s other shareholders.
“Our position is that not only is the price excessive, but the disclosure was also horribly inadequate, the process problematic and the deal structure unfair, all making a mockery of the shareholders’ vote,” Glassman, de Alba and Partner Jim Riley wrote. “Minority shareholders were deprived of the economic benefits the Shaw family and advisers unfairly steered to themselves.”
The Shaws, along with Canadian regulators, disagreed. The sale was finalized on April 1. Despite its objections, the Catalyst team noted in the op-ed that they’d gross a 20 percent profit from their stake in Corus.
And so it goes with Catalyst. Glassman and his partners stir things up, and even if they lose the fight, their funds still pick up a sizable return.
“Unfortunately, it’s the nature of the distressed business,” said one consultant whose clients have backed Catalyst funds. “The fights are almost always a part of the value-creation process.”
Glassman grew up and went to school in Toronto. After receiving a law degree from the University of Toronto, he briefly decamped to Philadelphia to obtain an MBA at the University of Pennsylvania’s Wharton School, before starting his career in private equity at Canadian Corporate Funding Ltd, then one of the largest firms north of the border.
He then borrowed from family and friends to join Jay Hennick, the current chairman and CEO of Colliers International Group Inc, in restructuring FirstService Corp, a property-services company Hennick had founded in 1989.
“My job was to lead, and then to help execute, a change in the strategic plan. And then to operationally help fix two specific operations in the group as well as the balance sheet,” Glassman said. “I’ve never sold a share of FirstService; my charitable foundation still owns a fair amount.”
The experience at the helm of a business eventually led to a position with Cerberus Capital Management, where he spent five years focusing on restructurings of companies like AT&T Canada and GST Telecommunications. At Cerberus, under the tutelage of Stephen Feinberg, Glassman honed his skills as a dealmaker and picked up lessons he would put to use at Catalyst.
In Glassman’s telling, Feinberg possessed an almost unmatched acumen for analysis, paired with an ability to prioritize different components of complicated deal structures. Feinberg hired in a manner that addressed some of his weaknesses, which led to a management team in which the key people had complementary skillsets. Cerberus declined to comment.
Similarly, Riley and de Alba’s abilities and temperament help balance Glassman’s admitted shortcomings.
“I try to surround myself with people who will compensate for my being impatient, or my being overly aggressive, or my being furious — like during the short attack at Callidus — and making sure we think through the issue instead of being highly reactive,” Glassman said. “I know me. I know I’m capable of being highly reactive and furious. That’s probably not going to result in the best decisions.”
One market source told Buyouts that de Alba has taken the lead on some of Catalyst’s most recent transactions, including Pacific Exploration, while Glassman and Riley fended off a short attack at portfolio company Callidus Capital, a publicly traded lender to distressed and underperforming businesses.
“There’s a misunderstanding that Catalyst is a one-person team. It’s far from that. While we might be very low key — and we are very low key — we have a very good team that is quite solid,” de Alba told Buyouts. “The LPs know that especially Newton and I strike a nice balance. It works with both of our strengths. … Ultimately, while we might have a different style, we know that what we’re looking for is to maximize the return.”
West Face and Wind
Here’s what’s clear: Former Catalyst analyst Brandon Moyse left the firm to take a position with Toronto-based hedge fund West Face Capital in mid-2014. Shortly afterward, West Face beat out Catalyst to acquire Wind Mobile, a Canadian telecommunications business.
Catalyst claimed Moyse provided West Face with inside information relating to its bid, giving his new firm an edge in negotiations. Moyse and West Face denied this, and Catalyst began pursuing a lawsuit against both shortly thereafter. Justice Frank Newbould sided with Moyse and West Face. Catalyst was ordered to pay more than $1.5 million to cover the legal costs for West Face and Moyse.
Glassman, along with de Alba, were excoriated by Newbould in his decision. In Newbould’s words, Glassman “was not able to accept that he lost his chance to acquire Wind by being outsmarted by somebody else.”
Catalyst appealed the case, claiming Newbould had ignored material facts relating to its claim and accusing him of “possible bias” in a statement.
And here’s where it gets complicated: In 2015, West Face began shorting the shares of Catalyst portfolio company Callidus Capital. Glassman, who is also chairman and CEO of publicly traded Callidus, says he believes the short attack was in retaliation for the Moyse lawsuit.
This resulted in Callidus filing a separate lawsuit accusing West Face of defaming the portfolio company. That case is ongoing. A third lawsuit related to the Wind Mobile case was filed last year and is also in progress.
“It is our view, and we’ve said it publicly, that the short attack was an unthought-through retaliation for us suing them over Brandon Moyse,” Glassman said.
In the early stages of the short attack, Catalyst could have taken Callidus private again. Instead, Callidus increased the size of its dividends and implemented a dividend-reinvestment plan for existing shareholders. The company then initiated a substantial issuer bid with an independent valuation, which allowed Callidus to purchase outstanding securities for cancellation.
This had the effect of giving existing shareholders a bigger stake in the business at a higher share price. As a result, Callidus’s share price more than doubled to $15.80 between mid-December and mid-June.
Fighting off the short attack dovetailed with an effort to take a minority stake in the company private, roughly three years after its IPO. Almost 20 prospective buyers circled Callidus in early 2017. The company had winnowed its suitors to six or fewer by March, according to a second-quarter earnings release.
“Typical PE is really about consensus building and leverage. Our business is about delevering and winning a conflict. You win enough times, and you have the kind of returns we’re having, especially in an unsophisticated market, you’re going to get some pushback,” Glassman says.
West Face and Moyse declined to comment.
Glassman shows no signs of slowing major strategic initiatives at either firm. The privatization of Callidus remains in process — it could be finalized as early as the end of the second quarter — and de Alba and Riley say Catalyst is considering the addition of a mezzanine platform, which could involve onboarding new team members.
The Canadian market for investments in distressed companies remains relatively small, and Catalyst wants to position itself as the dominant player in that market for the foreseeable future.
As long as the returns continue to roll in and LPs stay happy, concerns about Glassman’s temperament and public face (or lack thereof) are ultimately irrelevant, Lowenstein and other sources told Buyouts.
“We expect [the firm] to be respected,” Glassman says. “I’m a pretty cuddly guy when you get to know me.”
Action Item: For more information on Catalyst, visit www.catcapital.com/
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