VELA Podcasts

In this episode of the Polestar Podcast by VELA Wealth, host Rob Wallis welcomes Nick Drake, a Senior Director of Growth and Transaction Capital from the Business Development Bank of Canada (BDC) to discuss BDC’s mission to support Canadian businesses. Nick explains how BDC differentiates itself by focusing solely on business banking and providing clients with tailored support to help them grow. This includes funding, venture capital, advisory services, and consulting to meet a variety of business needs. He also shares insights into current lending practices and the challenges faced by business owners in today’s economy. Tune in for a comprehensive look at the impact of BDC on Canadian businesses and how it can help unlock your potential for growth and innovation. 

Podcast Highlights: 

• Explore BDC’s unique approach to business banking and personalized client support. 

• Discover the range of services offered by BDC, including funding, venture capital, and advisory services. 

• Learn about current lending practices and the challenges faced by Canadian business owners today. 

• Gain valuable insights into how BDC can help unlock potential for growth and innovation in your business. 

  

About the Guest – Nicholas Drake, BDC 

Nick Drake is a Senior Director in BDC Capital’s Growth & Transition Capital group in Vancouver where he focusses on providing cash flow loans, mezzanine debt and quasi-equity solutions to BC’s entrepreneurs. Before joining BDC Capital in 2018, Nick spent 10 years with a US headquartered Private Equity firm where he spearheaded the acquisition of more than 15 Canadian businesses and served on the boards of the Canadian platforms. Nicholas earned his Engineering and MBA degrees at UBC and is registered as a non-practicing Professional Engineer with EGBC. 

  

About the Host – Rob Wallis 

Rob has been providing expert planning and strategic advice for nearly 20 years and has been with VELA Wealth since 2016. He is a detail-oriented strategist with a proven track record. Rob excels at working with entrepreneurial professionals and business owners to define their individual ecosystems and establish meaningful life and financial goals. He has specialized expertise in guiding healthcare professionals who are building multi-location, and specialist clinics. A methodical and analytical thinker, Rob compassionately navigates clients through the complexities of a thorough financial planning process ensuring that they feel understood and supported throughout. Prior to joining the VELA team Rob worked in various client management, technical financial analysis, and financial planning roles both in Canada and the UK. Rob holds a BSc (Hons) in Investment & Real Estate Finance from the Cass Business School in London. British born and raised, Rob is a globe-trotting travel enthusiast who loves spending time with his family hitting the slopes and hiking. 

 

The episode is also available on:

  

  

  

The Podcast Transcript: 

  

Rob Wallis: 

Hello everyone, this is VELA’s 35th Polestar Podcast. Today I’m delighted to have Nick Drake from BDC here. Delighted to have him talk about BDC and all the things that they do, what’s going on in the M&A market at present and how BDC can help business owners.  So, Nick, it’s good to have you here. 

  

Nick Drake: 

Thanks for having me, Rob. 

  

Rob Wallis: 

You’re welcome. Why don’t we jump in, and you could tell us the story of BDC and its history, I’m always curious to know. I see you guys are out and about at events and I wonder how the company formed and how it helps clients. So, if you could jump in with some history, that’d be awesome. 

  

Nick Drake: 

Yeah, of course. BDC’s been around for over 80 years, we are the Business Development Bank of Canada so we’re a little bit different than a lot of other banks. We’re a dual mandate bank. So, the first part of our mandate is to make money for the shareholders and as a Crown Corp, our shareholder is the federal government. Second part of the mandate is to help Canadian businesses be the best and most competitive in the market. And that’s the part of the mandate and job that I really love and that gets a lot of us at BDC excited. A lot of BDC solutions are aimed at providing businesses with more free cash flow so they can invest more into their business to grow their business. That, you know, adds employment to the country and I think it’s good for the country and it’s good for our economy and businesses. 

  

Rob Wallis: 

So how does BDC compare to a regular merchant bank? 

  

Nick Drake: 

So, we don’t do a lot of things that the chartered banks do. We don’t have corporate bank accounts; we can’t do your day-to-day banking. We are 100% focused on banking for business. We don’t do operating lines, we just do term loans on the lending side. So, on the lending side, we come up with slugs of capital to put into a business like your regular Chartered Bank would do, but because we don’t do a lot of those things that the bank do, we work with other Canadian banks. So, we’re very supportive, very collaborative with the other lenders. 

  

Rob Wallis: 

Got it. So, a lot of the time are you lending alongside other banks? 

  

Nick Drake: 

Yes. A lot of the time we’re lending alongside other banks and a lot of the time, what I do is lending behind, in subordinated positions, riskier positions to the other banks. I should also mention at BDC, we have quite a large venture capital investing side of our business. We have a growing minority equity investment side of the business. And we are also, I believe, the largest consulting firm to small and medium sized businesses in Canada. So, we have a full advisory service as part of our business, which makes us a little bit different as well. We’ll come in and help businesses achieve certain objectives like plant optimization or operations optimization, sales and marketing help, strategy formation. So, we do a lot of things at the bank, and everyone at BDC works quite closely with all the other groups of the bank. So, we do a lot of things. It can get kind of confusing on who to talk to, but everybody at the bank will try to get you talking to the right person. 

  

Rob Wallis: 

Let me just jump into a little case study on one of those, so obviously on a no-name basis, but what kind of lending have you done recently? And how has that gone, given the current economic climate? And what are business owners looking for right now and why are they coming to you as a bank? Sorry, lots of questions there. 

  

Nick Drake: 

Yeah, that’s a lot of questions. So, maybe I’ll tell you a little bit more about what I do specifically within the bank and then that will kind of lead down the line a bit. So, most of BDC’s lending provides capital for secured transactions. So, if a business wants to buy a commercial property it operates out of, BDC can provide a loan with real high leverage to value. BDC provides a lot of equipment financing as well and other secured types of loans where you’re secured against hard assets. My side of the business is I do unsecured type lending where I’m not really secured by hard assets in the business. I’m looking at the cash flow of the business and deciding how much we’re comfortable lending, on our forecast of how much cash that business is going to generate. So, I end up financing a lot of M&A transactions. We can finance that from a senior term loan where we’ll be behind an operating line but only amortizing term loan on the books or we can also be in a mezzanine financing position where one of the large Canadian chartered banks. We’ll have the senior term loan, and we’ll have a slice of debt which is behind that loan from a security position that has no repayment, it would be an interest-only loan. So, we like to think about that as cheap equity, so mezzanine being, in between debt and equity, the cost of that capital is in between the cost of debt and equity and the risk is in between the cost of debt and equity. So those kinds of loans are for business owners that are very future oriented and don’t want to dilute their ownership just yet. They want to take on some additional leverage so they can take a big step with their business. 

  

Rob Wallis: 

Or maybe take some chips off the table. Is that commonplace? 

  

Nick Drake: 

That is commonplace. We do those transactions. We find business owners have a disproportionate amount of their personal wealth tied up in their business and as businesses get bigger, that affects the risk appetite. I think often if we perform a transaction, or if the business owner can take some money off the table, they can in fact become a little more rejuvenated and have a little more desire to take a little bit more risk and grow that business. At BDC we have a minority equity investment team that their sole purpose is to provide a meaningful amount of chips off the table, become an equity partner in a business where they see a growth path for that business that maybe they’re not executing on, or they’re too risk averse at that time to really take those big swings. So, to continue answering your questions. 

  

Rob Wallis: 

You’ve done well to remember them. 

  

Nick Drake: 

Yeah. 

What we’re seeing right now is quite a lot of M&A activity in the market. I’d say the second half of last year was very slow in that regard. I don’t necessarily know what’s driving it. It’s different in every deal. But I think the decreasing interest rates and understanding or assumption that rates aren’t going to go on a runway up anymore, that’s helping some people wrap their head around doing deals. And I think people have been sitting on the sidelines a little bit for a while, and it’s time to get going. 

  

Rob Wallis: 

What kind of industries do you serve? 

  

Nick Drake: 

In our group, we serve almost any industry. But we don’t do direct resource extraction. We will lend into industries or businesses supporting that, but maybe not doing direct resource extraction. Being a Crown Corp, we try to avoid industries that might be bad for our reputation, for sure. I don’t think that’s why we avoid that industry, but we do avoid some industries with that in mind. Generally, for me, I’m working with asset-like businesses, so companies that don’t have a lot of assets to secure additional lending, or businesses in high leverage position that already have enough lending on their assets that there isn’t really much else for me to lend on. 

  

Rob Wallis: 

So, looking at the M&A market in Canada right now, you said relative to last year, there’s been an uptick in in activity. That’s obviously interesting and a good indicator of economic activity. We look South of the border and there’s a lot of uncertainty that’s being created down there. Not only for Americans, but for us too. How do you feel that that’s going to influence sentiment and confidence? And are you seeing that in in deal flow and activity? 

  

Nick Drake: 

It definitely isn’t helping, and I think those tariffs are a real thing that’s going to be very difficult for a lot of businesses. Especially if you’re particularly directly involved and you’re a huge exporter to the US, which a lot of manufacturers are. I could see it being a difficult time from a bank perspective or even an equity investors perspective to write a big check to support a business that’s doing a majority of their business into the US right now. I’d say unless part of that capital is intended for that business to make a pivot in some way to expand their business into other markets, other countries or take a bigger foothold into the US and add some more value for their products down there, it is going to be hard. But I think it won’t affect some businesses or a lot of businesses. Those businesses will still transact, I believe. I think like any kind of crisis; I think somewhere in there there’s some opportunity for somebody and it reminds me of my old business. I did a lot of work in the oil and gas business and there’s a saying that “it always comes back, but it comes back different”, and I do think the economy is going to come back here and I think it’s going to be a little bit different. I absolutely love all of the nation-building sentiment that we have here to buy Canadian. I think that’s come on strong and hard and I think it’s great and I think there is opportunity in it. For example, we’re looking at a deal right now that we have authorized, it’s a business which exports a lot of its products into the US, nearly half those are tariffed products going into the US now. There happens to be a lot of information available online about types of products and I ended up diving into some of this data and realized that for this product in Canada, we’re importing a heck of a lot more of this product from the US than we export, and I think in general we import more from them than we export to them, if you take energy out of it. I believe that’s true. So I do think there is some opportunity here with certain products. I think if we can do more of this inter-provincial trade, you could have some changes in the supply chain. So, I do think there are some opportunities there and if you’re a business owner and you’re seeing some opportunity, I think the capital is going to be there. If your thesis is right and you can convince some people, people like myself, that there is an opportunity there, I think the capital will be there. 

  

Rob Wallis: 

Well, there’s a low shortage of capital, that’s for sure. So, what I’m hearing is if you have a good business, and you have a good story, there’s going to be opportunity for you to be flexible in how you grow and take value off the table. 

  

Nick Drake: 

I think that’s fair, yeah. And I’m a frontline guy in the bank. I talked to a lot of business owners. A number of them are doing business obviously in the US, there’s a lot of uncertainty here in general, people know what they need to do, which I think in general seems to be adding more value to products in the US or sourcing products from other non-tariff nations and no one knows really where that’s going to end up. I think diversifying your supply chain in manufacturing in general is good business sense. I do know that a lot of business owners, because of the uncertainty, are really struggling with the idea of when I actually throw money at the business. When is the right time to do that? I think people struggle with that because there’s so much unknown. But on the other hand, you look out there and you do see some big companies making some pretty serious investments. 

  

Rob Wallis: 

Uncertainty creates opportunity. 

  

Nick Drake: 

I think it does. 

  

Rob Wallis: 

Absolutely. With that in mind, I feel a lot of the M&A industry is focused on sellers. But there’s obviously buyers on the other side. With a lot of boomers selling or anticipating to sell their business at some point. There’s clearly lots of businesses out there for sale. How does BDC work with buyers to help them get businesses that are for sale? 

  

Nick Drake: 

It’s a good question. First and foremost, we’re a lender and a capital provider to those deals. Personally, I have done this for six years and before this I worked with a large private equity firm for 10 years. I’ve been on that equity investment side and been on the boards of some pretty nice sized companies and negotiated bank deals. Because of who we are, a dual mandate bank, I like to try to help business owners structure financing on these deals in a way that works for everybody. I have some experience in that regard, and I like to get involved very early, even before there’s an LOI signed, even when someone’s just thinking about it, I think I can help add some value.  

I’ve seen a lot of deals, honestly, I’ve probably seen 1000 over the last 15 years. I’ve looked at thousands of businesses and structured a lot of deals. So, I think I can be helpful from a financing perspective and maybe from a risk assessment perspective. So, I like to be involved early, and I like to provide options in a number of ways that things can be financed. A lot of times, chartered banks offer very attractive financing terms and I can say; “Look, we can’t beat that, that’s a good deal. Nice job. You should run with that.” So, I like to be very open and honest about that as well. 

  

Rob Wallis: 

Having borrowed money as a business owner and personally I know that all banks are not looking for the same thing. Everybody’s risk situation is different, right? So, would it be fair to say if somebody had an opportunity to buy a business that you could help them from an equity side and a debt and an offer side as well? 

  

Nick Drake: 

Yeah, I think definitely that would be fair to say. And we’d love to see whatever it is that we can do to help in all these situations. I think also in our advisory side, they have a pretty interesting post-merger integration initiative that they do and they can help businesses bring in an expert who’s sort of done this before or integrated another business, so you’re not reinventing the wheel and can be there to keep you accountable and on track with executing certain tasks that you need to execute and that you think you need to add value to in ways to grow your investment. So, we can help in a lot of different ways and we love trying to help. 

  

Rob Wallis: 

What size of lending and equity are we looking at? Does BDC cap out at certain point? And also, I guess what’s on the other end, what’s the minimum? 

  

Nick Drake: 

I think BDC probably from a maximum, we probably cap out before the other banks. I think our balance sheet is around 50 billion. We’re a bank that’s the size of, I believe Canadian Western Bank, from a balance sheet perspective on the secured lending side, I believe we have single name holds for large businesses that are 40-50 million. So, we can get high enough for the vast majority of businesses. But I do think the real nice part of BDC as a Development Bank is, there’s almost no minimum. We have a large online financing side of our business where you can go through the credit process online yourself and BDC can provide as little as $100,000 to support your business if it’s credit worthy, from our perspective. So, we do an awful lot on the small side. That’s partly because of our position as a Development Bank. Businesses have to get going and I think that’s the hardest time to get capital, is when you’re small. So we do an awful lot of lending in that regard.  

Personally, I’d say my smaller side might be 1-2 million and I can get up to over 20 million, on the larger side. but I think at BDC we will do certain structures that charter banks won’t do on a much smaller side that I think could be uneconomic for those banks to spend the time on those smaller loans to do that. 

  

Rob Wallis: 

Well, thanks Nick. This has been very interesting. My overall impression is that there’s a tremendous amount of flexibility within BDC to help all different types of business owners in Canada to grow, to get more balance for the business owner to take some chips off the table and to finance acquisitions, so thank you for sharing. We appreciate it. 

  

Nick Drake: 

No problem. Thanks for having me on. I really appreciate the time.