Canada’s newest private equity firm, Parallel49 Equity, was launched four months ago in a rebranding initiative. Its story may be a case study of how founding partners can successfully pass the torch to a next generation of PE executives.
Parallel49 Equity was created in December when Tricor Pacific Capital, a mid-market PE firm founded in 1996, rebranded its fifth fund, Tricor Pacific Capital Partners Fund V.
As a result, Tricor co-founders Trevor Johnstone and Rod Senft stepped back from their prior roles, making way for a new leadership team whose members are former Tricor investment pros.
Under the Parallel49 banner, the team was given charge of day-to-day management, a seven-company portfolio, and some $400 million to deploy to new investments.
They were also charged with building on Tricor’s longstanding market strategy.
Parallel49 takes its name from the 49th parallel, the line of latitude that defines the Canada-U.S. border. It is also a metaphor for Tricor’s 20-year history of buying companies with Ebitda of $5 million to $30 million in North America’s specialty-manufacturing, business-services and value-added distribution industries.
Parallel49, which has offices in Vancouver and Chicago, will keep this dual market focus, Managing Partner Brad Seaman and Managing Director Rob Wildeman told PE Hub Canada.
“Tricor was founded to help Canadian and U.S. mid-market companies see past the imposing figure of the border and think about growth in North American terms,” Seaman said. “We like the strategy because it put us at the top of the list of private equity performers. The firm’s DNA is still the same.”
Seaman, the most senior member of Parallel49’s team, joined Tricor from GE Capital in 1999 to run the firm’s Chicago operations. Four years ago, he became managing partner, a promotion that jump-started the succession plan that would lead to Parallel49.
At the time, Tricor was focused on managing portfolio companies that were shaking off the effects of the recession. It was a tough period, Seaman recalled, despite the firm’s “high level of conviction about the portfolio, which we believed was on the cusp of something special.”
That confidence was eventually borne out, Seaman said. Today, the portfolio of Tricor Pacific Capital Partners Fund IV reflects an average gross multiple of three times invested capital.
One of the fund’s big wins was Golden Boy Foods, a maker of private-label and branded food products sold to Post Holdings for $320 million in 2014. Another was CPI Card Group, a provider of financial payment cards and related services. Last year, CPI raised US$137.5 million in an IPO on Nasdaq and the TSX. Parallel49 retains a controlling stake in the company.
Fund IV’s track record facilitated the succession, Seaman said. It also helped wrap up Fund V in late 2013: “The same people who invested in Fund IV are our investors in Fund V,” he said.
Seaman believes Parallel49’s transition from Tricor was successful because it observed a “long and considered” process that was “exceedingly transparent.” The steadiness shown by Parallel49’s team when tested was also a factor, as was the continuity gained by Johnstone and Senft taking seats on Parallel49’s investment committee.
Parallel49‘s experience may be instructive to private equity firms that are increasingly evaluated by limited partners on their ability to manage generational change. Surveys conducted by Coller Capital have repeatedly identified succession planning as a key consideration in the investment decisions of institutional LPs.
“It doesn’t work out for a lot of firms,” Wildeman said. In the absence of a viable succession process, many PE firms “don’t get to the other side.” Wildeman joined Tricor in 2006 and now heads Parallel49’s office in Vancouver.
Parallel49 plans to spend much of the next 12 months building out its latest portfolio companies, Seaman said. They include Gold Standard Baking, a dough-products manufacturer acquired last May.
The firm will also focus on new acquisitions. In a frothy market that may soon face an economic downturn, it will look for value plays and pick “less cyclically impacted” opportunities with “good upside and limited downside,” he said.
Parallel49’s leadership also includes Managing Directors Scott Daum and Nick Peters, both based in Chicago.