Flag-waving isn’t exactly a time-honoured tradition on the West Coast.
But Steve Hnatiuk doesn’t have a problem with being a proud British Columbian.
So much so that the Lighthouse Equity Partners co-founder won’t consider acquiring high-tech companies from other regions.
After launching a private equity firm in 2012, Hnatiuk and business partner Joe Lucke have been examining 100 investment opportunities a year on average.
The goal is to add one high-potential, mid-sized growth business from B.C. annually. Both companies added to Lighthouse’s portfolio since 2014 were previously controlled by equity partners based outside the province.
This strategy of “repatriation,” as Hnatiuk called it, plays off the well-known funding gap local tech firms struggle with during growth periods.
Vancouver-based Vistara Capital Partners, while not a private equity firm, raised $100 million last year to address the funding gap Canadian tech companies are struggling with.
Vistara co-founder Randy Garg said the gap causes early-stage companies to either stall out or sell out to a better-capitalized buyer.
Lighthouse, meanwhile, is targeting companies that are already profitable and are bringing in $10 million to $30 million in revenue.
“And our focus is on growing these businesses through innovation once we acquire them,” Hnatiuk said.
Over the past 18 months, Lighthouse added Langley-based telecom hardware manufacturer Primex and New Westminster-based software-as-a-service provider AdPerfect to its portfolio. Primex has a head count of 120; AdPerfect employs about 30 workers.
Hnatiuk said they’re both increasing their head counts following the acquisition.
“We [are] active partners in building those businesses. …You can’t do that from three time zones away.”
Primex CEO and co-owner Bob Smart said that when the company’s former Alberta-based majority shareholder wanted to sell his controlling stake in 2014, finding a suitor in B.C. was one of the primary motivating factors in approving the sale.
“First and foremost, we’re pretty proud British Columbians.”
Smart added that Primex had additional B.C. shareholders eager to regain local ownership after an initial sale in 2008.
“Outside of that, from a logistical standpoint it’s very nice to give Steve or Joe a call and know that they’ll be able to either pop in or answer the question and deal with things. It’s a lot more immediate to have an ownership base in your same local area to get tasks completed.”
Following the acquisition, Lighthouse gained control of the boardroom while Smart retained a seat as one of the owners.
Hnatiuk wouldn’t disclose any financial details related to the acquisition, but he said he and Lucke are material investors in Lighthouse’s portfolio. Beyond that, about two dozen B.C. business people serve as limited partners that want to invest locally.
Hnatiuk said B.C. might have an abundance of innovative companies with the potential to be market leaders, “but there is very little capital focused on this part of the market – all too often these businesses will be acquired by buyers outside of B.C.”
The trend is not confined to this province. A PwC report revealed nearly 63% of Canadian tech CEOs surveyed in 2015 said they planned to exit the company through an acquisition. Another 6% envisioned an exit via an initial public offering. In a separate 2015 report, PwC found private equity firms executed the vast majority of mergers and acquisitions deals in Canada that year.
“The reason is that such deals have become highly competitive and expensive to execute, and therefore [private equity] firms are seeking opportunities to get involved earlier … so that they can ‘own’ original projects from the beginning.”
@reporton
