Feeling the pain of losing our head offices
Source: Winnipeg Free Press
Written by: Martin Cash
When HudBay Minerals moved its head office to Toronto from Winnipeg in September 2008, it did not cause much of a stir.
But it was part of a trend that has not helped the Manitoba economy.
In the last 10 years, no fewer than three other corporate head offices in the city have shut down or moved away— Agricore, Canwest Global and Ridley Corp. StandardAero, which has been owned by various private equity firms over the years, also saw its management operations move out of the city in 2008.
In the same period, only two new public company head offices were formed here through initial public offerings, and since then, both of them — IMRIS Inc. and Legumex Walker Inc. — have effectively left town.
As the head of CIBC World Markets Prairies investment banking operation — the only one of the Big Five banks with such a senior investment banking presence in Winnipeg— Jason Stefanson has a unique perspective on those kinds of corporate dynamics.
“That is not a positive sign,” Stefanson said of the dwindling head-office count.
“Part of that is cultural. People are intensely private here. Access to capital through that period has been plentiful enough from other sources that privately owned businesses have been able to fund their growth without going public. But it does create a challenge for us in the longer term.”
Notwithstanding that challenge, in a presentation to Winnipeg members of the CFA (Chartered Financial Analysts) Society, Stefanson was convincing in his analysis of the strengths the Manitoba economy has shown over the last 10 years with an increasing population, strong housing growth and the rise of many local companies to regional, national and international operations.
“While things have been very vibrant — we have had a great run in Manitoba— we worry about the large-cap public head offices and all the professional services that support them like consulting, accounting, banking. It is a real challenge. Those head offices are huge drivers of the economy.”
The other long-standing sore point in the economic-development story in Winnipeg is the lack of venture capital. Stefanson was not saying anything new by pointing out the dearth of it here, noting Saskatchewan has two funds totalling $800 million in capital.
He said there are plenty of mid-sized companies that are increasingly on the radar screens of international private equity and venture capital firms and a couple, such as Farmers Edge and 24- 7 Intouch, that have recently received substantial funding rounds of U.S. venture capital.
But he said the lack of funding available for early-stage financings in the $1-million to $5- million range continues to be a problem in this market.
“If we are going to have a competitive economy in the future, we are going to have to have access to that capital,” he said.
And even though there are a number of Winnipeg companies that have succeeded in landing significant capital from outside sources, such as the $11-million round Librestream closed this week that was led by a Swiss fund, he said the province needs a fund that’s based here. He said it’s not just the cheques the Toronto, Boston or California-based funds might cut, but it’s also the subsequent involvement they’d have in the companies they invest in. And as a fly-over region where most of the investment targets would be smaller in size, it makes sense it would take some aggressive promotion for them to commit to a Manitoba company. (For instance, it took Kerry Thacher and his team at Librestream nine months of “being hard at it” to close its financing.)
Stefanson said while he may be the onlyWinnipeg-based Big Five investment banker in town, it does not mean CIBC gets all the business.
He said “it has been a terrific experience.” But he said just like every other element of the process of marketing the city, you have to get out there and sell.
The point is, no matter how vibrant and enterprising the Manitoba entrepreneurs are, capital is not going to automatically materialize.
Even Stefanson, an avowed free-market capitalist, acknowledged there is a role for the public sector in the venture capital field.
He even reopened the old debate about regional public-sector pension funds allocating a small portion of their funds for local venture capital investment.