Steve King - Alaris Equity Partners Income Trust

In this episode of the Canadian Equities podcast Steve King, CEO of Alaris Equity Partners,  joins Robert Cooper as they discuss Alaris' innovative approach to financing entrepreneur led organizations. For the full length version of the Canadian Equities podcast connect with us at acumencapital.com/podcast.

Transcript

Moderator 0:01

Welcome to Canadian Equities, a short biweekly podcast series, where we speak with top business leaders and hear their perspectives on the industries in which they operate for the full length version. Find our link in the podcast notes or connect with us at acumencapital.com I am your host, Robert. Today I am pleased to have with me, Alaris equity partners, CEO, Steve king Alaris is an innovative finance company that has successfully invested over$1.8 billion of capital since 2006 into private businesses across north America. Focusing on entrepreneur led organizations, given his position in the market. Alaris has developed meaningful insights into the private capital industry, the broader economy M and a and entrepreneur. Steve king. Welcome.

Steve King 0:46

Thanks very much, Robert.

Moderator 0:49

Well, let's start at the beginning. How did you get started and what led you to the idea of Alaris?

Steve King 0:54

I had been an investment banker in Canada, in Toronto and in Calgary for about 12 years and had advised several private companies on, on deals with, traditional private equity firms and going public transactions and whatnot. And I really didn't feel that there was a good option for. Th that was really designed specifically for entrepreneurs and entrepreneurs that wanted to stay in over the long-term. Uh, all of the other options were, were more short-term and focused, especially on the private side where private equity by their nature really needs to flip a company, within a short period of time in order to make their returns and give their money back to their, to their shareholders. So, uh, I tried to do something different and, uh, restructure what private equity could be for. Kind of that asset class of, uh, of, you know, longstanding entrepreneurial run and owned businesses.

Moderator 1:51

If you had to identify one or two themes that you expect to endure over the medium term, that impact your business. What would they be?

Steve King 2:00

Well, I do think we will, uh, gradually start to see some, uh, some higher interest rates. I don't think it's going to be anything extraordinary, but, um, you know, for us as a, as a dividend stock, that has a bit of an impact on us, but it also has a very positive impact, uh, you know, with a slightly inflationary environment. We do get the upside. From all of the companies we invest in, we're not that provider. So we do get a good growth upside, which we expect to be a quite robust here over the next few years.

Moderator 2:31

You're very active in the private markets across north America. When you look at businesses in Canada and us, and if you could generalize what would be the main differences between them?

Steve King 2:41

I think there is, um, I guess I would classify it as a more aggressive entrepreneur entrepreneurial spirit, uh, in the U S um, and, uh, Canadian companies are probably a little bit more conservative, uh, in certain times that, uh, has done as well as Canadians. But, uh, I would say there is kind of, uh, You know, more entrepreneur-ism um, more confidence, more aggressiveness, amongst in the business community, in the U S

Moderator 3:12

You have by virtue of your investment track record at Alaras pretty good window on entrepreneurs. What are some of the common traits you see among the most successful entrepreneurs that you've encountered?

Steve King 3:24

It's a, it's always passion. because there is no. Kind of right way to be an entrepreneur. There's no wrong way. Um, we have just as many entrepreneurs in our system that just have a high school degree as we do MBAs. The key. Common denominator is doing something that you're passionate about and, the rest will take care of itself if you've got the work ethic and, uh, and obviously the smarts to, to go for it. Most of our entrepreneurs are, are just self-made, that, just, uh, gone into something that they were passionate about and became the best at it. Like I say, High school graduates compared to MBAs in our portfolio of 21 companies. Uh, I bet you there's, there's three times more people that don't have a high, a university education compared to those that have a post-graduate. So, um, it's a, I think it's a great lesson for a lot of, a lot of young people.

Moderator 4:21

Is there a different sales cycle or, or approach you need to take to an entrepreneur led business

Steve King 4:26

there is, when you're raising capital, especially for the first time, uh, it's a very emotional decision. An entrepreneur in the way he, he or she views his business is not. Just, you know, from three steps back, the people that work for you and with you, uh, are literally and figuratively family. And, uh, so there are a lot of very emotional, personal decisions that need to be made. You have to take, you have to have that mindset. You have to have that understanding that this is not just a numbers transmit. This is a people transaction. in the businesses that are not, owner operated or, and also in the public setting, uh, it is more of a, just a numbers transaction. I am an entrepreneur. I come from a long line of entrepreneurs in my family. Uh, my grandfather's my, uh, my father, uh, I'm the fourth of four and all four of the kids in our family started their own businesses. So I definitely kind of take that mindset, into every conversation. I have.

Moderator 5:29

So how do you win a deal?

Steve King 5:31

Yeah. That, that that's been the beauty of our, of our structure. I work, uh, we do something that literally no one else in the world that's so we are the only private equity firm in the world to our knowledge and, uh, all the advisors knowledge that will come in without what they call a put. Right. I put, right. This is the private equity firms option to force us. so that takes the, the horizon decision. This, the seller, no sell decision away from the entrepreneur and gives that option to the private equity firm. We don't have that. Right. So an entrepreneur, that partners with us, if they want to stay in for 20 years, Or if they have, sons and daughters that are willing and capable of coming up and taking over the business, once they're done, they now have that opportunity. That's a huge differentiator for us compared to any other private equity firm. The other thing that we do is we, we limit our growth. So typically. Our preferred shares can only grow by six or 7% a year. Uh, they can also only go down by six or 7% a year. So we're getting good downside protection in exchange. But if you're a company that can grow by 20% a year, and your equity partners capped at 7%, the economics of our transaction are far superior to any private equity firm. So to get back to your question, we don't have to be the top bidder to win it. And, uh, you've seen as you know, in 13 years now, as a, as a public company, we have not materially moved our return expectations. We're still getting 14% cash yields on our preferred shares. We're getting growth on that over the years as well. We get a premium on exit. Those are all metrics that have stayed exactly the same, even though. Uh, multiples have gone way up and private equity since we started because of the massive influx of capital into the industry. I wouldn't want to be just another regular private equity firm. it's so competitive. They're literally over it's over a trillion dollars of uninvested capital out there in the private equity industry in north America. You have to have a differentiator if you don't want to be just the high bidder on every deal.

Moderator 7:39

Steve king CEO of Alaris equity partners. Thanks so much for your time today.

Steve King 7:44

My pleasure. Thanks for having me, Robert.

Moderator 7:49

Note that this podcast is not making an investment recommendation on any companies discussed. We welcome your comments on today's episode or any other episode. Connect with us at Acumen Capital dot com.