From drugstores to snowmobiles, Bain Capital LLC has shown a knack for turning Canadian brands into profitable investments.
By targeting the country's household names, the Boston-based private equity firm taps into what investors call a "scarcity premium" – a unique business that can command a better valuation. Past Bain conquests in this country have included three retailers that are at or near the top in their categories: Shoppers Drug Mart Corp., mattress retailer Sleep Country Canada Inc. and discount merchandiser Dollarama Inc.
In 2013, Bain struck Canada again. The firm beat out nearly a dozen others to acquire a majority stake in Canada Goose, maker of high-end parkas worn by scientists operating in extreme cold and fashion-conscious city folk. The deal terms were not disclosed, but estimates pegged the value of the company at least $250-million.
Bain also took public BRP Inc., formerly Bombardier Inc.'s recreational products division. The Valcourt, Que.-based maker of the Ski-Doo and Sea-Doo went to market last May in an initial public offering that raised $262.3-million. The stock is up about 33 per cent since then, and both Bain and co-investor Caisse de dépôt et placement du Québec have begun to sell down their stakes.
"We like great companies with strong brands, a great consumer proposition and strong management teams who are looking for partners who can help them grow and expand – whether that's into new markets, new product categories or other strategies," said Josh Bekenstein, a managing director with Bain Capital who has led the firm's efforts on a number of Canadian investments, including BRP.
In the 30 years since it was founded, Bain has grown into a private equity powerhouse with 15 funds run from eight offices on three continents.
When Bain made its pitch for Canada Goose, the company's chief executive officer, Dani Reiss, wanted to make sure the fur-lined coats would continue to be made in Canada. He needn't have worried. Companies with strong Canadian identities that can stand the test of time have major appeal to private equity players such as Bain and Kohlberg Kravis Roberts and Co.
Indeed, Bain's $850-million (U.S.) equity investment for 80 per cent of Dollarama a decade ago is still one of its most notable successes in Canada. The firm took the dollar-store chain public in 2009 in an IPO that raised $300-million (Canadian) for about 25 per cent of the company.
By the time Bain sold the last of its stake two years later, Dollarama shares had climbed by 70 per cent.
"The pitch to Canadian companies used to be 'You have to go public in the U.S. because that's where all the comparable [companies] are,' " said Geoff Belsher, group co-head of wholesale banking at CIBC. But that has changed in recent years as a 'scarcity premium' has been applied to some market-leading companies in Canada, he said.
But there's more to Bain's attraction to Canada than just good brand names. The firm sees the country as a stable and predictable environment to do business. "Canada is a good place to invest given its solid economy, many strong businesses, reasonable regulatory environment, and discerning consumers," said Mr. Bekenstein.
Bain Capital won Canada Goose primarily because its valuation of the company was favourable, but there were other reasons the two companies were a good fit, said David Kassie, chairman of Canaccord Genuity, who advised Canada Goose on the deal. The jacket maker was looking for an investor that could help the brand grow internationally while maintaining its Canadian identity, and Bain Capital's culture seemed like a good fit with it management team, Mr. Kassie said.
Mr. Kassie, the former chief executive of CIBC's corporate and investment banking unit, has worked with Bain on other deals, such as Shoppers Drug Mart. He characterizes Bain as "very analytical" in its investments, compared to its competitors.