NCB Cap Markets buys stakes in companies; close to completing second deal, chasing five more
BY JULIAN RICHARDSON Assistant Business Co-ordinator email@example.com
NCB Capital Markets (NCBCM) aims to make up to $1 billion in private equity investments across the region.
It's a strategic move by the company to diversify its revenue stream into an area with high-growth and earning potential amid mounting pressure on traditional fixed income products.
"We have allocated $500 million to the initiative and in the coming financial year we are looking to double that at a minimum, and we want to bring in co-investors so that we can effectively increase the pool available for private equity," NCB Capital Markets deputy CEO Steven Gooden told the Business Observer on Monday inside the headquarters of the National Commercial Bank, The Atrium.
Gooden said investments won't be restricted to Jamaica and NCBCM will primarily target companies which seek at least US$1 million in exchange for influential equity stakes.
"The mandate is a regional one, aligned with our strategy to be a formidable investment banking outfit in the Caribbean," Gooden said.
The structuring of the transactions is led by NCBCM's investment banking unit, headed by assistant vice-president of corporate solutions Dylan Coke, in collaboration with an investment team helmed by assistant vice-president of investments Tracey-Ann Spence.
The company brought on board private equity specialist Garth Pearce last month to strengthen its charge.
"We brought on Garth to bring us some depth in the private equity space. Garth has extensive hands-on real sector experience in sourcing opportunities, doing the due diligence, putting together a transaction and seeing it through to the end across
a range of industries,"
Already, NCBCM has closed one private equity deal -- medical company Elite Diagnostic Limited, in which it holds a 30 per cent stake. The firm is close to completing a deal with another company, an "industrial manufacturing (outfit) with a regional background", and is actively pursuing five others, said Coke.
Coke explained that NCBCM is specifically targeting companies that will have strong growth potential, strong stable cash flow, solid management, hard currency earning potential, reliable
and reputable investment partners and a "defensible" business model.
"The intention is to look at private companies where stage and development are not so critical. What's more critical is that they represent a good investment opportunity," Coke said.
Acknowledging the risk of picking winners in a tough business environment, Coke stressed that the company is employing very strict due diligence, spending a lot of time examining targets.
"There may be a company that is facing its own challenges but with an equity injection from us, might be able to take it to the next level. So we don't just look at somebody that is already leading the pack, but has an opportunity to step up," said Coke, noting that investments will not be limited to particular sectors.
Another pre-requisite for an investment by NCBCM is board-level representation, the company said, with the number of board seats sought in line with the level of investment.
However, Coke emphasised, "we are not trying to come in and run anyone's business."
He added that the company is a "medium term investor" and is targeting companies with clear exit opportunities.
According to the NCBCM, investments typically are expected to have a "horizon" of between three and five years and exits will typically come through listing the equity securities on a regional stock exchange or through third-party sale.
Explaining the rationale behind its strategy, NCBCM stated that it is of the view that as macroeconomic and regulatory conditions across the region shift in favour of private sector-led growth, companies will require a significant amount of equity capital to finance development and expansion opportunities, including growth capital and pre-IPO financing.
The company listed three key competitive advantages it said it will leverage to achieve its objectives: Greater access to deal flow through the NCB network and other extensive sector business relationships across the region; superior capitalisation relative to other regional equity players and experienced investment professionals with private equity experience.
Given the challenges that have arisen in the industry, with harsh market conditions coupled with multiple Government debt swaps, NCB stated earlier this year that it was adjusting its operating model going forward to include more efficiencies and aggressive selling initiatives, among other measures.