I buried the lead in my previous story on EdgePoint Wealth. What I should have said is that the founders of EdgePoint used $2.5 million in startup capital to create $1.5 billion (and counting) in value for their business in a little over 10 years. And at the five-year mark (to make for a fairer comparison), they had $5.5 billion AUM. Right after the 08 crisis! And they didn’t even have an app! Before robo-advisors, the asset management business used to be thought of as capital-light, you remember those days?
We know the startup capital of EdgePoint was ~$2.5 million because ~20% of it was supplied by a related public vehicle, Cymbria. Cymbria's other investments so far have almost invariably been publicly listed stocks. But in theory, Cymbria has a "go-anywhere mandate". For a few years now, Cymbria has advertised its desire to acquire private companies.
Cymbria is looking for private businesses in the $15 million to $100 million range. Criteria include : a business that's easy to understand with a history of good returns on capital, low cyclicality and with management in place. No startups, no turnarounds, no hostile takeovers, no auction situations. This is all very similar to an ad Warren Buffett used to publish looking for businesses to buy. Cymbria promises a quick answer, no meddling and a long-term patient approach. In effect, just like Berkshire, they're positioning themselves as an alternative to cost-cutting, leverage-loving, flip artist private equity buyers.
In 2008, Warren Buffett trashed-talked private equity thusly:
"You can sell your business to Berkshire, and we'll put it in the Metropolitan Museum; it'll have a wing all by itself; it'll be there forever. Or you can sell it to some pawn shop operator, and he'll take the painting and he'll make the boobs a little bigger and he'll stick it up in the window, and some other guy will come along in a raincoat, and he'll buy it."
Cymbria has not reprised this particular language, nor, at OPM Wars, would we recommend such intemperance.
In 2018, Cymbria's investment advisor EdgePoint took more concrete steps to generate deal flow by hiring someone dedicated to private investments. His name is Jason Liu and prior to EdgePoint, he worked at Tim Hortons. Don’t worry, he also worked for Onex and in investment banking and he wasn’t manning the drive-thru at Tims. Incidentally, Tim Hortons is indirectly owned by Berkshire and a private equity partner known for its cost-cutting ways, in a classic Buffett contradiction.
Cymbria has about $800 million of liquid capital (that is, in marketable securities). It can also borrow money and issue additional shares. The four key players behind Cymbria own about 10% of the shares, worth around $138 million. The possibility of partnering with successful people with a great network is another selling point.
All they are looking for is a one-pager, so send the details of your business (along with an asking price) to: [email protected].
I will write another post soon with some additional thoughts on Cymbria and its acquisition strategy.
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