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Trade fair showcases capital
Published By: National Post
Date: Wednesday, November 15, 2006
Section: Off the Record
By: Barry Critchley
Email: bcritchley@nationalpost.com
Four years ago, a group of financiers decided it was time
the local chapter of the U.S.-based Association for Corporate
Growth followed the example of its U.S. counterpart and
developed a so-called capital connection -- effectively a
trade show that showcases capital -- and not the usual wares
found at trade shows.
It took about a year of planning to get the first capital
connection up and running. (The fourth such connection is on
tomorrow.) Jason Sparaga, the founder of Spara Capital
Partners and the president of ACG Toronto at the time, was
given the not-so-easy task of bringing all the pieces together
for the first event, which was held in 2003.
"Before this there was no real forum to be able to
meet face-to-face with the principals in the equity
funds," said Sparaga, whose own firm is in the business
of acting as an advisor and agent for companies wanting
investment.
"We wanted to create a forum where advisors,
intermediaries, lawyers, accountants and investment bankers or
the executives of a private company could meet and greet those
with capital," said Sparaga, adding that ACG Vancouver
also holds a capital connection on its home turf.
"The real crux of the capital connection is to get
more deals to happen," he said, noting that in 2003, the
event attracted 300 people -- or about 45% of the numbers
expected at this year's session. (The National Post is the
2006 media sponsor. The U.S.-based ACG was formed in 1954.)
A number of those attending tomorrow will come from south
of the border. "We bring a good contingent from the U.S.,
be they private-equity managers or advisors and
intermediaries, to Toronto," said Sparaga, who added the
private-equity firms in attendance have appetites for
investments in the range of $10-million to $500-million.
"A vast majority of them will be [from] what we call
the middle market," he added, noting that as a first,
this year's attendees will include representatives from
Canada's 50 best-managed companies.
Two years back, Sparaga decided he needed some major help
in organizing the capital connection. So he turned to Daniel
Klass, a member of the group at TD Capital Mezzanine Partners
-- an entity that has raised $1-billion via two funds -- and
co-chairman of this year's event.
Getting Klass involved also meant a larger role for the
various arms of Toronto-Dominion Bank. It also allows TD to
roll out some of its big guns: Frank McKenna, the bank's
deputy chairman, is delivering the session's opening address.
Self interest is part of the reason TD got involved.
"It's good exposure for TD Capital Mezz Partners. We want
to be in front of all the private-equity sponsors who do deals
of our size range," Klass said.
In its business, TD Capital Mezz has two types of clients:
private-equity firms looking for it to supply the debt portion
of a transaction and those clients that are looking for
mezzanine capital. (The latter is defined as a debt investment
-- meaning the borrower pays regular investment -- with an
equity kicker such as a warrant.)
Klass estimates 70% of its deals are done with an equity
sponsor and the rest without one.
Klass said that during the past 6 1/2 years his group has
underwritten 23 investments, which have amounted to about
$1-billion. It has invested about $800-million. (The
difference between the two amounts is what TD has syndicated
to other investors, a practice that TD has now largely
stopped.)
TD is now in the market with a third mezzanine fund. All
the capital for its initial mezz fund came from TD Bank. The
second fund featured contributions from TD and third-party
investors. And presumably it wants to raise more than
$500-million.
Sparaga's own business has profited as a result of his
attending a capital connection. "I built my business
around ACG; it was really the foundation of our firm," he
said, when referring to the connections he made while
attending such an event in San Diego a few years ago.
At that session, he came across a private-equity firm,
Trivest Partners, that was based in Miami. (It was an
exhibitor.) Sparaga returned to Toronto and within a couple of
weeks put Trivest in touch with his client, Herbal Magic. At
the time, Herbal Magic had about 200 stores.
On its Web site, Spara said it structured and arranged for
the sale with a role that "included sourcing the buyer,
structuring the transaction, negotiating the Letter of Intent
and managing the due diligence process."
A few weeks back, Trivest sold Herbal Magic to Torquest
Partners, a Canadian private-equity firm. At the time of that
sale, Herbal Magic had 330 stores.
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