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Melman has high hopes for Acasta Enterprises in hunt for acquisition

Anthony Melman is seen in this file photo at his home in Toronto, Ontario.

Deborah Baic/The Globe and Mail

Anthony Melman talks a big game. As chief executive, his intention is to grow Acasta Enterprises Inc. into a $5-billion firm within five to seven years, and for it to eventually resemble "Berkshire Hathaway on a smaller scale."

Acasta currently has no operations, only started trading a few weeks ago and has a market cap of $400-million and change.

Mr. Melman spent 22 years at private equity firm Onex Corp. as a partner. He was instrumental in finding, and then turning around electronics manufacturing company Celestica Inc., one of Onex's most successful deals. Mr. Melman's highest profile gig since quitting Onex in 2006, has been sitting on Canadian Pacific Railway Ltd.'s board of directors for the past three years. In 2012, he teamed up with Belinda Stronach, former CEO of Magna International Inc., to set up Acasta Capital, a merchant bank and advisory shop. The idea for Acasta Enterprises was borne out of that.

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Acasta Enterprises is one of a handful of special purpose acquisition corporations (SPACs) that have sprung up this year in Canada. SPACs are shell companies that use IPO proceeds to make an acquisition. The wrinkle is they only have 24 months to find something. If they come up empty, they must return all of the public shareholders' money and its founders lose their investment. In the case of Mr. Melman and Ms. Stronach, that amounts to a combined $8-million. The flip side is if the company does a deal, founders end up with 20 per cent of the equity in the new company, via special founders' shares, that entitle them to buy stock at drastically reduced prices.

Four SPACs are already trading in Canada and another one, Gibraltar Growth Corp. is in the hopper. Mr. Melman likens the spate of new SPACs in Canada to Mike Milken ushering in the junk bond era in the 1980s (i.e. a new type of financing has been born and everyone is rushing in).

Acasta will compete against myriad other firms on the hunt for acquisitions, including publicly traded companies, private equity firms, pension funds, potentially even other SPACs. The competition doesn't seem to bother Mr. Melman. He's convinced that he's going to spot something that others will miss. He says a National Geographic (Mr. Melman is a photography nut) mentor once told him that just as you're about to take a snapshot "turn around and look behind you. There may be a better picture to take." He says he applies the same philosophy when looking for an acquisition.

Like a persnickety singleton who has ruled out large swaths of the dating pool, Mr. Melman has a long list of businesses he has no interest in. So no cyclicals. No commodities. No legacy businesses, nothing with entrenched unions and none that require huge capital expenditure.

So what kind of business will he consider? Acasta will seek out a North American company with an enterprise value up to $2-billion. High growth and free cash flow are a must. A non-core asset that a larger business wants to sell might work. He throws out a few sector examples – food, health care, airline services, railway logistics.

Acasta's founders include Air Canada executive Calin Rovinescu, Canadian Pacific Railway CEO Hunter Harrison, Gordon Nixon, former CEO of Royal Bank and Rick Waugh, former CEO of Bank of Nova Scotia. Each has invested about a million dollars into the firm and will have a say in what asset ultimately gets acquired. I ask Mr. Melman if it could be a nightmare having so many high powered people with strong personalities in one room, with differing opinions on what to buy?

"I totally, totally want that kind of healthy debate. I want people to speak their mind," he says. "The beautiful thing about this is there are no egos involved".

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I then put it to him that it could be risky to have so many alpha males in one room.

"I can handle that."

His experience in the army, he says, will stand him in good stead "in a room like that and let's include Belinda … not an alpha male but maybe an alpha female," he points out.

He has a list of companies Acasta is interested in buying with "one or two" that he really likes, and says the firm is "in discussions with some companies" at the moment and hopes to make an acquisition within a year.

Editor's note: A previous version of this story said Mr. Melman spent 22 years at Onex Corp. as a founding partner, when he was in fact a partner.

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