The new Banyan Capital Partners – free to buy and build

It’s perhaps the dream of most PE professionals to give 100% of their time to doing deals and managing businesses – free of the strictures of traditional partnerships, and of having to raise a new fund every few years.

That dream appears to have been realized by the investment pros managing Banyan Capital Partners. In 2010, the 15-year old private equity firm left behind traditional fund-raising, and entered into a partnership with a single LP, the $47 billion asset manager Connor, Clark & Lunn Financial Group (CC&L).

The result has been less time spent worrying about available capital resources, and more time devoted to buying and building companies, said Banyan managing director Jeff Wigle, and director Adam Jezewski, in an interview with peHUB Canada.

“Fund-raising activity can eat up a third to half of the time of management teams in PE shops,” said Wigle, who prior to joining Banyan served as vice president at Richardson Capital.

In addition, closed-ended partnerships by their nature operate with locked-in timelines for buying and selling assets. By partnering exclusively with CC&L, Banyan has been able “to get out of this cycle” and invest over longer horizons that recognize the true performance potential of portfolio businesses, he said.

The arrangement seems also to have afforded tangible benefits to CC&L and its clientele of well-heeled investors, which have obtained an unprecedented chance to participate directly in PE deals.

Over the past three years, CC&L has been the largest principal in all of Banyan’s new opportunities. These are most often majority and minority investments in companies with EBITDA in the range of $2 million to $10 million. Banyan looks to writes equity cheques of between $3 million and $20 million per transaction.

Once backed by CC&L, deals are syndicated with interested high-net wealth (HNW) investors. This is accomplished through CC&L’s HNW practice, staffed by some 30 investment pros in offices across Canada, who are charged with putting syndication opportunities in front of wealthy clients, along with subscription options.

Banyan premiered the new model in 2010, when it invested in Party Packagers, a Toronto-based specialist in party supplies. In collaboration with management, Banyan provided equity and mezzanine financing to help expand Party Packagers’ chain of Canadian stores. Two years later, the business was sold to Party City, owned by U.S.-based Amscan Holdings, creating a North America-wide party goods retail brand, and giving Banyan and its investors a net IRR of 42%.

This first success contributed to a “clamour” among CC&L’s HNW clients to participate in further PE opportunities, said Wigle, who believes that wealthy individuals are increasingly seeking exposure to differentiated investment products that provide an alternative to low-return public markets. Banyan’s transactions have so far attracted commitments from between 50 and 150 HNW subscribers.

In fact, deals are typically over-subscribed, said Jezewski, who led Banyan’s most recent investment – last month’s acquisition of a controlling stake in MIP, a Montréal-based manufacturer of healthcare textiles and reusable healthcare products.

Jezewski, who is currently executing the deal’s post-closing, 100-day plan, said the firm wanted to partner with MIP CEO David Arditi and EVP Aviyam Friedman, because of the strength of the company’s management and its values, which resonate with Banyan’s own. Also, MIP is, like other portfolio companies, a “mature and stable” enterprise with strong cash flow. It also shows a “rising tide in end markets,” a quality suggested by MIP’s global customer base of high-demand hospitals and long-term care facilities.

“MIP has come out of the gate running hard – we’re searching for more investments like it,” said Jezewski, who was previously a director with CAI Private Equity.

The firm’s relationship with CC&L has not only capitalized deals – it has yielded valuable information for sourcing them. The HNW practice offers a “proprietary investment channel” of successful entrepreneurs who provide useful tips concerning deal flow and liquidity prospects, said Wigle. Banyan also gains important intelligence from CC&L’s top executives, two of whom – co-CEOs and managing partners Michael Freund and Warren Stoddart – sit on the firm’s investment committee.

Banyan’s portfolio is today composed of seven companies, following the sale earlier this year of its position in Corix, a utility infrastructure provider bought in 2006 for $125 million by an investor group that also included CAI and British Columbia Investment Management Corp. Other recent deal-making includes a pair of add-on acquisitions by Shanahan’s in early 2013. The Edmonton-based manufacturer of specialty building products has been backed by Banyan and Yellow Point Equity Partners since 2007.

Going forward, Wigle and Jezewski said not to expect any major changes to Banyan’s traditional lower mid-market focus.

“We prefer to stay slightly south of our primary private equity competitors,” said Wigle. Indeed, as many Canadian PE firms continue to raise larger funds and move upmarket, Banyan sees great promise in “backfilling the vacated space.”

CC&L, a multi-boutique manager of traditional and alternative assets, began its long-standing relationship with Banyan around the time of the firm’s establishment in 1998. Wigle and Jezewski share offices with CC&L in Toronto, while managing directors David Eisler and Michael Martin are located in Vancouver.

 Photo of free businessman courtesy of Shutterstock.

Photo of lobby of Connor, Clark & Lunn Financial Group courtesy of David Mitchell Co. Ltd.