We are excited to present this insightful episode of the Polestar Podcast by VELA Wealth, featuring Faramarz Bogzaran, the Managing Partner at F&M Management Ltd. and CE3C Management Ltd., just ahead of the highly anticipated CE3C Conference scheduled for January 24th and 25th, 2024. Faramarz’s expertise sheds light on critical aspects of mergers and acquisitions (M&A), setting the stage for enriching discussions at the upcoming conference.

Throughout the conversation, Faramarz provides key insights into the crucial role of M&A advisors in streamlining company sales, navigating the intricacies of valuing professional services firms, and understanding the significance of strategic planning for post-sale expectations in the environmental consulting and engineering sectors. These insights offer valuable guidance for business owners and executives navigating the complexities of M&A dynamics.

 

 

Key highlights of this episode:

• Delve into the mechanics of seamless company sales with a focus on the pivotal role of an M&A advisors.
• Explore the valuation methods for professional service firms, focusing on financial stability and managing working capital.
• Learn essential post-sale strategies: from strategic planning to adjusting to new ownership dynamics for a smooth transition.
• Gain insights into the factors influencing M&A in the Canadian landscape, shedding light on industry trends and future implications.
• Importance of strategically plan your exit beyond the sale to ensure a successful transition.

 

About the Guest- Faramarz Bogzaran

Faramarz Bogzaran, the founder and Managing Partner at F&M Management Ltd., brings over four decades of expertise to the forefront of Canada’s management consulting scene. Specializing in M&A and Corporate Advisory services, he has successfully navigated environmental consulting, waste management, and remedial contracting sectors. A seasoned M&A advisor, Faramarz is celebrated for his adept leadership in ownership transitions. He played a key role in founding CE3C Management Ltd., the driving force behind executive conferences uniting leaders in Canada’s environmental and engineering consulting sector. At F&M, he provides strategic advice on growth, financial management, buyouts, exit strategies (M&A), corporate governance, and project management. To read more, please visit the F&M Management Ltd. Website

 

About the Host – Jason Boudreau

Jason has built VELA Wealth into an established life and estate planning firm, guiding families as they make meaningful choices at the intersection of life and wealth. Jason’s areas of expertise include intergenerational wealth transfer and estate planning with a focus on advanced insurance-based solutions that incorporate philanthropy and legacy planning. Leveraging these specialties, Jason brings a fresh perspective and outside-the-box thinking to the strategic planning process. To read more, please visit the VELA team page.

 

The episode is also available on:

  

  

 

 

The Podcast Transcript:

 

Jason Boudreau:

Welcome, everyone, to the Polestar Podcast by VELA Wealth. It’s my pleasure to have Faramarz Bogzaran today. Faramarz is the Managing Partner at F&M Management Ltd. and the CE3C Management Ltd. companies. Hello Faramarz and welcome to the conversation today.

 

Faramarz Bogzaran:

Hi, Jason. Nice to be on your podcast. It’s the first time I’m doing it.

 

Jason Boudreau:

Could you please give us a bit of background about F&M and CE3C?

 

Faramarz Bogzaran:

Sure. So, I founded F&M in 2010 as a corporate advisory services company, specifically working in the environmental consulting and engineering sector. Over the past thirteen years, we’ve provided a range of services encompassing governance, mergers and acquisitions, effective project management, business optimization, and integration services. Our focus has remained on the environmental consulting and engineering side. In 2017, we decided to organize a conference that would bring the leaders of these companies together under one roof. So, we formed a company called CE3C Management Ltd. and started doing a pilot test in 2017, which led to their first conference in 2018. We had around 40 CEOs, Presidents, and Vice Presidents of innovative consulting and engineering firms attending the Conference for a two-day collaborative conference by organizing panel sessions and discussing some of the challenges and opportunities for these leaders in this sector or this industry.

So, we’ve been organizing these conferences since 2018. The upcoming 2024 conference is on January 24th and 25th. We are very excited about holding the 5th Conference. One of the reasons we decided to do this was that a lot of the work that we do as corporate advisors under F&M Management comes from these leaders attending the conference. It seemed to be a mutual benefit to F&M Management and at the same time, we are trying to create a platform where all the CEOs or Executives of these companies get together. We are the only organization that creates that kind of platform for these leaders to get together and talk to each other rather than compete. It is kind of a genesis of how F&M came about in 2010 and how the CE3C Management bring us closer together.

 

Jason Boudreau:

So, what does the CE3C stand for?

 

Faramarz Bogzaran:

CE3C stands for Canadian Environmental Engineering Executive Conference.

We wanted to have a name for it that sticks. So, we thought about it a lot, and I believe it was my idea – I said, “We’re going to have a lot of the executives coming here. So that’s an E. We will be dealing with a lot of engineers and the environment. So that’s another two “E”s. It’s Canadian, we have three “E”s and the last “C” stands for the “Conference”. So that’s how the name was created.

 

Jason Boudreau:

Very well. Thanks for sharing this, Faramarz. It sounds like it’ll be an exciting conference this year. I know that Rob, my business partner, and I were there last year and we like what you’re doing in the space. It’s great and very niche and unique.

One of the things that I thought we’d start with is what is the key role that an M&A advisor plays for executives, and business owners, whether it’s in the environmental and engineering space or outside. You’ve had decades of experience in the sector. What do you believe the key role of an M&A advisor is?

 

Faramarz Bogzaran:

That’s a very good question.  In my opinion, the number one reason why people or companies hire an Advisor is when they decide to entertain the possibility of selling their company. You want to call them an advisor or corporate advisor. I say it is the main reason because a good M&A advisor helps you streamline the process. There is a process to have your company organized or prepared to go into the market and go through the process of obtaining interested parties in what you offer as a business owner or as a shareholder, and bring it home at the end and signing a sales purchase agreement that is acceptable to the shareholders or to the owners of the company that the M&A advisor represents. One of the things that good M&A advisors do is, as far as they’ve done their homework, they create a lot less disruption in the process where people still have to do their jobs. You need to have somebody to come and help you, to guide you through this process because it can be anywhere between three to six months before you complete the transaction. During this process of three to six months, you don’t want to be distracted from your ongoing business because you don’t want to harm the business by wanting to sell the business. If you end up doing that you’re going to be at a disadvantage to sell the company because the people that are trying to buy you, they’ll monitor you while you’re going through this process. So, one advantage of having an M&A advisor is to lessen the disruption. I’m not suggesting that there will be no disruption, but lessening it and also going through the process of educating the shareholders, managing expectations, and obtaining letters of intent that are conducive to the process and are acceptable by the owners who are trying to sell their company and finally help with other advisors such as legal and accounting work together as a team to bring it home. It’s a team effort. It’s not wise for one advisor to do the whole thing.

 

Jason Boudreau:

It sounds like the M&A advisor plays that quarterback role to help tie it all together.

 

Faramarz Bogzaran:

Absolutely yes. We found ourselves in most cases as the catalyst in the process. At the beginning, we start representing our client who’s trying to sell their company. As we move forward, we end up working with the lawyers, and accountants, and we end up dealing with a lot with the potential buyers and the final buyer. We found ourselves that we become almost the gel or a catalyst to make sure that things went smoothly. At the end of the day, there has to be a willing seller and a willing buyer. And I’ve seen one too many transactions, that have gone through the process, but unfortunately, that catalyst did not really gel things together and things fell apart.

 

Jason Boudreau:

I see. How would one assess the need to retain maybe an external M&A advisor versus trying to manage that process internally? What are the pros and cons or maybe just some considerations around that?

 

Faramarz Bogzaran:

I have a perfect answer for this. I was the President and CEO of a company called Secore Environmental for about 8-9 years. I joined the company and then orchestrated a management buyout of that company shortly after. Once we owned the company, we decided to put the journey of five years ahead of us to grow the business and sell the company in five years. It just happened that we bought the company in 2002 and we sold the company in 2007. So, I have done a lot of M&A work and have been involved in a lot of mergers and acquisitions before that. Also, I acquired the company while we were growing Secore, before selling it. However, when we decided to sell the company and I was President and CEO of the company, my board asked me “You’ve got the experience, why don’t we do this internally. Why do we go externally?”. My recommendation to them was “No, that’s not what we want to do”. I would still do a lot of the heavy lifting, but we need to have an advisor. At the minimum have an advisor that creates competition there. At least the picture of competition. So, the people who are interested in the company don’t think “Ok, these guys are just selling the company, so we can just do everything ourselves” or “They don’t know what the process is”. So, even though I had the experience, I ended up hiring an advisor. In that process, I did most of the heavy lifting, but I had that advisor working with me throughout the process to the successful sale of the company in 2007.

 

Jason Boudreau:

So, you’ve been through it in the CEO seat as well and seen the value of having that external advisor working with you and the internal team supporting the process.

 

Faramarz Bogzaran:

Correct. You have a very good point. If you’re a CEO, I can assure you that you can’t pull the whole thing out of yourself. You are going to work in a team setting internally, you may have to seek help from your CFO, and get some help from your human resources or IT departments, as long as these people are inside the “nest”. What I mean by that is, as long as they’re shareholders, they know what’s going on because there is confidentiality involved, and keeping everything confidential is an utmost importance.

 

Jason Boudreau:

In terms of preparing for the sale, as you mentioned earlier in our conversation about the timeline being sort of a three-to-six-month window before you transact, how much time is usually spent leading up to that three-to-six-month window on average where a company is preparing for some sort of M&A activity?

 

Faramarz Bogzaran:

That’s another very good question. Well, I can tell you this. Over the past 13 years, I do not have the exact number but we probably had at least five or six companies that reached out to us to become their M&A advisor. The first thing we do is look at the company’s performance, we look at the whole picture of what this company is all about. And in all those instances we came to conclude that they’re not ready. What we meant by “not ready” is that when you’re trying to position your company for potential sale, whether it’s a professional service or anything else, one of the things that potential buyers look at, in particular, if they’re buying the shares of the company, at what sort of consistency you have had over the years based on financial performance. If you have had a lot of ups and downs in financial performance over the years that is not a very good sign. You’d want to have a nice trajectory of really healthy growth followed by a very nice earning, the bottom-line performance. So if your growth and earnings are not stable, what we normally do before we take the company to market, we look at it and see what we can do to optimize the business to get it to a level where it is working consistently, generating reasonable growth top line and also reasonable bottom line performance.

The rule of thumb as far as we are concerned from the M&A side, is that you need to have anywhere between two to three years of good consistent top-line and bottom-line growth. And if you don’t, we would like to work with you to get you to that level to make sure you are prepared to do that. Otherwise, a lot of the buyers in the market see inconsistency, and since it is not consistent, you’re going to subject them to some onerous earnout provisions. So those are the things that we try to avoid. We prepare some of these companies before we take them to the market.

 

Jason Boudreau:

So, that’s obviously about trying to maximize the value. Could we talk a little bit about the valuation particularly in your area of expertise as professional services companies? How complicated is the process of valuing professional services companies?

 

Faramarz Bogzaran:

It is not really that complicated. A lot of companies out there are professional companies that are certified valuators to value your company. Now you’re talking about professional services, let’s say engineering company or environmental consulting company as an example or even let’s assume they are accounting or legal professional services. For the most part, the value of these companies hinges on the earning capacity of these companies. What I mean by earning capacity is that you look at it and see what your performance bottom line is, not the net income. In our industry earning capacity is captured under EBITDA which stands for earnings before, interest, taxes, depreciation, and amortization. When you factor those out, you’re talking about the true earning capacity of the company. Then you look at that and apply multiple. So, EBITDA multiple 4,5,6,7 or 8. Now, EBITDA is based on the performance of the company that we try to make consistent so the EBITDA number is showing a nice upward trajectory. However, one that kind of complicates it – is that multiple because that multiple is not fixed and it varies from the size of the company, If the size of the company is X, multiple might be different; the services that the company provides; their management; even the age of the shareholders, the people that hold the key to the vault in terms of the clientele base; reputation and so on. So, there’s a variety of different geography and factors that may influence that multiple.

So, if you have a company X with let’s say EBITDA of $5,000,000 and an advisor like us goes to market, we may end up getting letters of intent with the multiple of what $5,000,000 is, as long as it is a true reflection of what that earning is, fully normalized and all things equal. So, what is going to happen, is that we may end up getting letters of intent that may vary from one to another based on that multiple. Some may apply 4 multiple, some may apply more. However, these multiples also can be influenced by the buyers’ interest in the company. If they’re looking for a boutique, niche-oriented company that they don’t believe they can find anywhere else, they’re prepared to throw in another multiple on it, so you end up getting it. For the most part, based on at least historical numbers that we see in the professional services in the engineering consulting side, the multiples range anywhere from as low as 3. I’ve seen as high as 10 and slightly high, but as for the medium – the majority of them happen between multiples of 4 to 7.

That’s one aspect of putting a value on the company – giving somebody a value for your income statement, which is using the EBITDA number. You take the EBITDA number, multiply it by a factor, then you have to bring the balance sheet into the equation to come up with the market value of your company. Another element that becomes extremely important in any M&A transaction is working capital adjustments driven from your balance sheet, not from your income statement. For a company to go into the market, it has to have a healthy EBITDA as well as a healthy working capital. Otherwise, buyers are not going to come and buy the company and write a big fat check for you on your income statement performance when you have very little working capital because if you do not have adequate working capital, you have to put more money into it.

Therefore, we bring the EBITDA together with the working capital adjustment as long as the advisor manages to negotiate a good working capital adjustment. When you look at the letter of intent the buyers always indicate that it is a debt-free, cash-free transaction which means that they’re not taking on any of the debt because it got subtracted from the value and they don’t want to buy your cash. Why they are paying you dollar for dollar, right? They want to have adequate working capital in there at closing when they buy the company. That’s how it works.

 

Jason Boudreau:

Got it. So, it will impact the valuation then, right? One of the things that I see with a lot of business owners that we work with is considerations around post-sale expectations from the buyers. I’d love to hear about your experience what do you see out there? Are the trends whether it’s been in the past year or two or even over your entire career which you see going forward in terms of expectations of keeping key people management in place for a certain amount of time? What dictates that and maybe a couple of examples that you’ve seen where the buyer said they don’t need you to stay on versus they need you to stay on and both transactions happen but there’s a different impact to the leadership group post-sale. Just curious if you could share a little bit about that with us.

 

Faramarz Bogzaran:

It’s an integral part of the process. I’ve seen many letters of intent that clearly say they have the provision or a clause in the letter of intent where they have identified who exactly needs to be signing and non-compete, non-solicitation or whether they have to stay with the company, post-closure or post transaction for a period time. At the end of the day what professional services are they buying? They’re not buying desks and computers. They’re buying people. The people are the ones that are turning the wheels in all these companies. So, if they’re buying the people who are generating the capital and they’re willing to pay high multiples for that value, they don’t want to lose these people. Because if they go, if they leave especially, it gets worse if they are tightly attached to clients or accounts. So, usually, it is customary to see that there’s a provision for retention for those individuals, in particular, senior shareholders.

I don’t know if you remember last year, I held the M&A panel session at the CE3C as a preamble to the panelists, I asked everybody the question, “How many of you do planning or budget or strategic planning for your company?”. Just about everybody raised their hand, right? And I asked, “Within that strategic planning, how many of you have exit strategy planning?”. Not a lot of people have raised their hands, because “why would I put an exit strategy in there? I’m not prepared to sell my company.” Nobody’s asking you to sell the company. But at some point, you’re going to retire. So, you should be putting exit strategies that show how you are going to sell your shares to your colleague who works for the company. If that doesn’t exist, it doesn’t present itself. Then you have a problem.

The second thing that I always tell people is if you’re trying to sell your company, don’t wait until you are in your 60s and 70s. Especially if you’re a single shareholder. It gets worse if you get older and the majority of the clients are with you – you get a problem. It will have a diminishing factor impact on your value because the buyers are going to say, “Well, wait a minute, he’s 70 years old, doesn’t have much fuel left in the tank, so he’s gonna retire the next day. And all these coins are going to go away. So what did I buy?” So, people must think about when should they enter the market. I always recommend that if you want to think about the possibility of selling your company and retiring, tell me when you want to retire first.

 

Jason Boudreau:

Right, and work backward.

 

Faramarz Bogzaran:

Somebody says they want to retire at the age of 60 and they are at 59 at this time, my answer would be “I think you’re going to retire at the age of 63 maybe because whoever is going to come up to buy you is going to put handcuffs on you for a minimum two to three years.” It is an integral part of the process that people have to understand. There is an expectation that you’re going to stay with the company for some time. That time sometimes is a year, from two to three or sometimes five years, but usually around three years.

I’ve seen transactions or letters of intent saying “no retention at all”. However, if you want to leave, you can leave. You don’t want people who don’t want to be part of the company – they can just leave tomorrow. So that’s to me a little bit riskier from a buyer’s point of view.

Another thing that I should say is once you sell your company set the expectation wise. I always use this analogy, especially if you’re the single owner or you’re the President of the company and you have majority control of the company. As soon as you sell the company, you’re not the King anymore. So don’t behave like you’re still the King or the Queen. You’re going to have to adapt to the new regime, new criteria, new process, new administration of the buyer. And while you’re in that period of retention of two to three years, I always tell my close friends that come to me asking what they should do after the sale – I say, “Never swim against the water”. All you’re going to do is frustrate yourself. It’s not your company anymore – it is somebody else’s company now. They have protocols, systems, procedures, objectives, and goals that may or may not meet what you want. So, you saying “Oh no, I disagree” – that’s not going to work that way. All you’re going to do is you’re going to be very frustrated for the next three years.

 

Jason Boudreau:

That’s an interesting perspective. It would probably be a very emotional journey as well for these people, right?

 

Faramarz Bogzaran:

That is one of the parts where we go beyond what most M&As usually do. You become close to people,  you get to know them. All of these companies that people have built over 30-40 years, become their babies. You just can’t let go. You know what I mean? It’s tough to let go. I’ve been in that position twice. It was excruciating to let go. But you have to let go. Because that’s the process. If you don’t let go, all you do is frustrate yourself.

 

Jason Boudreau:

That’s such an interesting perspective. Faramarz, thanks so much for sharing that.

We’re in this really interesting time, where interest rates have shot up, I know there’s still quite a lot of M&A activity going on out there, but obviously multiples and expectations have shifted. Curious to hear what are some recent activities in the sector and then maybe a trend or two that you’re seeing for the year ahead.

 

Faramarz Bogzaran:

Speaking from our own experience, as F&M advisors we recently completed 2 transactions in the environmental consulting and engineering and contracting industry. Right now we are in the process of completing three more. We see a lot of letters of intent coming in with very varying degrees of multiples and valuation in there.

You’re right, there are kind of interesting economic dynamics if you want to call it, the high-interest rates… Even though there are some indications that it is softening and it’s possibly stabilizing. US interest rates seem to be going down and all the indications are. So the Canadian market and the economy have a very strong influence on the way people get into the M&A market, especially it has an impact on that multiple that I told you about. If there is not enough capital for buyers or cheap capital for the buyers to acquire companies it may have an impact. However, there are some big publicly traded companies out there that are willing to pay the high multiples. For instance, I’m sure you’ve heard of a company called WSP [WSP Global Inc.]. They acquired a company called Golder Associates and they paid a high multiple, I think they paid roughly around 10.5 times the multiple of earnings which is the highest I’ve seen in years. There are several reasons they paid for that. I believe one of the reasons is that they didn’t have a very strong footprint in the environmental sector where they wanted to strengthen their presence. That brought somewhere around 5,700 professionals into that mix. Right after that, you are on the map with a very strong company. It was a strategic acquisition. Another thing is the market cap of the company. As soon as the announcement went out, the market value went crazy. So, there are a lot of factors that come into play depending on who the buyers are.

What we see, based on the transaction that you’re involved in and based on the transactions that have happened over the past 12 to 18 months -usually the multiples range anywhere between four to seven times more, but people tend to gravitate towards thinking that their company is worth 8 or 9 or 10 just because another company was sold at 8 or 9 multiple. That’s another responsibility of the advisor to control expectations, try to provide adequate information, and try to put some rationale as to why the norm is hovering between 4 to 6 to 7 to 8. Anything above that is really out of the norm. In the end, the market does what the market does -, people want to buy, they will go sometimes and provide some outlandish multiples for a variety of different reasons. But the reality is that we cannot compare company X with company Y and expect the same results in terms of value, multiples, and expectations. The economy and politics have a lot to do with that.

In the upcoming conference on January 24th and 25th, amongst all the excellent speakers, we teamed up a renowned economist, Michael Campbell, with Nick Nanos, who’s a nationally recognized pollster. I would like to know what the economists are saying and what the pollsters saying about politics that we’re going to go through elections in about two years in Canada. I would like to know how these two intertwine to impact or influence the M&A activity because they do influence it.

 

Jason Boudreau:

Right. Totally. That would be a fascinating conversation to hear.

Well, thanks so much, Faramarz. I appreciate you being here today. It’s been an incredibly interesting conversation. I’ve certainly learned a lot. Appreciate your time.

 

Faramarz Bogzaran:

Well, thank you, Jason. I appreciate it. And I thank you and your partners and VELA Wealth for this opportunity.

 

Jason Boudreau:

All right. Take care. Thanks so much.

In this episode of the Polestar Podcast, Kevin Parton, who recently joined VELA Wealth as a Partner and Senior Advisor, interviews Keith Allan, Portfolio Manager at Harness Investment Management, discussing their partnership with VELA Wealth and their unique approach to financial management. They address the challenges posed by rising interest rates and geopolitical events, highlighting the need to stay invested and avoid market timing. The conversation highlights the value of a balanced and diversified portfolio, offering valuable insights for podcast listeners.

 

 

About the Guest – Keith Allan

Keith Allan is a Portfolio Manager with Harness Investment Management. Harness has engaged in a strategic partnership with VELA Wealth and provides discretionary portfolio management for many of VELA’s clients. With more than 15 years of buy-side investment management experience, Keith brings a wealth of knowledge and experience to provide insight and guidance to clients regarding their investment portfolios. At Harness, Keith is responsible for developing and maintaining investment portfolios for VELA clients. Keith is dedicated to fostering long-term relationships with high-net-worth individuals and families by providing a clear and transparent vision to help them achieve their investment goals. To learn more, please visit Harness Investment Management team page.

 

About the Host – Kevin Parton

Kevin Parton, CFP professional, specializes in personal and business financial planning, tax reduction, and estate planning. Kevin is diligently concentrating on client education as a powerful strategy for building financial certainty. As no financial situation is the same, Kevin and his team monitor clients’ plans and implement personalized strategies to reduce their personal and corporate taxes, and protect their income, assets, and loved ones against the financial consequences of a serious illness, injury or death, ensuring clients maintain financial certainty and peace of mind. To read more, please visit the VELA team page.

 

The episode is also available on:

  

  

 

 

The Podcast Transcript

 

Kevin Parton:

Hello there. I am Kevin Parton, and welcome to the Polestar Podcast by VELA Wealth. My guest today is  Keith Allan, Portfolio Manager from Harness Investment Management. Harness has an ongoing partnership with VELA Wealth. How are you doing today, Keith?

 

Keith Allan:

I’m well, Kevin, thank you for having me. How are you doing?

 

Kevin Parton:

I’m doing alright, thank you. I’m excited to use this as an opportunity to find out a little bit more about Harness as well as your perspectives on things that are going on in the global economy and markets. I am going to start off with a real quick question as I am new to VELA: how is Harness Investment Management and VELA different from others in your experience?

 

Keith Allan:

Well, I come from working almost close to a decade at one of the largest institutional money managers in Canada. So, coming over to Harness four and a half years ago allowed me to take a broader lens in terms of how investment management should be done, and especially for our client base. For us we’re very focused on the client experience. So, in terms of the overall, the values that lies in the family balance sheet and taking that sort of overarching approach to find out what’s important to families, and not just from an investment perspective but from planning, insurance and the path to where their family wants to be and where they want to get to. So, we are taking a top-down approach and looking at the overarching relationship and the portfolio, and the portfolio itself is just one part of the overall process and I think that’s what separates us – is being able to look at everything holistically and doing what’s best for the clients.

 

Kevin Parton:

In your experience, that is what attracted you to being a part of this relationship?

 

Keith Allan:

Yes. From a corporate standpoint, not having to pull the strings from the higher-ups that is what attracted me. We have an approach that we stand by on how we view financial management and we want to be able to not only articulate that to our clients but be in a position to execute it. Jason and Rob [Jason Boudreau, Founder, and Rob Wallis, Partner, at VELA Wealth] and obviously yourself not only approach investment management, but overall financial management and overall financial planning, and that is what attracted me. I’ve known Jason and Rob for a long time as individuals and professionals, and I am really aligned with their beliefs.

 

Kevin Parton:

I can’t agree more. I mean, having been in the business for 14 years myself and having consistently taken a holistic approach, I’m really excited to be able to have this partnership with you and bring a little bit of a higher level of sophistication to that pillar of financial planning or investment management. I’ll sort of use that as a segue into the next question about investment philosophy.

Can you distill your investment philosophy or Harness Investment Management philosophy into some core components or explain how it drives your investment decision-making?

 

Keith Allan:

For sure. When we talk about investments nowadays, we sort of see it coming out of COVID, right? We talk about the meme stocks, and we see people investing on tilt whether it’s cryptocurrency or any sort of the latest greatest fad in the investment world. That is not what we’re about. We’re very fundamentally driven, so we believe in long-term investing. Maybe that’s not going to win style points or have a credible amount of attractiveness, but it’s empirically proven that this going to hold true for the long term. We believe that proper diversification, whether it’s sector or country-specific, is important to your portfolio. We’re very, very strong believers in asset allocation. Not your typical antiquated or archaic structure such as a 70/30 portfolio, 70% equities, and 30% fixed income – no, we believe that there are other components to a portfolio.

Alternative assets are a big component of our portfolios. Right now cash is a yielding asset – all our clients hold a certain amount of cash. When we talk about alternatives, we talk about real estate, commodities, or using derivatives when appropriate in some circumstances. So, for us, it’s all about diversification. It’s all about asset allocation. It’s about incorporating those investment assets with your overall family balance sheet. Is your family heavily involved in or heavily invested in real estate? Well, we’re not going to hold 15% of your portfolio in private real estate or REITs, we’re going to take that into account. If you have a lot of insurance policies unwritten to your family or other types of fixed income or pseudo-fixed income assets – we’re not going to hold 50% bonds in your portfolio, right? We’re going to look at your overall balance sheet, where you’re at and what makes the most sense for you and your family.

 

Kevin Parton:

So, it seems that you’re really able to customize what’s held within the portfolio specific to the client and to everything else that they own.

 

Keith Allan:

Yes, 100%. So that’s, again, what separates us. We can offer those bespoke or customized portfolios to our clients, which allows them to feel that we are really taking the time to understand what’s important to them and what allows them to really benefit in the long run from achieving that excess return. So, we definitely take a customized approach to that. We do have model portfolios we use, but we’re able to tailor them and tweak them to meet the client’s needs. What separates us is our product shelf and what we do all for it is quite vast, so we have a lot of different options. I sort of compare it to an ice cream parlor. You go to a Baskin Robbins that offers not just chocolate, vanilla, and strawberry. You have 30 flavors to choose from. We like to think of ourselves as the investment management firm, that’s got a lot of different options at our disposal and meets the client’s needs.

 

Kevin Parton:

Fantastic. I want to circle back to something you said a little bit earlier about coming out of COVID and the meme stocks. It feels like there’s a lot more of a conversation around trying to invest in the next hot topic. And you talked about not wanting to do that and it’s not necessarily the coolest. How do you manage client expectations when it comes to having these discussions with them? I have to imagine that these things come up in conversations more often than maybe they did pre-COVID.

 

Keith Allan:

It is tricky, right? Everyone knows someone, got a brother-in-law, cousins, friends, or neighbor who made 40% plus off this stock or that stock. Now, in my experience, and I’ve been in the industry now for 20 years, I would say 90% of the time it’s not true. People love to exaggerate when it comes to that sort of stuff and in reality, there are just not that many people getting that wealthy off one or two hot stock tips.

Setting expectations is the key. Managing expectations is the key. Rob Wallis, who’s a Partner at VELA and someone you and I know both very well, uses a quote that I love, is that Warren Buffett made more money in the last 10 years than the previous… I can’t remember what it is… the previous 30 or previous 40 years. And I think that shows the effect of compounding interest and compounding return.

For us it’s really preaching that longevity and really advocating to stay the course, put money in, allow it to compound, allow it to grow, and look, if after five years you’re generating 10-11% annualized per year, well, that’s pretty good. Doing that over a long-term, two or three decades for a lot of our clients who are in their 30s or 40s, they are going to have a meaningful portfolio when it’s time to retire. I think having clients trust that and showing them what that actually means, understanding the effects of compounding return, it’s very challenging, right? For someone that investments may not be their first language, they’re trying to understand how the effect of compounding works, and showing them that can certainly be impactful.

 

Kevin Parton:

Well, along those same lines, I heard recently that PIMCO prides itself in any given year having the best portfolio, but over 5 or 10 years, it always being sort of in the top five or ten percent because they’re consistent because they practice good fundamentals and their goal isn’t to try and be the hot topic or sort of swing for the fences and I think to a degree that can feel maybe boring or anticlimactic in the short-term, but in the long-term, obviously that’s what you’re going for.

 

Keith Allan:

Absolutely.

 

Kevin Parton:

So, in a year like this one, we’ve seen some up and down swings in the markets and there’s been this perpetual conversation around interest rates and what that might have to do with the market trajectory. What’s your future outlook going through the last two months of this year and into 2024 based on everything that’s happened so far this year?

 

Keith Allan:

There’s no doubt that this has been an incredibly challenging year and incredibly challenging 18 months, right? We’ve had unprecedented interest rate increases. I should say, when you see interest rates rise that dramatically, that quickly, that is really a heavy load on risky assets, most notably fixed income assets, whose price and value move inversely to interest rates, so as interest rates continue to rise, we see fixed income really sell-off. It’s just the nature of the asset class. But also equities, right? Because if people can get that guaranteed five, six, seven, sometimes more percent at their bank, well, why are they taking the risk of putting their money in risky assets such as stocks? They can get that guaranteed yield from their banks sitting in cash where there’s virtually no risk. So, naturally, we see risky assets sell off and that’s what we’ve seen over the last 18 months. So yes, it has been a very, very, very challenging market. What do I see moving forward?

Well, I think last week [October 30 – November 3rd, 2023] was really telling because effectively the US Fed came out and said that they are standing pat. I know they said that a few times with mixed results, but they do sound like this time it’s certain. And we saw the market react accordingly – we saw a nice rally last week, and sort of from what I hear and read and see, there’s a really good chance that’s going to be sustainable here as we go into the new year. We might see a little Santa Claus rally earnings are better than expected, right? There are some really strong earnings that come out where a lot of analysts and a lot of folks on Wall Street have said “OK, this is better than we thought”, which is sort of been the impetus for the market to react favorably.

As we get into this holiday season, the spending season, that’s going to be very telling. I believe people are willing to go out and spend at Black Friday and Cyber Monday leading into Christmas. And if so, are these companies that rely on consumer discretionary spending going to really see an uptick in their profitability as we go into Q1 2024? Are people willing to spend $1,500 on the newest iPhone?

Are they willing to go buy whatever the latest and greatest PlayStation or Xbox is out there? Are they willing to really splurge this year on family trips and maybe buy a new car? And do other things that they’ve otherwise been putting off? Again, that could be the impetus or sort of the push for a strong Q1. Especially if interest rates stay status quo, people might say “Look, the worst is behind us now”, but a lot of people are saying no, we’re not even close, there’s going to be further interest rate hikes.

The problem is that as mortgages come due, if interest rates continue to go up, people are not going to be able to renew and we’re going to see some really challenging times from a real estate perspective. At the end of the day, the Federal Bank and the US Fed don’t want to see people default on their mortgages, they don’t want to see people not be able to renew their mortgages. So they will have to weigh that with any future interest rate hikes.

I remain optimistic. I like to consider myself an optimist despite what some folks may say. I’m optimistic that we will see a catalyst here leading into the end of the year in the beginning of Q1 where we’ll see a little bit of bounce back in the market. I still think there’s a lot of volatility left, I don’t think it’s going to be clear sailing and the next bull market is right around the corner. But I do believe there will be a bull market at some point here in the next 18 to 24 months and that’s something that we’re really preaching to clients – “Look, you going to sort of ride the waves here. You kind of got to keep your head above water. Don’t panic. Can’t take the money out of the market. Let it do its thing. So, you can capture that bull market when it does happen because that’s when you can really start seeing some meaningful returns.”

 

Kevin Parton:

Well, I was going to ask about that because with interest rates being as high as they are, cash is returning more than it has in a long time. But relative to what? What we saw last week in two days, there was a big uptick in the market. And if you’re in cash and on the sidelines you miss those moments. How do you position in conversation or within your portfolios taking advantage of a high interest rate environment from a cash perspective, but also being cognizant of the fact that you can miss some big equity days and lose out on growth there?

 

Keith Allan:

It can be a challenging conversation with clients because our job is to enlighten them. At the end of the day, it’s the client’s money. I can’t say to a client, you have to do this and you have to do that, right? All we can do is offer guidance and perspective, and show empirically what returns mean what asset classes do, and what it means that if you are sitting in cash and you missed the first two days of a three or four-week rally, what that means to your portfolio. At the end of the day, the client has to make the choice and if we haven’t enlightened them and we haven’t shown them, then that’s on us. We haven’t done our job. But if we have and they still decide to go against our advice that’s their prerogative. I think for us it’s really important that we show them that cash is important to have and now it’s probably a higher weight than we otherwise would, whether that’s 5% or 7% or 10%. But at the end of the day, you want to be diversified and you want to have exposure. To your point when those risky assets do rally you’re really capturing it. So, sitting down and understanding what their cash needs are, making recommendations in terms of what we feel is an appropriate cash balance. Right now, that’s anywhere between 5 and 10% for clients depending on their situation.

Now, of course, if clients need cash imminently, if they’re buying a house or doing a renovation they’re going to hold more cash and that’s entirely appropriate because they need that cash. So, we’re not going to invest it and put risk on the table when they need that cash. But all other things being equal, we need to show them that they want to have cash available and some dry powder available to take advantage of positions that we feel are undervalued. At the end of the day, we want them to still remain fully invested, and that might mean diversifying in other asset classes. That might mean underweighting or overweighting certain positions, but we’re never advocates of trying to time the markets such as selling everything you got. If a client has a $1,000,000 portfolio, put it all in cash and try and time it on the way up, and try and get it out on the way down like that’s a fool’s game. Nobody going to win at that game. Not even the most sophisticated investors can win at that game.

 

Kevin Parton:

Absolutely. Well, in the interest of time, I have two more quick questions here. One in relation to what happened when rates went up? When rates went up, fixed income went down, but we also saw equities go down at the same time and there’s only been a number of years in history we’ve seen fixed income and equities go down at the same time. Is it likely, if not possible, that as interest rates come back down, we’re going to see the opposite happen? We’re going to see businesses that have lower interest rates to pay on their debt and so business growth will happen and retail investors can get into the markets more, but we’ll also see the opposite in fixed income when interest rates go down, fixed income yields get better.

 

Keith Allan:

Yes, in theory, your logic is correct. The one thing that I would caution about is that there are a lot of… and again I remain bullish and I do think there’s opportunity ahead. I do think that people will be compensated and rewarded for staying the course and staying in the market. But what I do caution is that there are all other variables that play geopolitically right now. We have two very large wars unfolding, unfortunately. One that continues to rear its head in Eastern Europe and Ukraine and the other one in Israel and that sort of leads to all bets being off. When you have these significant geopolitical events that are unfolding, and yes they are half a world away from what we’re here in North America, but it’s kind of the knee bones connected to the ankle bones connected to the elbow, where all does cascade itself down. I would caution against interest rates going down, we’re going to see a massive bull market rally and everything’s going to go up, fixed income is going to go up, currency is going to go up, and equities are going to go up. I would say let’s just maybe pump the brakes a little bit because we do have two wars that are going on that from supply chain standpoints, from energy, oil is still largely driven from the Middle East and Eastern Europe, especially Russia. Oil has such a cascading effect on the rest of the global economy.  When that’s impacted as much as it has been, we have to caution there. But yes, in theory, if interest rates start getting cut like you would think, risky assets would perform well. But we’re living in a world where there are so many other variables that it’s hard to make that type of forecast.

 

Kevin Parton:

Well, it’s like you were reading my questions because that’s what I was going to ask you – how do the geopolitical events impact what’s going in the market? And as you said a little bit earlier, I think there’s always something to consider in the short-term, but in the bigger picture, trying to time the market based on what’s happening locally or geopolitically isn’t necessarily the strategic move.

 

Keith Allan:

Just to reiterate what I said – we never advocate timing the markets like it’s time in the market, not timing the market. My good friend Jason Boudreau, Founder of VELA, likes to use that phrase. I actually quite like it. It’s time in the markets, right? We want to be in the market. You want to be deployed. You want to allow your assets to work for you. I think that’s the biggest thing that we advocate. Again, we’re going to diversify, we’re going to balance the portfolios accordingly, and we may shift weights around, we may be overweight or underweight just depending on what’s going on.  But we’re never going to say “Ok, we are going all cash” to our clients and then “Nope, now we’re going back in”, because that doesn’t make us look sophisticated and makes us look like we’re reactionary in our investment management and not proactive. Again, statistically, it’s showing that is not the correct way to manage money and certainly to make meaningful returns for our clients. It is not going to allow us to do that.

It’s unfortunate what’s unfolding in the rest of the world, and my heart goes out to these families and to what’s happening it’s tragic. It is something we have to be cognizant of, what effect does that have on North American markets and global markets, as we do deploy capital for our clients?

 

Kevin Parton:

Yes, absolutely. I think a really important point to consider is when we’re having those conversations with clients, being able to talk directly to someone like you who can explain how that impacts the construction of their portfolio or the investment philosophy or decisions, understanding why things are the way that they are in your portfolio. I think it is going to make a big impact on how you react. We talked earlier about people wanting to move to cash, but we need to sort of enlighten them on how to structure their portfolios. So, if you’re sort of able to guide them through that process, it becomes a much easier decision for them to make good long-term choices.

 

Keith Allan:

Absolutely.

 

Kevin Parton:

Well, really appreciate your time today, Keith. Thank you so much for sharing all this valuable information.

 

Keith Allan:

Yes. Thank you, Kevin. Thank you for having me, Kevin, and I hope our clients enjoy it and if they’re not clients, hopefully they enjoy it as well.

 

Kevin Parton:

Absolutely. Take care.

 

Disclaimer

The information provided in the podcast transcript is designed for general informational purposes only and is not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.

We are thrilled to announce the release of the latest episode of the Polestar podcast by VELA Wealth, featuring an engaging conversation with Amar Doman, the President and CEO of the Futura Corporation. In this episode, Amar takes us on a remarkable journey through his life as a leader in business, his experiences in philanthropy, and his passion for community involvement.

Hosted by Jason Boudreau, this podcast episode delves deep into Amar Doman’s extraordinary entrepreneurial journey, starting from his grandparents’ arrival in Canada to his current role as the CEO of the Futura Corporation and the ownership of BC Lions. Amar shares stories of his family’s perseverance and hard work in the lumber business, the challenges he faced, and the valuable lessons he learned along the way. He discusses his approach to turning around struggling businesses, his involvement in both public and private ventures, and his insights into building and sustaining successful enterprises.

 

 

About the Guest – Amar Doman

Amar is the founder and sole shareholder of The Futura Corporation. Along with his team he has led and completed numerous acquisitions. Amar’s tireless dedication to creating shareholder value and his vision for long-term thinking when investing or buying companies outright has built The Futura Corporation into one of the largest and fastest growing companies in Canada. To read more, please visit the Futura Corporation website.

About the Host – Jason Boudreau

Jason has built VELA Wealth into an established life and estate planning firm, guiding families as they make meaningful choices at the intersection of life and wealth. Jason’s areas of expertise include intergenerational wealth transfer and estate planning with a focus on advanced insurance-based solutions that incorporate philanthropy and legacy planning. Leveraging these specialties, Jason brings a fresh perspective and outside-the-box thinking to the strategic planning process. To read more, please visit the VELA team page.

 

The episode is also available on:

  

  

 

 

The Podcast Transcript

 

Jason Boudreau:

Welcome back, everybody to the Polestar podcast by Vela Wealth. Today, I’m thrilled to have Amar Dolman joining me for a candid conversation. Amar is the founder and CEO of the Futura Corporation, located here in Vancouver, and I’ve got to know Amar a little bit over the last couple of years through the football community. Amar, I am grateful for you being here today, thank you so much for taking the time.

 

Amar Doman:

Hey, thanks for having me here.

 

Jason Boudreau:

Looking forward to getting into it. So, when we were leading up to this dialogue, I was sharing with you about what I thought would be a neat way to get to know you as a leader in business, life, and philanthropy, is to understand your back story and really get to know where you came from. If we could start the conversation from your grandparent’s story and their arrival to Canada, I’d love to hear that point on out all the way up to today, the story of Amar Doman, if that works for you.

 

Amar Doman:

Sure, let’s reach way back, I like it. So, back in 1906, my grandparents on my father’s side boarded a boat in India. They thought they were headed to the UK, ended up in New West and eventually on Vancouver Island, where my grandfather found work as a logger in manual labor. They proceeded to have five children, including my dad, my two uncles, my two aunts on Vancouver Island in the late 20s, early 30s. My grandfather continued to work till he passed away at a young age. My dad was only nine. He [grandfather] had kidney failure and back then there wasn’t a lot of good medical treatment for that kind of stuff.

My grandfather’s name was Doman Sing. He came up short and my uncle Herb quit school in Grade 7 to look after the family and put food on the table. So, quite a humble beginning there but that’s how things got started as far as my grandparents coming over. Then my dad and my uncles had to work to provide and my other uncle, he went to Grade 9 and that was it. He went right to work. The mid, my dad, the youngest brother, graduated from College Heights in Duncan, BC.

 

Jason Boudreau:

So, your dad was the only one then out of your uncles to graduate high school, correct?

 

Amar Doman:

Correct.

 

Jason Boudreau:

I guess maybe your grandpa as well. So, the first graduate of the family period.

 

Amar Doman:

I would say that would be the case.

 

Jason Boudreau:

So, he graduates from high school. What year was that?

 

Amar Doman:

That would have been somewhere around 1953-1954.

 

Jason Boudreau:

So, he graduates high school and then what? Does he join the family business?

 

Amar Doman:

Basically, he started to drive a truck as they all were. They were driving without driver’s licenses back in the day. They were picking up scraps of wood and selling them for firewood just to get cash to buy groceries for grandma. That is how it all got going.

 

Jason Boudreau:

So, he graduates high school, he’s driving a truck, they’re picking up wood scraps, and eventually transitions into sort of the lumber business mills, things like that. Tell me how that evolves?

 

Amar Doman:

They started by buying the trucks and then starting a trucking business for some of the local sawmills in the area. Then, the three brothers kept building and eventually bought a sawmill, saved all the money that they could, and one thing led to another. They had trucking going and then the sawmill generating money and they just kept working hard, reinvesting and built up to quite an enterprise over the years. There’s a bunch of children who came afterward out of the five siblings, of course.  I was the youngest sibling out of the whole five born in Victoria. My dad had moved down to Victoria to run one of the divisions there. So, I grew up on the island in Victoria, then I moved to Vancouver, back in 89.

 

Jason Boudreau:

When the business was growing on the Island with your dad and your uncles, was it primarily on the Island or was it all over BC as well?

 

Amar Doman:

Primarily on the Island with a couple of sawmills on the mainland, but the Iisland was pretty significant for the family.

 

Jason Boudreau:

Yeah, I bet, and it was a real hub for forestry back then too.

 

Amar Doman:

Yes, it was.

 

Jason Boudreau:

I could see that. I don’t know a ton about the history of that, but I just sort of feel like it would be that way. So, they’re building the business and then tell me the story about how your parents met and when that happened.

 

Amar Doman:

My mum was born in India. My dad went back on a trip, and they were all saying “No, he’s not going to get married back there”. My mom was arranged to be married to someone and my dad caught her eye. Then they went to go meet the family, and her family met his family and said “Hey, you know, maybe we should do this”, which is a little bit out of bounds over there when someone’s kind of prescribed to some you don’t really do those things. Anyways he’s a guy that kind of likes to go after what he wanted, and he came back six months later. He was writing letters to her, and  and we’ve seen the letters where he said he is going to get married back there. So, he came home with my mom, who’d never been to Canada before. At 19 she went to English school. She actually had four bad miscarriages before my brother and I came, which was quite sad. All boys, crazy. My mom had six boys in a row. And my brother and I were the only guys that survived. The last two. I am glad they kept trying. All I’ve got to say.

 

Jason Boudreau:

No doubt. Hey. So, you have an older brother. What’s his name?

 

Amar Doman:

His name is Rob.

 

Jason Boudreau:

What’s the age gap between the two of you?

 

Amar Doman:

18 months.  He’s definitely smarter than me. He’s got all the Degrees and everything like that. I was Grade 12 and went right into business. The school didn’t want any more of me and I didn’t want any more school.

 

Jason Boudreau:

Why don’t we go on that thread? I remember asking you last year about how you got going and you said “Right out of high school”. So, obviously, you and Rob grow up on the Island together in Victoria with your parents. I would assume a normal Canadian kid growing up, although you probably were spending time in the mills and getting to know the business.

 

Amar Doman:

I think you could say that.  That started when we were very, very young. My dad would take me and my brother to the mills around lumber since we were just tiny guys of six or eight years old. I look back now and wonder how we didn’t get killed or run over. We’re just let loose. Today you wouldn’t let anyone wander around these places, but he didn’t know where we were. We’d be climbing on lumber piles that are 50 feet high and when I look now at it – I wouldn’t let my kids go near that stuff. It’s crazy.

 

Jason Boudreau:

Neither would WCB, right?

 

Amar Doman:

Totally! All that stuff was absorbing. It was just sort of taking us around and, of course, osmosis you pick it up and if you like it, which my brother and I both did. Then we got to eventually start to work on the machinery and start to pile studs or load trucks. We did all those jobs all the way through every summer, every Christmas, Saturdays, dad would take us down there and we just go do it. It wasn’t sort of “Hi,  you’re coming to work”. You just kind of hopped in the truck with Dad and off you went. And it was awesome. I missed those days and I certainly wouldn’t trade that sort of education for anything.

 

Jason Boudreau:

No doubt! Obviously, then that led to you deciding at the end of high school to just get out and do this on your own. So, let’s talk about from that point on what happened when you decided to really start with, what is now the business.

 

Amar Doman:

So, probably around Grade 11, I started to map out what I am going to do. My mother thought that I was just going to pile studs my whole life and I wasn’t going to get too far. I’d be happy doing that some days right now, but I had my sort of business plan mapped out where I wanted to start a small lumber remanufacturing company because I had done a lot of the jobs and I thought to add some value. I didn’t want anything from the family. I wanted to do it on my own. And I’ve always had that sort of independent streak in me that I just wanted to do it on my own. So, certainly, my dad wouldn’t lend me any money, he was too tough. So, my mom lent me about 30 grand coming out of the high school Grade 12 in 1988 and I had formed a small company with three guys in Victoria. We manufactured lumber and when the phone rang I’d run off the green chain and go answer the phone and take an order and come back. It was awesome. Owning a small business a day after high school, I could not have been a happier guy.

 

Jason Boudreau:

That’s awesome. So that’s 1988, how many partners did you have in that business?

Amar Doman:

Well, there were three employees, and I was the sole owner.

 

Jason Boudreau:

And I know you’re the sole owner today, so does it always remain that way? You’ve been the sole owner through all your businesses?

 

Amar Doman:

Yes, with the Futura Corporation. We’ve taken some stuff public and we have ownership and public stakes, but I’m the sole shareholder in Futura.

 

Jason Boudreau:

Got it. So, in 1988 you started building up the business, let’s talk a little bit about the evolution of it. What did the first 10 years look like, from the late 80s into the late 90s?

 

Amar Doman:

Back around 1988, about one year later, an opportunity came up in Vancouver. A company that needed to sell in forestry that my dad had heard about and he said that maybe I should have a look at. So I took a look at it. I ended up buying it and moved to the big city of Surrey, business overnight. I stayed on my brother’s couch, he was going to UBC over there. So, I was his roommate, literally overnight. He was having more fun than me partying at the pub and doing other stuff while I was trying to figure out how to detangle a broken business. But that was the time of my life when I moved to Vancouver from the Island. It’s a big deal, move over to the big town, the big show and all that, and for me, I thought that this is where it would stop. However, I’ve turned that business around and started to grow it. Bought another one out of bankruptcy about two years later in Surrey as well that was competing with us. So, we gave it a tough time and it was fun watching that happen, then owned that competitor. A lot of people thought they were going to count me out in the industry saying I am taking on too much, that I am too young. Anyway, we haven’t looked back. I think that the work ethic that we commented on earlier, learning that from dad, it’s just instilled in me to this day.

 

Jason Boudreau:

I hear you there. That’s something I talk to my kids about all the time. Always be the hardest worker in the room and that’ll get you far.

So, late 90s. Now you’re got this business going. I want to learn a little bit more about this turnaround approach that you’ve got with these businesses. What were you seeing when you were coming into these companies? Why did they end up in the situation they were in? And then how did you feel you were able to turn it around and take it to the next level?

 

Amar Doman:

I think one of the things I’ve learned is that when you look at something that’s broken, try to analyze why it was broken. Don’t make those same mistakes and look at it as a big opportunity to try and do something the other guys didn’t do and make it work. It also allows you to create value because if you could buy something that’s broken at a good value that you can fix – the upside potential is just gigantic. That’s something that we pride ourselves on – we try to buy plants that are running 20-30%, and we don’t care if they are bankrupt. We are going to come in with our sort of surgical way of doing things and hard work ethic, and figure out a way to make it work. We don’t think any other way. We just have to make it work.

 

Jason Boudreau:

Got it. So, late 90s and early 2000s, what’s happening with you then? I know you mentioned that you acquired some public assets or took some companies public. When did that start?

 

Amar Doman:

So, we bought a company called Canwell Distribution from Canfor and Weldood, two large sawmillers here in BC, and it was a national distribution business. So I bought that. That was a big bite for us. It took us across Canada, added about 400 million in sales and it was losing money. A lot of money. And for the first time in my life, I had a bit of a panic at 29. It was 1999, I was thinking that I took too much and I wasn’t sure how I could plug all the leaks in this thing like I thought I could. I went out to sit down with the banks in Toronto, understanding what the “C” word is, which is a covenant, and I didn’t really understand all that stuff: big banking agreement that looks like 5 phone books … But I just came and sat with these guys and I said, “Look, I need about another six months. But I can see how this is going to get fixed, but think I’m in violation”. My CFO’s giving me all these notes saying there’s the pole pile of trouble here that I was out of bounds on. I just said look “I’ll fix it. Just give me a little more time”.  Those guys became very close with me. I was Wachovia Bank, which turned into Wells Fargo, and we’re still at that bank today. If those guys didn’t help me there, I’m not sure what would have happened, but turned it around and then eventually took that company public in 2004.

 

Jason Boudreau:

Is Wachovia Bank from the U.S. Aren’t they out of Washington?

 

Amar Doman:

They were, yes. They folded into Wells Fargo, probably through the financial crisis.

 

Jason Boudreau:

1. So, the bankers have obviously played an important role. Even for future acquisitions, it seems they’ve become your partners in a way.

 

Amar Doman

For sure. It wasn’t a debt issue. For me, it’s always a cash flow issue.  We’re not going to take on too much debt and bet the farm and risk on things that we don’t understand and take big long shots. We just needed more time to get the thing operationally efficient. And we’re bleeding, bleeding, bleeding, but we were bleeding to get to a point where they’re going to be a healthy body. So, you have to bleed out for a while and get the thing right sized and fixed, and the customers, and all this different stuff. We were never at the risk of a bank foreclosing on us because we did something stupid.

 

Jason Boudreau:

So, 1999 you bought it and took it public in 2004. What does that five-year gap look like? What does it take to get a company ready to be put it on a public exchange?

 

Amar Doman:

It’s painful. Halfway through my dad was kind of laughing, while checking in he would say “You guys are nuts. Don’t do this public stuff and stay private”. A lot of people say why would you go public if you didn’t need to? Well, there are a few reasons. Number one, I wanted the team I was building to be able to have straight direct equity ownership, something that’s tangible for them. Also, a stock or report card – it’s nice to see as well as to raise equity. I could start to see that being public and where I want to grow the company would line up collectively very nicely and your profiles are different and there’s two different paths, they’re both great as long as you’re making money. But I think that the public was the right time for us and took some chips off the table back then, which was nice just to kind of monetize at a young age, and take some risk off after working 16 straight years out of high school. I thought that would be an important thing to do. So, we did a little bit of that and also kept some of the companies private, which still are today.

 

Jason Boudreau:

Got it. So now, we’re sort of in the early 2000s, mid-2000s and I know you’ve got Canwell and Doman is the other one, correct?

 

Amar Doman:

Yeah, Canwell morphed into Doman and Doman now is the parent one now in the Toronto Stock Exchange.

 

Jason Boudreau:

There’s one other company, correct?  Under the Futura?

 

Amar Doman:

Yes, we control Tree Island Steel which is public.

 

Jason Boudreau:

Got it. What got you into the steel business? How long has that been in the fold?

 

Amar Doman:

We’ve been distributing Tree Island nails and mesh for a long time. I was watching the company become undervalued on the Stock Exchange. So, we ended up buying a pretty big ownership stake in it when we thought the value was right. The Board of the company owned less than 1% of the company and I owned 20% of the company and they wouldn’t let me on the board, which frankly pissed me off. So, we called a proxy contest, the only one I’ve ever done, and we lost the proxy contest, but the next day they called and said “You won. But really you won, not us. Our guns are down. The board’s yours”. So anyway, we went through this process, which I didn’t want to go through, but we took control of the company and it’s been a great business for us. It’s got a huge plant in Richmond, 450 employees and a bunch of staff in California. It’s been a great business for us and we continue to drive good cash out of it and run the business.

 

Jason Boudreau:

Well, obviously nails and mesh are complementary to the main business, right? So, just thinking back to mid-2000s. When did family life start to evolve for you? When do you meet Nat? When does that all start?

 

Amar Doman:

It was in my early 30s. I met my future wife in Vancouver. I started thinking that I’m in my mid 30s, setting my ways, maybe not getting married kind of guy and I’m building the companies up and having some fun. Certainly, when you meet someone who changes your life it’s great. We ended up dating for about a year and then got married. Right after that, we had three beautiful children. So, then I felt fully wealthy. Because being wealthy in a bank account is one thing. But when you’ve got children and a decent marriage – that’s all you can ask for.

 

Jason Boudreau:

Yes, that’s true. That’s very true.

We talk a lot about legacy in our business and obviously, a lot of the work that we do is helping families plan for that legacy. And really, it’s all about what’s the next generation coming into and the number one thing that comes up is the value set and these conversations about it. It’s one thing to transfer financial capital, but how do you transfer that family capital, the history, the stories, the knowledge, the values, all that kind of stuff, and that’s something that we’ve talked a little bit about the other week as well. I can see from hearing your story how that evolved for you being at the sawmills and climbing around on the lumber and all that. I’m curious from your side, when you look at your kids how do you envision their involvement in things?

 

Amar Doman:

That’s the 1-million-dollar question: do they want to be involved and carry on? I think the level children were born into is not their fault. I think it is up to the parents to assist in the navigation of where they’re starting from. It’s a lot different than not where I started, but how I had to get started.

I just wanted to know if the children do want to be involved in business, I’ll show them the path which starts with a very, very much hard-working foundation. That means starting to work somewhere else, which one of my children is already working at a young age. And he’s doing well and he seeks to work, which is great.

If they want to be an artist or whatever vocation they choose, they better choose something because I don’t want my children figuring out what they’re going to do in life during their four years in university. That won’t happen in our family. It’s “Choose what you want to do or you’re going to work”. Once you figure out if you do want to go to university for something specific, of course, we’re going to help you with that tuition as well as you’re going to pay a part of it. I don’t expect their path to be anything like mine. It can’t be, but if they want to carry on some of these businesses that we continue to build up, I’d be more than happy to teach them.

 

Jason Boudreau:

The other day we were talking about inviting them in to learn about the business firsthand, whether it’s taking them on a business trip or inviting them to a meeting or something like that. I know that’s something I really look forward to. It is really great to hear that they are already getting their hands dirty and earning some coins.

Tell me about the background of the Futura name. When did the Futura start as a company and where did the name come from?

 

Amar Doman:

I got to give my dad some credit. He had a small development company in Victoria way back in the day,  called Futura Developments for the Future and he built some apartment buildings. He always had a lot of stuff going on and he had this company name which he used for a long time and went into some building materials as well. I always used to draw when I was in school, not paying attention to the blackboard, I’d be drawing “Futura” all over my everything and just I used to always draw Futura Corporation since Grade 8 and I’d be drawing and drawing it. So, I formed that company in 1999 when we had purchased Canwell and restructured everything under one. I still remain the sole shareholder of that business, but it was kind of a nod to my father. He really liked me using that name, and I just love the name and still do. It’s my private corporation, so you won’t see it on anything public. It’s just got a very good sentimental history to me and my brother as well for sure.

 

Jason Boudreau:

When you told your dad that you were setting up the Futura of Corporation, what was his reaction to that?

 

Amar Doman:

He was very happy about it and he always just liked it. I think it felt like he’s still there because he taught me absolutely everything. I owe everything to Dad and I wish he was still around, and his anniversary of passing was just Saturday four years ago.

 

Jason Boudreau:

Thank you for sharing.

I’m curious about if we look to today and really look ahead, what’s in store for you and for Futura? When you look at the landscape of today, everybody talks about how fast the world is changing and commodities are moving like crazy. Obviously, you have the influence of expanded media out there impacting share prices and things like that. How do you navigate that? What do you see for the business today? If we look forward to the next 10 years, what does Futura’s future look like?

 

Amar Doman:

A couple of things. I’ve been through a lot of different cycles now and I’ve got some gray hair. So you can look back and see what to watch for a little bit, but the drive and focus and energy have not changed as far as building. So, there’s been no slowing down and catching our breath. It is more like keep looking for opportunities, keep running the main business as well as learn and stay close to our customers, do everything we’ve done to get here and then continue to build on. So, we don’t look out as far as 10 years. We look out sometimes 2 to 3 years, but we want to continue to build through acquisition.

As a group now with the Futura we crossed roughly $3.5 billion in sales, and we have 4,000 employees. So, it’s big, but for us, if we buy a company now that’s got 30 employees, that’s fine. If it’s got 300, that’s fine. But it’s got to strategically fit into our master plan that I share with our Board of Directors that we have. The word “retirement” doesn’t really fit in for a guy like me. I like to work, and you’ll see me working for a long time. So, we’ll continue to build and see how far we can take this.

 

Jason Boudreau:

That’s very neat. We were talking the other day and you were mentioning about that even though you’ve got 4,000 employees, you stay really close to the ground floor. How do you do that and why do you feel that’s important?

 

Amar Doman:

That’s a great question, Jason. I just think it always resonates with me that I feel like I’m one of the guys out there. All the time. So, I can go talk to anybody on the floor, whether it’s a forklift driver, whether it’s a Ship or Receive or whatever it is to the top executive. I just like people and I like working, I like working people. I relate to them. That’s why I don’t really stand for a lot of people that have picket signs out there. I am just grateful to have a job. I don’t think you should fight your company. I think that good companies take care of good employees and things work out. I really believe that there should be respect on both sides and I respect every single person that works in our companies, no matter what position they have. I fully respect them and appreciate them being part of our team.

 

Jason Boudreau:

Respect, for sure. That’s a big one. I’m very much the same way. I find it hard to not stay connected to the people because that’s the pulse of the business. It’s like a giant brain trust in a way. You ask questions and you’ll hear things that you never even thought of.

 

Amar Doman:

Right. Absolutely right.

 

Jason Boudreau:

I would like to touch base on the philanthropy side. And I know you’ve been actively giving back to the community and I know it’s not a philanthropic project, but it’s certainly a community-based project as you now own the BC Lions. Tell me a little bit about how that got going for you? It’s obviously a passion project for you, and you and I met through the football community. Then we’ll tie that into the more giving and giving back side. Let’s call it “The new side of the Lions”, how did that end up in the Amar Doman’s world?

 

Amar Doman:

This’s something that was on my mind for a lot of years, and we used to hear it wouldn’t come up for sale as David Braley owned it for 25 years and these assets are very hard to come by. For me, being a part of the CFL and part of the National History of the CFL it’s like a dream come through. To really help kids use sports here in BC, and to re-engage the football community here, invest in it, and obviously selfishly we want to grow the fan base. But really, it’s something that I tried to buy for seven years back and forth with David, going to Hamilton to his little office back there in Ontario, and thought I’d have a deal and then came back and he couldn’t let it go. He’s so passionate about football.

Then, of course, when we got the deal done back in 2021 it was surreal… Signing the paperwork back East and then knowing this is going to be announced… There’re those few moments in life when your children are or born or you’re married – these things are just etched in your mind. You can define them so well, like they’re yesterday. When I went out to Surrey to practice, they had all the players put on their uniforms with their names on them that day, and they blew the whistle and they’re all coming in there. There I was, standing there and that was one of those minutes I’ll never forget. They’d stopped the whole practice. And here they come and here comes the new introduction of new speech and that was one of the proudest moments in my life.

 

Jason Boudreau:

Oh, that’s so great. Well, I know, the BC Lions themselves, the team, the football community, everybody’s benefited so much over the last couple of years since you took over the helm there. I certainly see myself still being involved in the football community. Obviously, as you know, football was a big part of my life for many years and I’m hoping my boys get into it and they love the flag league that they’re in here on the North Shore and hopefully soon we’ll get into tackling all that. I feel like they got to at least put the pads on at some point, cause their dad did.

 

Amar Doman:

Yes, our boys play together, which is great too, and it’s awesome.

 

Jason Boudreau:

It’s so much fun. It’s really fun. I feel like for a young boy going through adolescence and coming to man, there’s probably not a better sport out there that they could play in terms of skills and all that. Obviously, I’m biased, but I’d like to say that it helped me turn out in a successful way.

I know one of the approaches for you with the BC Lions, and I think these ties into really kind of the giving back piece and philanthropy, is that BC Lions aren’t the Vancouver Lions, they’re the BC Lions, right? This is the province’s team, right?

 

Amar Doman:

100%.

 

Jason Boudreau:

And I thought that was so great and obviously it’s in the name. But given that they play here and practice locally, sometimes it feels a little bit like Vancouver Lions. I know you’ve done a lot of outreach to the province, and I remember last year you guys were helping to fly-in, ferry-in or bus-in fans. Tell me more about that sort of outreach to the BC community and get them reconnected with the team.

 

Amar Doman

So, we’re doubling down on that and what I mean by that is we’ve adjusted and worked with the TSN to sort out times across Canada for airing the games and then also CFL to get a bunch of four o’clock games here. The reasons for those are: number one, we can have people from Vancouver Island come over on a ferry, get back and not have to spend an arm and a leg in a hotel. Number two, we can have younger fans come in and be able to bring their two or three-year-olds in the afternoon, watch a game from four and be done at seven. Let’s face it, it’s Canadian summer, guys want to hit their barbecues on a Saturday night.

And the CFL has to always struggle with that. So, we’re trying to pull it forward a bit in the afternoon, enjoy it and then people can go to their house parties, do whatever they want with dinner. Also, do you want to get on a sky train at 10:30 or 11:00 at night? I’m sure I wouldn’t want to these days. So, families can get home safely out to the valley. You can even come from the island. We’ve got buses set up as well. So, we’re really trying to engage the whole greater part of BC wherever we can. I think some of those earlier start times will assist with that, Jason. And we’re always open to ideas to try to do better.

 

Jason Boudreau:

I know this season’s obviously starting soon and you’re getting excited about that. How’s it looking in terms of the growth that you’ve seen with the fan base and all that over the last couple of years with you in charge?

 

Amar Doman:

Super solid. Look, we’re coming off some tough numbers, we all know that. But we believe we’re going to double our season ticket holder base this year already. We’re very, very excited about it. And just to get almost under 40,000 and for that last playoff game in Calgary last year. It’s amazing. Once that thing gets going and people like being around people and of course at football the noise matters – we will get a good consistent fan base into BC Place for our home games, there’s only nine home games.

I think we’ve got a pretty good opportunity, we’re helping subsidize some of the concessions and big street parties coming up again here. It’s going to be the place to be.

 

Jason Boudreau:

Right on! Given that grassroots community level, I’m curious about your view on philanthropy and how you approach that because obviously you get approached a lot on giving to different organizations. What do you think about philanthropy in your world?

 

Amar Doman:

I think the term “Giving back” is used a lot, maybe too much. I just think it’s just about giving. I think that I really felt this way for a long time. We’ve helped out different organizations, whether it’s heart, stroke, cancer or other causes. The one thing that we differ on is as far as myself and part of the community, I don’t think hospitals should have their hands out into private corporations. These are big public assets and they should be run by our tax dollars- we’re taxed enough. But certainly when it comes to scientific research, going over and above helping children find different ways to find solutions for various diseases, someone that needs financial medical care – we do a lot of private donations. We do them anonymously as well. We like to write these cheques. We like to help. We like to help the Orphans fund. There is whole bunch of different things we’ve been doing for years and to me it’s just an automatic thing to do. When you’ve done ok and you can share – Share. I think it always comes back in some way shape or form and I believe that by just seeing some child happy or someone that’s had a life-saving operation – that’s great. What are we doing all this for anyway?

 

Jason Boudreau:

Yes, that’s very true, I couldn’t say it better myself. Amar, just to close out our conversation, I would love to understand from your point of view the given piece. What would you say if you were having a conversation with your kids or some young group of kids about giving and trying to really instill in them at a young age what it means to give?

 

Amar Doman:

I think number one is always remember that not everyone has what you have and don’t assume they do. Always help others and try not to choose the bad path. If someone’s doing a bad thing, don’t copy them. Try to stand down and it’s hard with peer pressure, but really try to just be your own person and try to help others. If there’s a new kid in class, be the person that goes up to that new kid in class. Don’t be the person gossiping about the new kid in class. Reach out, put your hand out, welcome them. That’s the type of citizens I want our kids to be – to help others and just be that good person. And don’t be the person giggling in the background and making fun of others. That person gets nowhere.

 

Jason Boudreau:

That’s a true story. Well, let’s wrap it at that. We spent a good half an hour together this morning. Amar, really appreciate you taking the time. Always pleased to speak with you and really enjoying getting to know you at a deeper level today. Thanks again.

 

Amar Doman:

Thanks, Jason! I really appreciate you doing this. We’ll see you!

 

Jason Boudreau:

See you tonight.

Transferring a farm or agricultural business to the next generation is a multifaceted and emotional journey, much like any other business endeavor.

Farmers face the challenges of estate planning, optimizing taxes, and ensuring the long-term prosperity of their business. It is vital for business owners to have a clear understanding of their current standing and future goals. Equally important is their awareness of the farm’s purpose and objectives for both the present and future generations, fostering effective intergenerational communication. Moreover, there are essential considerations to bear in mind when passing down a farm or agricultural business.

In this podcast you will learn the importance of:

• Acquiring a clear understanding of your business’s present situation and future objectives.
• Comprehending the motives and aspirations of both the current and future generations.
• Obtaining insights on essential factors to consider prior to and during the transfer of the farm business.
• Developing effective communication tactics to navigate challenging conversations with family members.

 

About the Participants:

Michael Baker
Licensed Life Insurance Broker, Baker Wealth
Michael Baker founded Baker Wealth to build meaningful success for people. A challenge-driven CPA, he wanted to help his clients forge a tighter connection between financial prosperity and a fulfilling life. Michael is your expert advisor and ally, with 25+ rich and illuminating years of experience as a professional. Talk to Michael about planning your future, starting a new business or welcoming a new family member. He’s an active listener; he not only hears your words, but he understands them – the key to solid financial results.

Shane Donner
Partner, Smith & Hersey Agribusiness Law LLP
Shane has been working as a Solicitor at Smith & Hersey Agribusiness Law for over 8 years. Shane’s practice is primarily focused on business transition planning (specifically agricultural operations), corporate finance, commercial/agricultural real estate, and negotiating renewable energy leases for wind and solar projects on behalf of landowners.

Shauna Trainor
Principal, A&O Partners LLP
Shauna works with enterprising families across North America to navigate the complexities of ownership, wealth, and family dynamics. Shauna engages in a planning process with family enterprises to help them identify, clarify, and articulate their ownership vision and strategy. In collaborating with families, Shauna helps them to establish relevant governance, enhance communication and engage in shared decision making. Shauna leverages her business and psychology background to help families and individual members achieve their desired objectives.

Rob Wallis
Partner and Senior Advisor, VELA Wealth

Rob has provided senior financial planning and advice to VELA clients for over 15-years. He 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. To learn more, please visit VELA team page.

 

The episode is also available on:

  

  

 

 

 

Disclaimer

The information provided in the podcast is designed for general informational purposes only and is not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.

In the upcoming Polestar Podcast episode, Rob Wallis talks with Dan Pultr from TMG The Mortgage Group (TMG) about the interest rate environment and lending. Dan explains the impact of dropping interest rates to zero during the lockdown and where it led us as well as provides some recommendations to borrowers on how to ensure they receive competitive offers.

 

About the Guest – Dan Pultr

Dan is a Senior Mortgage Industry Executive that helps individuals and companies grow. He takes a hands on approach to all engagements, loves to immerse himself in the details and works with passionate professionals to deliver comprehensive solutions. Dan’s goal is to provide an incredible Mortgage Experience to Brokers and ultimately to their thousands of clients. To reach out to Dan, please visit his LinkedIn profile.

About the Host – Rob Wallis

Rob has provided senior financial planning and advice to VELA clients for over 15-years. He 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. To learn more, please visit VELA team page.

 

The episode is also available on:

  

  

 

 

Disclaimer

The information provided in the podcast is designed for general informational purposes only and is not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.

 

The Podcast Transcript

 

Rob Wallis:

Welcome to the Polestar Podcast by VELA Wealth. Today, I have the pleasure of speaking with Dan Pultr from TMG, The Mortgage Group. We’re going to be talking about the interest rate environment, lending, and what awaits us next. This is a particularly interesting topic because, having been in the advice industry for 20 years, cash has never really been something that we’ve talked to people as an asset class for at least a decade. That’s because interest rates have been low for an extended period of time, and recently, that has come to the forefront of many conversations. Conversely, that also means that interest rates are high on lending as well, which affects people in different ways.

Dan, welcome! First off, how did we get where we are at?

 

Dan Pultr:

Hey, Rob. Thank you so much for having me. It’s a pleasure to be on the podcast with you today.

So, how did we get here? Well, we had a few things happen that set the stage for where we are today. First and foremost, I think many of us choose not to remember, but we spent some time in lockdown. The central banks from around the world came together and realized that during a lockdown, they really didn’t want any risk of an economic meltdown. So, they effectively dropped all interest rates to zero in most markets. That fueled a steady stream of borrowing for various different reasons – some corporate, and some personal such as people buying houses, investment properties, etc. The savings rates went through the roof – we saw people accumulating, as you mentioned, cash. People were saving at an incredibly high rate relative to what they had in the past. Following that, we had the steepest and fastest interest rate increase that we’ve ever seen in this country. When you combine those two, you create a lot of uncertainty and find yourself in a market where people are a little uneasy and stressed about what the future holds for them.

 

Rob Wallis:

So, with that stress, how is the sentiment in the market right now? We’re obviously talking about Vancouver, but there’s a whole world outside of here and Canada. If you could give a little proxy for Vancouver and then maybe the rest of Canada, that would be helpful.

 

Dan Pultr:

For sure. So, where does that put us today? I feel as though what we’ve seen is an overreaction, both among the central banks, which many would probably say is not an overreaction and that they needed to do exactly this. But I’m not a central banker, nor do I claim to be at the taps of monetary policy. However, where that led us is what they call a confidence issue, which is where the Central Bank told us that we can feel confident or rest assured that interest rates are going to continue to be low through 2023 effectively. So, everyone was caught by surprise. And when you catch people by surprise, after they’ve made some incredibly large financial decisions, such as purchasing a house, they don’t know if they’ve made the right decision. The biggest impact was probably with variable rate mortgage holders. So, anybody that had a mortgage that’s based on prime effectively, which is often used as an index for variable-rate or adjustable-rate mortgages, or lines of credit, felt a bit of a sticker shock as it relates to the payments that they were paying or the interest they were being charged.

There are a number of institutions in Canada that offer variable-rate mortgages where the payment does not actually adjust when the rates change. So, they’re paying less and less principal or no principal at some point in time. At future points in time, in some cases not even paying enough to cover the interest. So, people found themselves in these circumstances, and the rules of which the banks were supposed to govern themselves were kind of held true for a short period of time. Then it appeared that everyone just took the piece of paper they were written on, threw them out the window, and said, “the number one thing we want to make sure is that we put people in a home. People have gotten mortgages. We want to make sure that they’ve continued to make payments”.

We’ve seen a number of people that have seen their payments increase and are feeling financial stress, so they’re in a position where they’re making different decisions today as a result of their mortgage payment increasing.

There’s a whole other class of people who know that their mortgage payments should be increasing, but they know they can’t afford it. Therefore, they’re trying to save and put together a small sum of money to make a prepayment towards their mortgage. We also have people who are in a comfortable position but are anticipating some sticker shock when their mortgage renewal comes up in six months, twelve months, or two years’ time.

When we talk specifically about Vancouver, it’s probably not surprising to hear that Vancouver prices are quite high, and people carry very large mortgages. Therefore, that sticker shock could be quite significant for some individuals. You may have seen your mortgage payments or the interest required to cover your mortgage payments have increased by 45% to 55% over the past year. That’s a material jump! People started making different decisions with their debt. First and foremost, prior to that, there were many opportunities for homeowners and investors to refinance or restructure their debt to get cheaper money. However, those opportunities have effectively ceased to exist. We know that fewer people are making the decision to refinance purely to decrease their interest costs. Also we are still seeing some individuals needing to refinance because they may have a business opportunity or have gotten themselves into more debt than they would like, and they need to pay consumer debt with mortgage debt. It’s still relatively cheaper than a 19.99% interest rate. We have seen people have to make different decisions relating to that, and we see it a little bit on the front lines. We obviously see the homeowner making these decisions, but we don’t see their day-to-day decisions as much. However, that’s what these central bankers wanted. They wanted people to change their vacation habits, dining habits, and spending habits to try and curb inflation because that was the driving force behind the rate increases.

If you look at Vancouver, how is this impacting the real estate market? Effectively, the real estate market almost came to a standstill compared to where it was previously. Recently, I heard a comparison that if you’re going 200 kilometers an hour down the highway, and someone slows you down to 50 kilometers an hour or even a 100, it may feel as though you’re completely standing still relative to where you were previously. That’s kind of where we went to. We were effectively going at a very quick pace, and now things are much slower.

Over the past 30 days, with some changes in the monetary policy, or more accurately, changes in the words that the central bankers are saying about the future, we have started to find a little bit of stability for people to start making financial decisions again. There seemed to be a period of time where people were uncertain enough that they were unwilling to make financial decisions. We saw this with developers and homeowners. They just didn’t know where interest rates were headed, and when they don’t know, it’s really hard to make a decision. Now we kind of know that we may be at or very close to the peak of interest rates as it relates to variable-rate mortgages and home equity lines of credit, anything pending its prime. We’re seeing people start coming off the sidelines, and we’re seeing developers restarting projects that they may have paused for a period of time. Therefore, we’re starting to see that momentum start to build. We’ve only seen it for 30 days, so whether it’s a blip or a trend, that’s yet to be determined.

As it relates to other parts of Canada, I would say that two markets that were most largely impacted by this would be the GDBA and GTA, primarily because of the levels of wealth and prices in those areas. If you look at Alberta or Atlantic Canada, some of those markets have moderated a little bit but not quite to the extremes that we’re seeing in some of those other markets. And part of that is to do with some of the shift that has happened in real estate habits. Prior to COVID, it would be very uncommon for someone to pick up and move, lets say Hope and work remotely. Now we have some of those new habits, so we’re seeing those dynamics start to play out in how the real estate market is behaving as well.

 

Rob Wallis:

It sounds like you’re talking quite a bit there at the end about the demand for lending returning because people can see some stability. How are banks assessing and underwriting risk right now in the current environment, and how does that affect people’s ability to borrow, certainly to the extent they were able to borrow, to a couple of years ago?

 

Dan Pultr:

The fortunate thing, and a number of people actually point this out as sort of a saving grace that we had implemented previously, is that in Canada, we have a mortgage stress test. So, it has been put in place to essentially hedge against the future of rising interest rates. Because borrowers were already qualifying at whatever interest rate they were at, plus 2%, we were seeing that people, at least on paper, looked to be in reasonably good shape to withstand an increase. Now, whether they want to increase their payments or not is another thing, but from a bank’s perspective, I think they were reasonably stringent enough already that it didn’t make a material impact.

Now, one of the interesting nuances is how the stress test is structured. We did see a period of time where people were almost rewarded for going variable because the variable-rate interest rates were a little bit less and as a result, by taking a variable-rate mortgage, borrowers were actually qualifying for a little bit more. I know that’s something some regulators have looked at as a risk or a concern because we don’t want to see people taking on more risk to get a variable-rate mortgage than a fixed-rate mortgage. With a fixed-rate mortgage, we know what to expect over time.

 

Rob Wallis:

So banks are still okay to lend?

 

Dan Pultr:

We haven’t really seen much of a pullback. We’ve seen a few, let’s call them “less competitive” than they would otherwise be. We’ve seen that, but that’s because mortgages are a driver for a number of other consumer products. So, you may hear banks from time to time refer to a client’s as “franchisable” or “franchise a client” which essentially means how many products they can they offer to one individual. It’s kind of a sweet spot that they have, and they offer what they know if they bring in a consumer as their mortgage client, they now have an opportunity to also convert that person to a savings account, a credit card, or whatever else they offer. I’m sure you’ve all experienced or at least your listeners have experienced some of the offers that they may get from institutions when you’re new to them versus existing clients, similar to with cell phone companies. Because mortgages have always been the lead in drawing new clients, I feel as though they’re still going to continue. And because they’re in a much smaller market to operate within, some are choosing to be ultra-competitive, and some are looking to just work with their existing customers and focus on that aspect. So, each major institution differs in how they’re operating. Within that, the nice thing is that there’s a cluster of companies, and we use the term “monoline vendors,” but a number of people know them as mortgage finance companies – these are major Canadian financial institutions that only deal in mortgages, and they are finding this as an opportunity to be ultra-competitive to try and acquire some clients because they know that that’s their only bread and butter. So, mortgages are the only thing that they offer.

 

Rob Wallis:

So, one thing I picked up on from what you said earlier is that some lenders are not being as competitive as others. Is that down to risks in their mortgage business? Or are they taking advantage of the situation? As a result of that, as somebody who’s seeking debt at the time renewal or a purchase, how those people should be responding so they make sure that they get the best value?

 

Dan Pultr:

Right. So, the single best piece of advice I would say to anyone listening is if you’re getting a renewal offer from your bank, if you happen to have a mortgage with a mortgage finance company, I highly recommend talking to a mortgage broker in your neighborhood. The reason I say that is that first of all, mortgage brokers are independent in the sense that they don’t work for any of these financial institutions. Their mandate is to try and obviously earn your business, but obviously they want to make sure that they are effectively providing you with a sound advice and good options for you. What we’re seeing right now is great time for you to take that time, send them your mortgage statement, have them review your renewal offer, so that you can actually see what is real and you can see whether or not the offer that you’re being offered is in fact competitive.

Sometimes what we see is that institutions will just essentially send out blanket letters and they just hope that people sign on the dotted line. Other times, they will effectively ratchet up their behavior as time moves on or get closer to your renewal date, so they might just send a letter. Then they might wait for a period of time. Then they might follow up with a phone call and only once they realize that you’re potentially leaving, they do actually offer you a good deal. Versus when you’re dealing with a mortgage broker, you know that in fact they’re compelled to make sure you get the best offer that they have available for you from the onset and they can tell you all of your options whether you can leave early, or if you have to wait, would there be a penalty or any sort of costs associated with the move. And a lot of the institutions do bank on the fact that there is some friction to move it. There is some time, energy and effort that goes into you moving from one institution to another. And so, they do factor that in when they make you an offer, but it is very prudent to at the very least have a second opinion on what you’re being offered. Earlier you can do that in the process the better. If you start that process 90 days out, that’s great. You can even start it as far out as six months out. So, it’s worth starting that conversation early.

 

Rob Wallis:

So pre-pandemic, how long were people fixing for versus now? How long are people fixing for if they weren’t fixed?

 

Dan Pultr:

It’s interesting actually because right now what we’re seeing is probably the most competitive interest rate out there. It seems to be that sort of four-five year rate environment. So that’s where we’re seeing the most competition. However, the desire among borrowers is much shorter than that everyone seems to feel as though that within one year or two years that rates are going to be better. I’m not an economist, however, I did major in economics as an undergraduate. But I do feel similarly to it. However, if you look at every economist globally and their predictions, no one’s always right and you probably find 50% of them being right and 50% of them being wrong. The reality is that there’s definitely some risk to either of those strategies. The single thing that I would focus on is trying to ensure that your mortgage is aligned with your life cycle timeline. That is a really important thing to consider. There’s a thing in mortgage terms called prepayment penalties, and probably the single biggest frustration among borrowers is if they get stuck with a prepayment penalty and it’s material. They never forget and they always remember it and they want see why it shouldn’t be as much as it is. I’ve seen some very, very large prepayment penalties in the 10th of thousands of dollars. So, if you plan on moving or maybe your investment horizon is different, if you can match up your timeline, that’s really valuable to some of the mitigations as it relates to that. But currently, most people are interested in a one- to three-year term. However, when they’re offered the rates that are available in the four and five year it does sway their decision a little bit because they’re more focused and I think this is based on natural human behavior – while people have the best intentions of going shorter term to try and be in a position where in one or two or three years’ time they’re renewing at a better interest rate environment. Once they see the difference and interest rates, which may only be 50 basis points or 0.5%, but that may be enough to make the four-year option more appealing. And I’ll take that because it’s a compelling offer. So it’s just important to sit down with somebody and let them give you all those options and then you decide what works best.

The other interesting thing about the shorter-term ones is that you have a little bit less market competition available for you as the shorter the term is. So, some of these institutions will offer to compensate you for moving from one to the other and as the term gets shorter, essentially their ability to recoup the costs of moving you from one institution to another decreases enough that they say they’re not going to cover the cost if you’re only going to come there for one year. They may convert you and you might stay within the institution, but all I’m simply saying there are options. It’s just that there’s less options than if you’re, for example, trying to move and it’s a four-year fixed we are looking at.

 

Rob Wallis:

Do higher interest rates create more stable housing market pricing?

 

Dan Pultr:

Well, that’s interesting. Do they create more stable markets? What I can say is this increase in interest rates has significantly decreased the demand for housing or put it differently it’s at least stalled it because I don’t believe that the actual demand has dissipated I just think that people are uncertain enough that they want to wait. That’s a bit of a double-edged sword, because if everybody waits, then that just means we get right back to multiple offer circumstances.

Secondly, we have another market condition that is also a stimulus to demand and that’s immigration. In the last 12 months, we saw a significant amount of immigration and it’s going to continue. That included temporary foreign workers, which is a whole another class beyond the actual immigration that we typically would count. And the numbers were staggering there. The numbers that I saw in the most recent presentation was almost 1,100,000 in 2022, if you account for the temporary foreign workers. So that’s a significant amount of people that we’re having to house. So, you’re causing a significant stimulus to demand, all else being equal, and then you have a demand start to come back online because it was delayed. I think if you’re going to move, you’re going to want to change your home interest rates aside, interest rates may only stall for a period of time. Eventually, you’re just going to say “Look, we can’t live in this one-bedroom townhouse or condo with three kids…”. Eventually you have to make that decision, whatever that decision may be, you may move further out to find more affordability.

Thirdly, we did see a bit of a pricing correction. We did see a decrease in price, but it was almost offset enough that the payments were effectively close to the same.  There’s a rule in Canada around mortgage default insurance and that it’s only available for properties that are under $1,000,000. And this is where it did create a little bit of stimulus: if your property was worth $1.1 million and now is worth $980,000 there’re actually more people able to purchase that home because the amount of down payment that is required for a property that’s $980,000 is materially different than if you’re purchasing a property worth $1.1 million.

Now, we’ve talked a lot about demand, but the other piece that is more problematic, and which is going to continue to be a challenge for us and what’s going to keep home prices at least elevated, my comment on it would be – I think it’s going to be still elevated for a period of time. I think if nothing else it’s going to maintain stability and pricing it’s going to pose some frustration though, because it’s going to continue to see multiple offer situations, is that we still don’t have supply. We are not building enough housing in Canada for the number of people we have, nor for the amount of immigration we receive. And now, there is less willingness to sell homes because of some of the existing market conditions. People are seeing that interest rates are high, and they hear that prices are coming down. Is that the time when you want to try to sell your house for top dollar? Of course, if you’re selling you eventually buying, but we know that people are considering this option. We are starting to see some of those things play out. For instance, the provincial government in BC is trying to mandate the type of allotment you have on any single-family lot. So, we’re hopeful that this will increase supply and create more opportunities for affordable housing. However, it will take years for any of these changes to come into effect. Supply is not something you can turn on or off, and the impact of it takes quite some time through the cycle.

Right now, if you look at the current market, people are unwilling to list their homes. Therefore, the properties that are on the market have been there for some time, perhaps because the price is too high or it’s not very desirable. The properties that are desirable get a ton of interest, and if you talk to a realtor today, they will probably tell you they have a ton of interest. They may even end up in a multiple offer situation, where people jump on a specific property in the neighborhood. If there are only two properties for sale in the entire neighborhood, and 50 people show up at each, the price is almost irrelevant. It now becomes a matter of what someone is willing to pay for one of these properties, and they have a timeline and a budget. So, we are back to this sort of imbalance in supply. We need steady, long-term, consistent supply, and that’s what’s going to allow us to be in a position where prices will be a little more stable over the long-term, versus some of the big ups and downs we’ve seen. Those big ups and downs are a little concerning too, right? We don’t want to see wild swings because somebody always gets caught at the peak of that. We’d rather see some level of stability. Personally, I want some headlines about multiple offers right now because it might bring more supply to the market with people willing to sell their homes because they hear that prices are no longer falling due to low real estate activity. Only time will tell, and as I mentioned earlier, we don’t know if it’s a blip or a trend right now, but we’re seeing a little more stability over the past 30 days.

 

Rob Wallis:

Got it. So, Dan, I’m not going to hold you to this, and neither of our listeners, but will we be looking at lower interest rates in one year?

 

Dan Pultr:

I had the opportunity to ask a couple of economists a couple of weeks back, and both of them bet that if you take the five-year fix, which is what everybody looks at in Canada, we would all anticipate interest rates being lower from where they are today. I do think that there’s room for that to come down, so I would say yes.

As it relates to variable-rate mortgages or anything pegged to prime, I don’t think we’re going to see any central banker, I don’t think in Canada or the US, which we typically take a price from the US. I can’t see them lowering the interbank lending rate this year. I would be very, very surprised. Would they lower it in early 2024? Maybe. But all the sentiment from all the economists is that the Bank of Canada has said, and has now called it “a confidence issue”, that interest rates were going to stay low, and then they went the other way. Right now, they’re telling us they want to kill inflate and they want to make sure inflation is dead, completely dead, like never going to rear its head to the levels that it was. So, until they actually see something that gives them that sort of certainty, that inflation is dead, they will not start decreasing rates. They will hold firm, and that may result in some stress to the overall economy that we just don’t know where that is yet. We haven’t really seen any real material pain in the Canadian economy just yet.

 

Rob Wallis:

Yes, totally I agree with that. I think that’s a good topic for another podcast – “When is inflation dead?”.

 

Dan Pultr:

Yes, that would be no expertise of mine but it would be something I’d love to listen to. I’m sure there’s a bunch of interesting thoughts on that and interestingly enough, can you kill inflation when the rates are high and part of the driving force to inflation is interest rate costs on mortgages, right?

 

Rob Wallis:

Dan, thank you. It’s been awesome conversation.

 

Dan Pultr:

Thank you very much for having me Rob, I really appreciate it.

 

Rob Wallis:

Pleasure. Cheers, Dan.

 

Disclaimer

The information provided in the podcast is designed for general informational purposes only and is not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.

In this podcast, Lorraine McGregor from Spirit West Management and Rob Wallis discuss the low number of businesses that are actually selling in North America, despite 70% of baby boomers business owners saying they want to sell within the next five years. They explore the reasons why many businesses do not sell, including the lack of understanding of how to play the M&A game and not being “sale ready.” They also delve into the importance of increasing a business’s valuation in order to attract buyers and the options available for business owners who are not happy with their valuation.

 

About the Guests – Lorraine McGregor

Lorraine founded Spirit West Management in 1990 and has worked with CEOs to help grow their businesses through effective partnerships, marketing, and sales strategies. In 1999, she returned to Canada and has worked with both US and Canadian clients. Together with leadership expert Rob McGregor, they provide growth strategies and leadership expertise, as well as guide business owners and their families through a process to decide the best course of action for their business. They also work on improving systems, profitability, market focus, and organizational effectiveness, and address conflict, family dynamics, and partnership problems. To read more, please visit the Spirit West Management website.

 

About the Host – Rob Wallis

Rob has provided senior financial planning and advice to VELA clients for over 15 years. He 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. To read more, please visit the VELA team page.

 

The episode is also available on:

  

  

 

The Podcast Transcript

 

Rob Wallis:

Hello everyone. Welcome to The Polestar Podcast by VELA Wealth.  I am delighted to have Lorrain McGregor from Spirit West Management joining us today. We’re going to be talking about what to do with business valuations, especially if you’re not happy with them. Lorraine and I have been working together for several years, and we’ve shared lots of different clients and different experiences. What really is very interesting for me is learning about the options for people who are thinking about selling a business and how they get the best value for their company and whether is it even possible to sell a business at all. So, before we jump into the content, welcome Lorraine. Please say a few words about yourself.

 

Lorraine McGregor:

Thank you, Rob, for having me on your podcast. I’m so glad that you’re tackling the topic of valuation. We, at Spirit West Management, have been helping owners grow their businesses to the next level and learn how to become sale ready and increase their valuation for about the last 20 years. It’s very difficult to learn how to play the valuation M&A (Merges and Acquisitions) game from the outside. So, we have taken a lot of time to understand what goes on inside dealmaking and translate it into language and actions that business owners can take advantage of. So, we love the opportunity to be able to talk about it.

 

Rob Wallis:

Well, before we jump in, I’m always fascinated to hear the stats about businesses that are for sale in Canada and indeed the world. And especially in the context of the greatest wealth transfer in history is taking place right now, and a lot of baby boomers have businesses. So, if you could let us all know what those stats are that would be awesome.

 

Lorraine McGregor:

Well, thanks for giving me the opportunity to describe this because these numbers aren’t apparent. These numbers have been tracked since 2008. So, across North America, Canada, and the US there are three and a half million businesses owned by boomers. People over 55, 60 I guess now, and you would think since there’s going to be this great wealth transfer that those companies would be on their way to sell. Since 2008 these companies have been surveyed by many different organizations and at least 70% reliably every single year say they will sell within the next 5 years. So, we would expect this to happen and in fact, many books and predictors have said this is what’s going to happen, but the stats of the number of companies that actually sell tell a very different story. So, Capital IQ and several other organizations track how many businesses actually sell each year. If you know if it was 70% that took the time to become ready to sell, we’d be seeing hundreds of thousands of companies sell each year, but in fact, the numbers stay steady. From 2008 to even 2022 there are roughly three to four thousand companies each year that actually sell. Way back when we started to see this trend we thought about why so few companies are actually selling and we got to the bottom of understanding that problem and we designed everything that we do to help our clients know how to play the M&A game because there are some secrets in how they do things that totally stop most business owners from finding buyers.

 

Rob Wallis:

Okay, so three and a half million companies (owned by boomers), and 70% of those wanting to sell within the next five years but there are only three and a half thousand transactions a year in North America.

 

Lorraine McGregor:

Right, so 70% is 2.8 million and in Canada will just take 10% of that, so 280,000 predicted they’d sell. In every year since 2008 we should see upwards of 100,000 sales and what we see in Canada has more like 1,500 to 2,000 and in the US more like 4,000.

 

Rob Wallis:

Staggering!

 

Lorraine McGregor:

Staggering, yes. So, if you’re one of the 90% of owners that never find a buyer for your business, that means you can’t actualize a return on investment. You can’t sell the business and liquidate all that you’ve built up, and if you’ve been counting on that wealth to power your retirement or your next act in life this can be a hugely rude awakening right at the point in your life when you kind of run out of energy to re-engage and reinvent.

 

Rob Wallis:

So, what kind of capital is out there actually chasing these businesses?

 

Lorraine McGregor:

Well, this is a confusing thing. I mean all the headlines are about how much wealth is searching for businesses to acquire. In fact, every year it gets a bit bigger, but the current number on the table is between eight and ten trillion dollars looking to acquire businesses. So, you look at it and you think, well, there’s ten trillion looking for businesses, but 90% are never going to sell. Well, how do you make sense of that? And that conundrum is exactly the problem that we solve for owners. There’s high demand for certain types of businesses that have been made sale ready. So, those businesses will get multiple offers or just find the ideal buyer, but you only need one. And then the rest of them will never find those buyers and there’s a low demand for companies that have not been made sale ready and that is an excruciatingly difficult situation for owners to come to terms with.

 

Rob Wallis:

So, what are some of the key reasons why businesses are not sale-ready?

 

Lorraine McGregor:

Well, they’ve not been told, not been educated, not been prepared over the course of their lifetime and their business to become sale ready unless they were in a tech business. Because in tech business they get investors early on and every single one of them is lecturing you constantly about how they’re going to get a return on investment when the exit is going to happen, how will the investor pull their money into the business, and etc. So, owners are always thinking about that. But if you don’t have a tech business, you’re not surrounded by an ecosystem of advisors saying here are the things that you need to do to ensure that an ideal buyer or an investor is going to be interested in liquidating your position. Instead, you are your sole investor, or maybe you with your partners, and if you’re not getting that kind of advice early on, you come to a certain point in your life and you want to move on and now discover that you can’t, and you’re not prepared in an easily curable way to get that return on investment.

 

Rob Wallis:

Got it. So, how does the opportunity to sell a business change depending on the sector? You mentioned tech, but there obviously would be a small percentage of what’s transacted each year. What about other industries?

 

Lorraine McGregor:

There’s interest in every single industry out there by acquirers. The real reason they want to make an acquisition is that they need to solve their own business strategy problems. So, if there’s another company, that needs to solve a particular growth problem, they will need to get into a new market, they need new technology to complete the picture for their customers, they need to acquire expertise, they want to get into a new geographic area and to build it themselves would take too long. So, making an acquisition solves a certain strategic problem.

Now, other companies such as competitive companies buy 90% of all the acquisitions. The other type of buyer buys probably 10 to 12% and those are private equity buyers and they’re buying growth in the future cash flow growth, so they’re not acquiring what you’ve done, they’re acquiring what you’re going to do, and you’re already on the way to proving that your business is growing through at least 30% year over year and is producing growth and cash flow probably both in gross margin at the same time. Those types of companies are super interested in it.

 

Rob Wallis:

Okay, so we have an unprepared seller of a business and they’ve got a valuation of their company, and let’s say it’s come as a shock to them because they thought the company was worth more than it was. What are their options now?

 

Lorraine McGregor:

Well, the first step we always say is to handle reality. Yes, it’s very painful, demoralizing, and embarrassing to get a valuation that is less than what you thought it should be worth. Because you’re looking at all that you’ve built, and you’re valuing all of that, whereas the evaluator and the people, the buyers that they represent, are valuing the future, and so that’s where we have a disconnect. By handling reality, you have to stand in the shoes of your ideal buyer and ask yourself, “What do I see that proves to me that if I acquire this company I’m going to get more growth in the future?” – so that’s the first step. Being able to look at your business dispassionately from the buyer’s perspective helps you see what the opportunities are to cure some of the things that get in the way of growth.

The second thing that you need to do after you’ve handled reality is to be prepared to make some changes in how you run your business so that growth is possible and so that you, as the owner, are not materially needed inside the business in some functional role. Solving those three things that perspective, the growth problem, and making sure that you’re not in a key position, meaning you’ll have to work for the new owner if you do sell the business, are the first places we look for helping a business owner improve valuation and then from there we look at profitability and growth prospects. And it sounds like an enormous to-do list, but sometimes you just want another two million and you need to become sale ready. So, the project to make these adjustments could be small, or it could be much bigger depending on your level of ambition and your level of risk talent.

 

Rob Wallis:

Interesting. So, how long does it take typically to turn a business around to achieve what the owner wants?

 

Lorraine McGregor:

Well, first of all, let’s tackle where the owner is now. Of course, the owner probably has a successful business, and for all intents and purposes it makes money, it’s a great place to work, great employees, great customers. It’s just the owner has come to a point in time when for whatever reason they want a return on investment, and I think it’s important to acknowledge all that’s been built. But to be able to sell it to somebody who can easily step into the owner’s shoes and transition the business so that it continues on its growth trajectory that takes a bit longer for two reasons. One is the evidence – the proof that the business is growing has to be in the financial statement. So it’s going to take 6 to 12 months, maybe even 18 months for changes to be seen on the bottom line, at the net profit margin level, at the gross margin level, and at the revenue level – thinking about the income statement. The second thing is the amount of change needed. Might just be a few adjustments or it might require installing someone to replace you as the functional role, it might be cleaning up how you collect your financial data, and it might be entering a new market, or exploring introducing a new product. So, that can take 12 months to two years.

The way that we do things, we aim at the ideal buyer early on in the process, so today you might be part way through implementing the plan to make the company sale ready but because we’ve signaled your ideal buyer that you’re probably coming onto the market, you could probably get a deal much earlier in one to two years and still be on your growth trajectory. As we said, there’s ten trillion in wealth looking for businesses, and they’re all looking at the same few companies that are willing to take the journey to make the company sell-ready. So, once you pop up on the radar you get a lot more interest. You could have a deal, but not be finished your growth process.

 

Rob Wallis:

So, in terms of popping up on the radar, let’s assume someone got an evaluation that they are happy with, and they want to go to market. How can that seller access these trillions of dollars of capital that’s out there looking for companies like theirs?

 

Lorraine McGregor:

OK, well first let’s make a distinction. Just because someone has said your company is worth ten million, or five million, or fifty million doesn’t mean a buyer wants to pay that. Having a valuation is no guarantee that you’re going to find a buyer. Secondly, another issue that’s super important is understanding how the game is played. There are two types of groups that sell or represent the selling of a business. The first is Merges and Acquisitions (M&A) Advisor and the second is a business broker. The M&A Advisor gets paid after the transaction takes place, meaning they get a success fee, some percentage of the sale price and they only want to work with those businesses they know they have buyers for. So, you have to be sale ready, and you have to have solved what their buyers are looking for strategically or financially. And if they can see that in you, how you talk about the business, the questions you answer about how the business makes money and loses money, then they might be interested. But for every hundred businesses they look at, they may only take on five or six maybe seven clients in a given. So, you might be given an evaluation but not be chosen to be represented by this company. And this is happening all the time, so you think “oh, but they told me it was worth X but they didn’t take me on as a client. So now what do I do? And they go shopping for another M&A Advisor or maybe they talk to a business broker and the business broker works quite differently.

 

Rob Wallis:

Sorry to cut in there. Just before we go into the business broker. What are the reasons an M&A Advisor wouldn’t take somebody even though they’ve given an evaluation?

 

Lorraine McGregor:

Well, I like to think of it as a consignment shop. A consignment shop takes used goods and puts them on the rack and in the window in hopes that somebody will see them and walk in and buy them. They don’t want to have goods on the shelf that isn’t saleable. Because M&A Advisors get paid after the company is sold and they put in a lot of effort to help the company present itself and do a search to find that ideal buyer, they’ve invested a huge amount and they want to be paid, so they’re playing the probability game. What’s the likelihood we’re going to find a buyer for this company, and if the lower it is then the more reluctant they are to take them on?

 

Rob Wallis:

As a claim, got it. Then, what about the business broker?

 

Lorraine McGregor:

A business broker maintains a website and displays one of the businesses that they represent for sale, but they most often take a retainer for doing that. So, every month you’re going to pay them a certain amount of privilege of being on their website, and sometimes they actively market your business, but they’re going to help you understand why your valuation is X and present your business in the best possible light. They’re going to take a percentage much smaller than the M&A Advisor at the end of the deal, but you’re going to pay that upfront cost so that they’re compensated for all the work in helping you get ready to go to market. So, you might get a valuation from them of five million, but you have to make a bunch of changes. Maybe you’ll get to six million. The M&A Advisor will tell you you’re worth five or ten million and sorry we’re not going to work with you. Neither group is going to tell you why or what to do to make the changes that would elevate your valuation, which is only one part of the formula. The other part of the formula is going to make you attractive to your ideal buyer, and you’ve got to solve for both. That’s why it’s so important to recognize that if your accounting firm says, “we’ll do an evaluation for you and you’re worth seven, we’ll stamp it, put it on our letterhead.” – that doesn’t mean that you’re going to find a buyer that’s going to give you seven million dollars. There are lots of companies that get valuations and will never find a buyer because they’re not sale ready, and the M&A Advisor needs sale-ready companies. The business broker tries to help you become more sale ready, but they can only sell what is of value to the buyer and this is a key point. Value is in the eyes of the buyer. So as an owner, you have to recognize that and stand in their shoes in order to detach from your disappointment that you didn’t get the valuation you wanted. And yes, it is your baby, you want people to appreciate and acknowledge all that you’ve done to build this up. And when people don’t give you the number that you’ve become attached to it’s crushing.

 

Rob Wallis:

So, is it ever too late to do anything about this?

 

Lorraine McGregor:

It is always possible to turn a business into a sale-ready company, but you need to consider a few prerequisites. One – you still need to have the ambition to increase the valuation of your business. Two – you have to be willing to make the changes and adjustments in how you run things so that it becomes sale ready. Three – I think you have to examine your tolerance for risk. Making a few adjustments, spending another year in the business, and writing about the next economic cycle. Do you have the fortitude to go through that? Some people don’t. So, I think it’s a personal decision about how much energy you’re willing to put into something or can put into something so that it can become sale ready. And of course, just being sale ready doesn’t guarantee you’re going to get a buyer, because as we saw at the start of this podcast, only a few thousand companies sell each year. So, your ambition has to drive you through the ups and downs of playing the M&A game, and it’s quite the rollercoaster sometimes.

 

Rob Wallis:

So, turning back to the baby boomers and the anticipated transactions over the next 10 to 20 years, there are instances where people cannot find buyers and end up going to shut their companies down completely.

 

Lorraine McGregor:

I think that’s happening all across North America. As owners age and they want a smoother life for themselves, their revenues are flat, maybe key employees are starting to leave because they don’t see the company growing and there are other opportunities out there. I think that companies are closing all the time and buyers are wanting companies that are more modernized, more agile, that have automated, that have a higher quality of revenue, that have transitioned from just providing services to adding more value, creating recurring revenue, creating other sources and ways of being of service to their target markets. So, if a company hasn’t evolved it kind of runs out of steam at some point.

 

Rob Wallis:

So, it just closes down and that’s that?

 

Lorraine McGregor:

Yes, that’s happening everywhere.

 

Rob Wallis:

Any stats on that?

 

Lorraine McGregor:

I do not have those stats. It’s mixed up with bankruptcies, so their stats on bankruptcies, but not companies that have closed in any easy-to-grab in a way.

 

Rob Wallis:

Got it. So, coming back to the not happy with my business valuation. What do I do? What would be the key advice that you would give that person?

 

Lorraine McGregor:

Well, the key advice is to talk to someone like us who can explain what’s going on behind that number. Why is that number as it is deconstructing what red flags created the lower valuation and also with green lights? What good things? What X factors have built the valuation up? In light of who the potentially ideal buyer is. So, that starts the process of helping the owner understand the dynamics of the marketplace so that they begin to see their business in a way that a buyer would and start to go thinking “Okay, if I improve profitability, or if I went into this market, or if I had someone who was running the area that I run and we offered some new data or a new service to our customers to help them solve a problem, we’d suddenly be of interest to a buyer”, and when we start to have that conversation what I notice is owners start to get excited because they may be run out of ideas on how to grow to the next level. So, we inject some enthusiasm, some potential, some hope tempered with how much risk and ambition the owner has, and they can see an endpoint, they can see how the games played, how they get from a valuation of ten million today to the fifteen million they actually want. And now they see all the steps in between. So, this is what we do we work with an owner and if they are unhappy with the current circumstance, we create a plan of action. It’s great to know how come it is the way it is, but now how do I fix that? And since we’ve been doing this kind of work for the last 20 years, we’ve mapped out a whole lot of processes and the inside information on this is every business, no matter whether it’s a tax or traditional has the same issues that make them unsaleable. So, we have processes that are designed to solve problems and it doesn’t matter what kind of business you have. They’re the same log-jams, the same frustrations, and the same way of organizing things that make it difficult for someone else to step in and take over.

 

Rob Wallis:

So, with everything in our world and the conversations we have with clients this occurs to me as being quite similar to tax planning, for example, or financial planning in general. It takes many years to put the right programs in place to get the desired outcome and everything has to work together to produce a really good outcome for somebody in the future, and it’s ultimately patience and taking their advice.

 

Lorraine McGregor:

Well, very well said – patience and taking advice, and taking action. We’re the kind of company that doesn’t let you just run away with the salability blueprint. We didn’t want to sit down and break it down into projects because as we all know we all have full-time jobs and changing your organization on top of the work of running your functional area in the business, it’s like having two full-time jobs. So, the project management of organizational change projects is where we sell. So, that is where you start to see results and that’s crucial. No action, no result.

 

Rob Wallis:

Got it.

 

Lorraine McGregor:

I think the other thing that you said that I really liked is that we tend to hope that there will be a plan, that our lifestyle business will turn into a saleable asset at some time when we’re ready to sell. But the truth is that buyers are looking when it suits them, not when owners turn a certain age, not if they’ve planned or not planned for that kind of outcome. So, to count your company as an asset before you’ve made it sale-ready is a recipe for disaster. And as you know, for example, VELA is a wealth management company, and helping them understand that this company is not going to give a better return unless they make it sale ready, is kind of crucial to that planning process.

 

Rob Wallis:

So, sounds like lots of preemptive work needs to be done. Thank you for sharing that, Lorraine.

Just before we wrap up, could you share a little bit more about a cool project you’ve got coming up that helps business owners find answers to the question that we posed today, which is what to do with an evaluation that they’re not happy with?

 

Lorraine McGregor:

Well, we are about to launch something that we call the Scalable Saleable Business Formula, that’s scalablesaleablebusiness.com. This is a program where we will help you in a five-day period understand why you have the valuation you do, and what things you can change about it so that you can actually get the valuation you really want. It’s a report that gives you a deep dive into what to do to make the change happen. We also have a longer program where we can train one of your people to make those changes in the business. So, we won’t just hand you the salability blueprint will show one of your top team members or you how to go and implement those changes.

 

Rob Wallis:

Cool, it sounds very exciting!

 

Lorraine McGregor:

It is! It’s the first time that we’ve offered this on a much larger scale. We generally work with five or six companies at a time, and with this program, we’ll now be able to work with a lot more. And get the word out that if you really want in return on investment from all that you’ve built in your business, now it’s the time to do it, and here’s the plan to go out and play the M&A game to win.

 

Rob Wallis:

Great! Thanks, Lorraine. Great to have you on today and all the best for the new project.

 

Lorraine McGregor:

Thank you, Rob. I really appreciate the time and attention. Great questions. Thank you.

 

In this podcast, Som Seif, a prominent figure in the Canadian financial services industry, discusses his background and journey to success with Jason Boudreau. He shares his experience immigrating to Canada as a child, his initial aspirations to become an architect, and his path to discover his true passion.

 

 

About the Guest – Som Seif

CEO of Purpose Inc.
CEO of Purpose Unlimited
Som Seif is the Founder and Chief Executive Officer of Purpose, which he formed following the sale of Claymore Investments to BlackRock Inc. in March 2012 and the Co-Founder of WealthSimple Technologies Inc. Prior to Claymore Investments, Som was an investment banker with RBC Capital Markets. He has a strong commitment to community and is currently a member of the AGO Foundation Board, Next Canada Board, and UofT Pre-Campaign Committee and Mechanical and Industrial Engineering Advisory Committee.

About the Host – Jason Boudreau

Jason has built VELA Wealth into an established life and estate planning firm, guiding families as they make meaningful choices at the intersection of life and wealth. Jason’s areas of expertise include intergenerational wealth transfer and estate planning with a focus on advanced insurance-based solutions that incorporate philanthropy and legacy planning. Leveraging these specialties, Jason brings a fresh perspective and outside-the-box thinking to the strategic planning process. To read more, please visit the VELA team page.

 

The episode is also available on:

    

 

The Podcast Transcript

 

Jason Boudreau:

Welcome, everybody to the Polestar Podcast by VELA Wealth. We are honored and excited to have Som Seif – entrepreneur, extraordinaire and well-known guy in the financial services industry in Canada. Looking forward to having a great dialogue with him. Welcome Som, thank you for being here.

 

Som Seif:

Well, thanks for having me, Jason.

 

Jason Boudreau:

So normally these podcasts go as a nice open conversation, but one of the things I was hoping we could do today is get a bit of background on you. I want to understand where you came from, where your family came from and how you ended up in Canada.  I love sharing the entrepreneurial journey but also interested to know how someone’s family life originated in Canada. So, why don’t we start the story and then dial up from there and then we’ll move it ahead.

 

Som Seif:

Sure. I think that a large part of my actual background story is a large part of the character of who I am, as I’d say most people are.  My family immigrated to Canada when I was three from Iran, just around the time of the Iranian Revolution. As we fast forward to the world that we’re in today there are a lot of correlations to that time, of course, in a different way and I think it’s an interesting time to be reflective of the last 40-plus years in the world, in the Middle East and of course, in Iran. My family moved to Canada, and it’s an interesting story actually. I asked my parents about a decade ago what it was that made them come to Canada. And it’s an interesting story because my father was studying for his master’s degree in England. I was born in England. We moved back to Iran, and he originally wanted to stay in England and his professor told him, “it would be stupid for you to stay here. You’re a Middle Eastern man and we are in the 70s in the UK. This is not a progressive society for someone like yourself.  You should go to a country that is more welcoming–a country such as Canada” and so that led to him applying to do his PHD at York University and coming to Toronto, Canada. We immigrated a year after that, in 1980, and I’ll tell you, it was one of the greatest decisions my family ever made, but most importantly, one of the most important decisions in my life that I didn’t make because that single decision changed the probability of success for me and my family by 100-times.  I’m a big probability guy. I’m a math guy and I look at life based on very, very specific factors. If I think about where I’d be if we hadn’t made that move, if we lived in Iran versus where I am today, would be in the top quartile of opportunity in my life relative to anything else. It was really powerful to grow up in Toronto.

When I was growing up, I always wanted to be an architect. It was my dream, and you know the reason? I have a very creative mindset. I loved the idea of building and designing, and it was something that applied a lot. I mean basically, from the age of eight I had always had this focus and it was interesting because when I had to make a decision about where to apply to go to school, I went and spoke to a couple of well-known architects in the Toronto Area and they all said to me don’t do it. It’s not going to be the job that I think it is and they all said that I won’t make any money and I didn’t grow up with anything.

My family provided extremely well for me and I’m very proud of that, but I always had this great ambition of making lots of money. It was actually the thing that really drove me. At least that’s what I thought. So, that led me to question becoming an architect. So, instead I went into Engineering at the University of Toronto. Very shortly thereafter, I made the decision to pivot to more of a business path. I went to work at RBC Investment banking in 1999, just in time for the tech bubble. It was one of the most exciting, crazy nine months of my career. I did more in the first nine months of my career than I did for the next two years. Frankly, it was quite amazing, but it was an unbelievable experience for the next number of years. I worked at RBC for six years and really applied myself. Then, I just started to ask myself, whether this was what I wanted to do? I remember the big moment. I was 25 years old, and money was one of my priorities at that point. I was starting to make really good money for a young kid, and I remember coming home one night at two in the morning, which was the hours I was normally working…

 

Jason Boudreau:

Investment bankers hours, right?

 

Som Seif:

Right.  I sat on my bed, and I said to myself “I’m not happy”. It’s not that I wasn’t enjoying what I was doing. It was that I wasn’t happy because I had pursued all of this with the singular goal of making money. And now I was making some money and I was on the path to making lots of money and I didn’t feel like that was the right goal. I did a lot of soul searching. I had to step back and say “Ok, what is it that I really enjoy?”. I still enjoyed waking up Monday morning and jumping to work and doing the things I was doing and what I realized was the thing that really made me happy was the thing that made me most excited. It was seeing my ideas progress, seeing things that really materialize and being a part of progress in a really meaningful way. And if I actually go back to what I loved about being an architect, it was the idea of seeing your efforts result in something that you actually physically touch and see. This was appealing to me. So, I had to step back and think about what I really wanted. Then I needed to apply myself in a way that was going to allow me to see my ideas flourish. I realized I wanted to build something. So, I sort of decided I’m going to leave at some point. I decided that if I’m still in this seat at the age of 30, I’m going to walk in on my birthday and I’m going to resign. And that gave me a date and I had to solve this problem of what I was going to do next.

Anyways, before the age of 30, that day came. It came at the age of 28, when I decided to break off and start my first company. I started a company called Claymore. At the time I had no idea what I was doing, but I had a really strong mental model and vision about how to build a better asset management firm. I advised a number of firms over the last number of years and got into what was happening in the industry really deeply. So, I believed there was an opportunity, and I built Claymore over the next seven years to become one of the most important financial asset management firms in the Canadian marketplace. It really changed the way the industry looked at asset management, specifically about fees, transparency, quality of investment strategy, and all the rest of it. I think we did a really cool thing, but I had a partner and the partner wanted to exit, so we ended up selling the company to BlackRock in 2012 and that gave me another moment to step back. I was 35 years old, and I had to ask myself what I wanted to do next? So, I decided that I wanted to do it again, but I had a bigger vision for the industry including asset management, wealth management and around financial services and banking. I went back to do it again. I started Purpose a year later and I also co-founded a firm called Wealthsimple We’ve been effectively executing over the last nine years across multiple areas of financial services trying to really drive innovation on behalf of Canadians within the industry. I’m really proud of what we’ve been able to do over the last little while.

 

Jason Boudreau:

Som, thank you for sharing. I learned a lot about you! I thought I knew quite a bit about you, but I really appreciate that background on your story and I know a lot of Canadians share a similar story, where they immigrated here at some point and really made something of being a Canadian and then the next generation, like you have recognized that and taken it to a whole other level. It’s just always really neat to hear that. So, I appreciate you sharing it.

 

Som Seif:

It’s actually quite amazing. I think of myself as someone who’s comfortable taking risks as an entrepreneur, but I’ve really gone through this journey of thinking about those who, either by their own will or, of course, through being forced to go away from the world that they know, friends that they grew up or their family, and move to a brand-new country, often times not able to speak the language or don’t know the culture and don’t know anybody. And they have to integrate into that society, build a life – that to me is risk. And I’m so amazed by this journey that people go through, and what they do, and, of course, Canada is an amazing destination for immigration for people around the world. Well, I’m encouraged, and I’m always inspired by it. I hope that Canada continues to really drive to be the best place in the world, to drive immigration because on behalf of those individuals it’s about creating an environment that only helps our country in the long-term. It also helps those individuals really be a part of a society in a meaningful way.

 

Jason Boudreau:

Totally, it is so important for Canada’s future to have strong immigration. I remember listening to Darrell Bricker’s book last year called “Next” and he talks a lot about the fact that without immigration Canada has basically a net zero new job growth and we need people to come here to help Canada grow and continue to be competitive globally. So not only is there the opportunity, but there’s almost a necessity for us as a country to welcome immigrants and their skill sets.

 

Som Seif:

I agree with that, and I actually think that it’s not only the future that is critical, but actually we don’t have to look much further than what we’ve gone through in the last 23 years. One of my theses around this is that if you look at the US, the US has been winning economically by driving a really strong strategy around IP ownership. If you think about the history of productivity, it was always around, call it physical manufacturing, economic growth and over the last 20 years we’ve seen such great progress on intellectual property and intellectual capital growth and the US has been winning that game against the players around the world. I’ve tried to deeply understand how Canada has been able to maintain a level of growth given that we don’t have the same strategy on the IP side. In fact, we’ve actually had a lot of our IP taken by the US in many ways, but I would say I think immigration has been one of the key driving forces for us being able to keep up with the economic development and growth that the US has been able to achieve. So, I think this is one of our strengths and I think it’s critical for us unless we do have to get our IP strategies right. We also have to continue to drive immigration for demographic reasons obviously, and also just for economic development and growth.

 

Jason Boudreau:

No doubt. I totally agree with that. One of the questions that I wanted to ask you is about your journey with Claymore and then selling that and then obviously starting Purpose. You’ve sort of alluded to it a little bit when you said that Purpose is almost a second chance in the same industry, that you took what you learned from Claymore and take it to the next level where you’re at now. Would you do anything differently if you went back again? Let’s say on the Purpose side, would you do anything differently in the past than you’re doing right now?

 

Som Seif:

So, one of my fundamental beliefs is that we shouldn’t have regrets in life and I actually don’t. Especially when it comes to business. Every decision that I’ve made in history, right or wrong, has been for reasons that were in the moment, and I think it’s important to go back and reflect on the decisions and whether or not you made good decisions or poor decisions.

I do that as often as I can. So, that I can learn from that, but I don’t actually ever look back and say “Oh, I wish I’d done that”. I’ve done that and I think having regret in your life is having an anchor. So, I’ve always believed in that and when I look at it, I’m very proud of what we’ve been able to accomplish with Purpose, but I wouldn’t change a thing because I think where we are today is a really good place. I think where we’re going is really exciting and really, what I hope is that every decision that I’ve made that has been a poor decision over the years will help me make a better decision in the future. I think that’s really the way I try to apply that thinking, so I don’t think I’d do anything differently. I think the only thing that I actually regret, was missed opportunity with my interactions with my wife and kids rather than on the business side.

 

Jason Boudreau:

Yes. I hear you. Well, let’s pull on that family thread a little bit because I know you’ve got a big family. You have four, right?

 

Som Seif:

Yes, that’s right.

 

Jason Boudreau:

That’s crazy. I mean I’ve got three and that’s crazy as it is, although I know my wife would love to have another one. Tell me about the background of how you guys decided to build such a big family.

 

Som Seif:

Well, I grew up in a very loving home. I’ve thought a lot about my upbringing, my parents were wonderful individuals who showed me love every day, very highly demanding but a lot of support, which is a very important thing in life. I also had a wonderful brother and older brother and then we had the benefit of my cousin who was my brother’s age living with us and so we grew up in this really interesting dynamic. My mum’s twin sister lived with us, so I had like two moms, two siblings and my dad, so our house was full. It was always something that made me feel joy. So, when my wife and I, who I’ve been with since we were teenagers, were planning our lives, we didn’t really plan at all. We both really enjoy a full house, we enjoy a full life, and we love kids and frankly, to your point, I would love to have many more.

We have four and we’re really happy with that, but every single time I see a baby, I always think that it would be great to have another one and they’re wonderful. My life has changed with them. I used to work non-stop most of my career and then we had our first child and I’ll tell you – your personal perspective changes you. All of a sudden, you become accountable to somebody else, you have a different perspective on priorities and what’s important. It’s been amazing, but I will say that even with that, it took the pandemic to open my eyes up to the importance of being more present regularly. I think all of us have taken the pandemic to teach us really important tricks about life and business, but one of the things I think it taught us is the importance of being present and slowing down. I think that’s been the trick that I’ve been learning really, really, deeply and it’s been exciting to build my new life, structured around my family, around the business, around the way that I want to still work at a highly competitive level. I want to accomplish amazing things, but at the same time balancing much more of the presence and time that I want to be with my family and my kids.

 

Jason Boudreau:

Yes, that also resonates with me. Just recently, I was saying the same thing to somebody that I was at more family dinners in the last two to three years that I have been in the past 12 years. It’s like one of those things where your family is your priority. And then at the same time it’s the easiest to take for granted, and it’s one of those things where the pandemic just kind of hit you square in the face and showed you your priority, right? And I’m very grateful for that happening. To your point, I’ve been totally rebuilding the way I do life and business since then to make sure that presence is there in my life with my family as much as humanly possible.

 

Som Seif:

I think that’s great, and you said the word “grateful”. I think it’s an extremely important word in our lives that we all have to make sure to implement in our day-to-day routines – what we’re grateful for. What I think about life in general, the thing that drives me is that I want to get to a stage where I don’t want anything. I think we always get all these cycles where you want this, or I wish for that. I had that and I think one of the things I’ve been trying to learn a lot more about is being grateful for what I actually have and reflecting a lot on the life that surrounds you today. To me that is very deeply important to have happiness in life in the long run. So, I think this is a really important thing and to your point around dinner – I used to never be home during the week for dinners and in my first business with Claymore I never used to be around even on the weekends, frankly. When I started Purpose, I made a certain set of rules around being home on weekends. I didn’t work on weekends, I made that a set discipline, but I still was Monday to Friday pretty much never home, I’d be at the office until 7:30pm or 8pm or later and I would rush home to tuck the kids in and give them a kiss and that would be the night. And during the pandemic we spent every night together for dinner and I have made that now a rule that I want to be home four nights during the week as well as the weekends having dinner with my kids. And even if that means I’m going to do a call after dinner or whatever, it is that important thing of not being absent for what I think is the most relevant period of my kid’s life in just that family time of being around the table, debriefing on your day and just being there.

 

Jason Boudreau:

What are their age ranges?

 

Som Seif:

So, our youngest boy is just about to turn 7 and then we’ve got three girls that are 9, 12 and just about to turn 14. So, it’s a wonderful age. I’m sure it is the same with your kids, where the baby is not a baby anymore and is not yet a teenager in a meaningful crazy way and we’re just having such a blast with them. They’re the other personalities. They’re fun to be around and they’re funny, really funny.

 

Jason Boudreau:

Yes, totally. We have two boys and the youngest girl who is turning 7 on December 27th. She’s so confident and getting a little sassy, sort of chuckle. It’s fun to watch and just see their expressions and the neatest thing is we just got the report cards from school and all their teachers said how much they love having them in the class, how great they are, how much they participate and they’re so inclusive. So, all these values that we’re trying to instill in them are really starting to show up. I think that’s one of the coolest things for me as a parent, and for Carissa too. So, it’s neat to hear that’s happening for you as well as, especially with the older ones. And obviously, as they get older, it’s probably only going to show up more and more.

 

Som Seif:

I think that’s exactly the case. One of the key beliefs I have that I live my life is this idea that you are the average of the five people you spend the most time with. It’s one of my favorite principles in life and you can apply it in so many ways.

 

Jason Boudreau:

It’s totally.

 

Som Seif:

To your point being a parent specifically is a very stressful job, especially for people like you and I that attack our jobs, we attack our lives with discipline with focus, and when we don’t know something, we learn it and then you get sort of thrown into the deep end with having kids, which is sort of like… I’ve never done this before.

 

Jason Boudreau:

Figure it out, yeah?

 

Som Seif:

…and learning as we go. The only experience I have is watching myself growing up with my parents. You are constantly asking yourself if I’m good? Am I going to be a good parent? Am I going to do the right things? Are my kids going to be okay? Am I teaching them properly? Now people talk a lot about values and they teach their values. To me, this is a really important principle. Your values are being exposed to them every day, you are exposed to them every single day, and so if you’re a good person, if you’re the type of person who believes in the right things and acts in the right way, treats others people with respect, grateful for the things you have, then your kids are going to learn that because they’re seeing you every day, they’re watching you, so they’re learning from you. I believe that for the first 12 years of their lives it’s about you and your spouse. After that it becomes about their friends and who they spend the most time with, and those people are the people who help them grow up to the next level of maturity. So, there’s only so much we can do up to that stage. But I do think that presenting a set of values to them every day…  and it’s not about what you say to them, it’s what you do. I’d say it’s the same in your life with your team at work, it’s the same with your friends, it’s the same with everything that you expose yourself to and it’s so critical that you see that. It brings to the concept that if you want to be great, hang out with people that are great. If you want to learn how to play guitar go and join a guitar club, you want to do really smart things around math go join a math club. The people you hang out with are the people that are going to influence you to learn the skills and do the things you’re going to do and the characters that you want to ultimately develop.

 

Jason Boudreau:

Wise words! I just wanted to pull a little bit of this sort of gratitude and give back a little bit. One of the things I love talking with entrepreneurs about is their value set around being a contributor, giving back and it’s one thing obviously for us to build businesses and employ people. But then there’s this whole extension that goes beyond that – into the community. I’m just curious to get your thoughts or your philosophy around philanthropy. How do you weave that into what you’re up to as an entrepreneur, as a family man, as a person? Where do you stand on that thing today and then do you have a vision for it for the future?

 

Som Seif:

It is a really important thing in my life. Going back to my upbringing as being important, I’ve been involved both with my time and my energy and money in different organizations to help and give back to society for a long time. It’s something that I believed in, and I’ll give you a story there. I’ve thought a lot about this as my parents came to this country, I’m again very grateful for the opportunity that Canada has given me and so I feel this sense of duty to give back to this country, to my community, to help people around me be better off and to support them in every way possible. It’s just something that is ingrained in me because I feel a level of thankfulness and gratefulness to everything I’ve been given.  I’ve always kept a very busy life sharing and having a social life and a deep career and all the things that have been going on. I’ve always in my life made time for giving back to really important parts and things I’m passionate about. My first interaction with this was in my second year of university. It was a crazy time in engineering and all these things going on in my life, I constantly had no time, but I went out for pints with a couple of friends and one of my buddies who I went to high school with came late and I asked where he was and he said “Oh, I was out with my little brother”. And I said you don’t have a little brother, what you talking about? He said he is a volunteer with Big Brothers. I started asking about it and then I sort of went away that night and I asked myself “Am I doing enough?”. The next weekend I signed up for Big Brothers and became a Big Brother and that taught me so much. I balanced it in my life and people would ask me how I’m going to make that work and I just did it. It taught me so much about giving and getting as an individual. When you give, the importance of it and the joy of it – and from there on I just started to get involved. So, today I have a deep engagement in many important organizations that I’m very passionate about. I apply myself to them, but I will say that I will do that for the rest of my life. But I will say what I am aspiring to and I’m still building it – it is the most important project of my life – how I can make an impact. Today I know that I try to add value and all the rest of it, but I’m talking about really giving with impact. And I want to apply the same rigor and entrepreneurial spirit to the way I build businesses, and how I helped try to change the financial services industry, and improve that on behalf of Canadians, to how I can give and help causes that I believe not just in a short-term, with time and money, but actually for the long run to really innovate and help drive outcomes that are meaningful and change society in a meaningful way. So, I’m excited about that. That’s my next big project. My wife and I have spent a lot of time talking about how we will start to pivot our minds towards that as a core, and I haven’t sold it yet, I’ve got lots of ideas. I’m really energized by getting to it, I’m excited, but we haven’t solved it yet.

 

Jason Boudreau:

That’s great. It’s so neat to hear that you were a Big Brother. I joined Big Brothers in 2008 Carissa and I worked together at the time, but she was living in New York, and so we did a couple of years long distance. I found myself thinking the same things as you just saying. “Am I doing enough?” And then someone introduced me to Big Brothers. I had all this time because I wasn’t in the dating scene and I had my soon-to-be wife living in New York and I said, you know what? I’m going to be a Big Brother. I have two younger brothers, but this was obviously a really important thing for me outside of the family, and I ended up being matched with my little brother and we had a 5-year official match from 2008 to 2013 and they gave us this award for long standing match. We’ve kept in touch ever since. Even though we officially kind of left the Big Brothers program, we’ve kept in touch, and it’s been really neat to see his life grow and I got to know, obviously, his mom really well and it was just such an impactful organization. I think the work they do in the community is so phenomenal that it’s really amazing to hear that you were also a Big Brother.

Just to wrap up the dialogue here, I wanted to ask you about sort of giving back impact. If you’re talking to the next generation, let’s say you’re talking to your kids about this sort of subject. This is something that Carissa and I talk to our kids a lot about, because obviously we recognize that there’s certain privileges that they have in their life that we didn’t have and we want to give that to them, but at the same time recognizing that there’s a responsibility to give back to the community. Let’s say you’re talking to your kids or a younger generation. What would you share with them about the importance of giving back and how to go about it in their lives today.

 

Som Seif:

I think it’s about showing them the joy that comes with it. I go back to the statement I made earlier about your actions, the things that you do every day that they are watching. They see all the things that you do and how you feel about it and how it makes you happy or not, and the impact of it. I think that’s the best thing you can do with them is showing that. When I was growing up, I didn’t have lots of stuff. All I had was my dreams. In many cases I’ve taken away some of those things from my kids because they grow up in a different life setting and many things that they have in their lives or they’re very fortunate to have. We have to find different ways to inspire them to be something greater than what they are today in many ways. I talked earlier about wanting to learn how to be able to give with impact…I think the passion that goes into that is something that we’ll teach our kids because they’ll watch us, and I think it is the best way of learning through being in your own actions.

When I look at my kids, to me the most important thing is to always be developing and learning. I have this belief that life is you versus yourself 12 months ago. All other competitions are crap, it just doesn’t matter, right? So, this idea that people should be worrying about how they are relative to somebody else doesn’t matter. It’s about how you have progressed as an individual over the last 12 months or the last six months or whatever benchmark you want to judge yourself by. If you, as an individual, think that way, you’re just going to get stronger. You’re going to get better. You’re going to do more. You’re going to feel more accomplished. You’re going to attack your goals, and I think that’s the most important thing I want to teach my kids. I think it’s a really powerful way to think in life.

 

Jason Boudreau:

No doubt, that’s great. I just finished listening to Dan Sullivan’s latest book called “The Gap and The Gain”, and that’s exactly the message. The natural human instinct is to measure ourselves against others and against some horizon that we’re really never going to get to. It’s truly a horizon. However, if we look back and measure ourselves against how far we’ve come, that’s where we get fulfillment, that’s where the gratitude comes from, that’s where that energy and that desire to keep progressing comes from. It was just a really neat reminder about the importance of acknowledging growth from the past to today versus trying to just keep growing and growing and growing without knowing where you’ve developed from.

 

Som Seif:

That’s right, it’s a great way to think about it.

 

Jason Boudreau:

Well, why don’t we wrap it there? I mean, this has been such an awesome juicy conversation. I really appreciate you taking the time in and thanks for opening up and sharing about your journey and your family’s journey. And speaking of gratitude, I am really grateful for the relationships that we’ve built over the last 5-6 years, and certainly excited to see where things are heading.

 

Som Seif:

Well, thanks Jason and I feel the same way. It’s a real joy to watch you and the way you think, the way you act and the way you have built a great practice in supporting your customers. What makes me excited about what we do every day is supporting entrepreneurs like yourself. So, it’s a real joy to be a partner of yours?

Jason Boudreau:

Thanks everyone for tuning in to the Polestar Podcast by VELA Wealth and stay tuned for our next guest next month. Thanks everyone.

In this podcast, Keith Allan of Harness Investment Management and Rob Wallis discuss positioning for portfolios and investment markets over 2023. They go through the current themes in asset allocation in portfolios given the current economic backdrop and what may happen in the coming year. They also discuss the recent talk around interest rates and the effects on growth and returns in the coming twelve months.

 

 

About the Guest – Keith Allan

Keith Allan is a Portfolio Manager with Harness Investment Management. Harness has engaged in a strategic partnership with VELA Wealth and provides discretionary portfolio management for many of VELA’s clients. With more than 15 years of buy-side investment management experience, Keith brings a wealth of knowledge and experience to provide insight and guidance to clients regarding their investment portfolios. At Harness, Keith is responsible for developing and maintaining investment portfolios for VELA clients. Keith is dedicated to fostering long-term relationships with high-net-worth individuals and families by providing a clear and transparent vision to help them achieve their investment goals. To learn more, please visit Harness Investment Management team page.

About the Host – Rob Wallis

Rob Has provided senior financial planning and advice to VELA clients for over 15-years. He 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. To learn more, please visit VELA team page.

 

 

The episode is also available on:

    

 

Disclaimer

The information expressed in the podcast is designed for general informational purposes only and is not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.

 

The Podcast Transcript

 

Rob Wallis:

Welcome to VELA Wealth Polestar podcast. It is a pleasure to be interviewing Keith Allan from Harness Investment Management. Today we’re going to be talking about positioning, not predictions, for portfolios and investment markets over 2023, and we are deliberately not seeking a prediction from Keith as we don’t want to hold him to it. That said, we’re aware that lots of predictions do not come to fruition, so hence the title of this podcast is “Positioning, not predictions.”

So, with that in mind, Welcome Keith! What themes are we currently seeing in asset allocation in portfolios given the economic backdrop? What may be happening this year?

 

Keith Allan:

Well Rob, thank you again for having me. I certainly enjoyed the last time you had me on and I feel fortunate to be back.

Yes, positioning, not predicting. It’s always tricky to predict what’s going to unfold and manifest in capital markets, so I think giving clients and folks out there a better idea of how we have positioned ourselves would be certainly appropriate. With respect to the asset allocation, fundamentally, our position hasn’t changed over the last 18 months. For us at Harness and for the work we do with VELA clients, I think you would agree that our position has always been the same–that diversification is a key. We are a big believer in positioning clients’ portfolios with a mix of equities, fixed income, cash, and alternatives, and that hasn’t changed.

How do we tilt those asset classes, have perhaps evolved over the last 18 months. I think given the current economic climate, we’ve been more aware of using alternatives and real asset classes to a higher percentage, certainly being aware of what’s going on in the fixed income environment and how those assets have certainly underperformed, and what types of equities we’re holding. But we still believe in those four main asset classes, and we still make up the bulk of our portfolio allocation.

 

Rob Wallis:

So, lots of talk recently has been around interest rates and it’s super interesting to see higher interest rates again. It’s been at least a decade since we’ve seen any meaningful returns in cash as an asset class. We’ve always believed cash is an important asset class to hold because it provides opportunities to people to seek returns for that. That said, obviously, we’ve got inflation that’s driving higher interest rates to an extent. Given that backdrop now that we can see some meaningful returns, for example through the cash product that Harness has, how do you see interest rates affecting growth and returns in the coming 12 months?

 

Keith Allan:

I think that’s a great point, Rob. We are actively marketing and saying that cash is asset class – a true asset class now because you can use cash to get a yield north of 4% – 4.5% in some cases, which is meaningful for clients, especially those that want to keep their cash available and keep that dry powder available for opportunities. So, we are using cash as an asset class. We highly encourage it for clients, and the purpose of high interest savings we use for our clients as a cash position is yielding north of 4.5% right now. So, it’s certainly appropriate for those that want to keep cash now. With the second part of your question – with respect to interest rates and fixed income assets – everyone knows that as interest rates rise, fixed income assets fall. It’s an inverse relationship. We can spend the whole podcast talking about how and why that works, but folks don’t want to hear that. But the reality is, that’s what happened. So, as we’ve seen, interest rates have risen over the last 18 months, the capital depreciation of fixed income assets has taken place, and we’ve seen fixed income assets, most notably bonds, decrease in value. So, the question is then how do we utilize fixed income as an asset class? I think people have to understand that we use fixed income as a hedge in our portfolio. So, fixed income is not built into the portfolios to attract meaningful gains and show tremendous amount of capital appreciation, because that’s not what it’s there for. It’s there to provide a hedge, and yes, the assets have decreased in value, but over the long-term fixed income will do its job by providing a hedge against equity volatility and other volatility with alternatives. It’s there to provide us Gettys distribution of income in the form of the coupon, the bonds pay, and in most clients’ portfolios, those ETFs that synthetically hold the bonds or capture the bonds and pay out the distributions. So, while the assets themselves have decreased because of the rising interest rate environment, we still see them as a significant part of our portfolios, and we’ll continue to be that hedge against equity volatility. I think there was the third part of the question was what about interest rates? Well, certainly seeing interest rates rise to unprecedented levels over the last year and a half. It appears now that those interest rate hikes are on the path to stability. I don’t think, and in my estimation, we’re going to see the 100-basis point or 75-basis point hikes that we saw in the middle of 2022. That being said, it’s looks like there’s going to be 1/4-point hike here in Canada over the next couple of weeks. I can’t say for certain if that will be the last one or if we might see another quarter point hike in March, but certainly I think the days of drastic hikes in interest rates are potentially behind us.

 

Rob Wallis:

So, has the Bank of Canada achieved its mandate to control inflation?

 

Keith Allan:

I would say absolutely. It’s on the path to achieving it. I don’t know if it’s actually achieved it yet. I read today that the inflation rate in Canada has fallen to 6.3%, which is significantly lower than the north of 8% it was in mid-2022 or in third quarter of 2022, so it’s down to a level of that while still high, I think more in line with the expectations the Bank of Canada would like to see. So, in that way, it’s working. I don’t think it has achieved it yet, which is why I still feel like we may be in line for a 1/4-point hike here at the end of January. It’s a lengthy process, it doesn’t happen overnight as people have seen in a very painful way. But it’s getting there, and I am of the belief that if we were to have this podcast 12 months from now, we would look back and say that it has gotten there, it’s just going to take some time.

 

Rob Wallis:

All right. So, in terms of interest rates and how long they’re going to stay where they are, what are your thoughts and how that’s priced into asset values?

 

Keith Allan:

Well, I think about what we’ve seen here since the calendar flips of 2023, so the first two and a half weeks of the year we’ve seen a nice little bump, a nice little rally in capital markets, and I think that’s indicative of the fact that people feel like the worst is behind us, that we are now in an environment where there might be a small rate hike. But there is a higher probability of interest rates staying Status-Quo for the rest of 2023, then there is a significant rate hike. So, when that sort of filters down or cascades down in the economy, people become bullish in the sense that if interest rates have plateaued or if at some point over the next 24 months they might start getting cut that provides an environment for growth and  the sectors we saw really sell off like technology that are highly interest rate dependent, those types of names or securities or equities will show the most growth. We’ve seen that here in the first two and a half weeks of the year when the market has rallied. I’m reluctant to call it a bear market rally, I’m reluctant to call it a new bull market. I don’t think there’s any term for it. I think it’s just a matter of sentiment amongst consumers and investors that think that the worst could be potentially behind us and there could be a climate for growth here in the next six to eight months.

 

Rob Wallis:

So where is the capital heading right now?

 

Keith Allan:

Do you mean what asset class, or do you mean just in general?

 

Rob Wallis:

What asset class?

 

Keith Allan:

Well, we’re starting to see money filtered back into equities, which over time, equities have empirically proven that they are the best performing asset class out there. Certainly, that hasn’t been the case over the last 18 months, but repeatedly people gravitate towards that asset class. So, I think we are seeing more liquidity in the market. We’re seeing more capital enter traditional equities, but I still feel like people want an alternative, they want the ability to diversify their portfolio via private equity, private debt, alternatives, real assets, infrastructure, commodities. So, I think we are, and we will continue, seeing the capital deployed in those areas as people want to find the way to generate alpha. I know you speak a lot to your clients about that the days of the sort of 70/30 portfolio is an antiquated way of thinking about investing. I see a lot of people feel that way too – you’re not going to gain meaningful returns by just simply saying 60/40, 60 equities, 40-somethings income – set it, forget it, it’s done. It is very difficult to achieve meaningful alpha in your portfolio by doing that. So, for our clients we’re looking to deploy their capital in other areas.

 

Rob Wallis:

Got it. So, what positioning are you taking in alternatives right now?

 

Keith Allan:

That’s a good question, and it’s a great segue into the new portfolio that Purpose Investments has launched. They’re calling it the Alternative Completion Portfolio, or in short form Liquid Alts. This is a portfolio that was launched right before Christmas, and one that we’re beginning to put clients into, where appropriate of course. It’s effectively a portfolio that allows clients to gain access to real assets, infrastructure, some hedge funds, commodities, and a little bit of crypto, in a very liquid fashion, in the sense that their money isn’t tied up, there’s no lock up, period – it’s a liquid portfolio. All of its products within the portfolio are mark to market daily and have daily liquidity, but it is allowing clients to gain access to non-traditional asset classes and we’re really bullish on this portfolio. We think it will be a great way for clients to hedge their position, allow them entry into asset classes that they otherwise wouldn’t get without their money managers or other investment professionals. So, that’s one way we’re allowing clients to gain access to alternatives.

 

Rob Wallis:

What about crypto as an asset class? It has been interesting few months there. I’m sure some people are pleased with the predictions that they made in the past about what’s happened. What are your thoughts on crypto as an investment, and if it’s appropriate, what type of allocation would you put somebody in, at all?

 

Keith Allan:

Well, I will go on record, Rob, saying that my position on crypto has changed and I think anybody that reads my quarterly articles, or my quarterly updates knows that I was dead set against it a year ago, maybe a year and a half ago. I wouldn’t say that I’m backtracking on that. I still don’t feel that it is an asset class that has substantial fundamental prospects where it can be something where you want to hold 10%, 15% or 20% of your portfolio. That being said, I do feel that there is a small place for it in a very small percentage in one’s portfolio. In this Alternative Completion Portfolio, for instance, it holds the 2,5% weight. So, I think I’m becoming a little more flexible in my thought process there. No doubt it’s sold off considerably, and we’ve seen volatility in that asset class that would make a lot of people nervous, but it is also showing over the last several years that there’s potential for some meaningful gains there. So, I think having it in a 1.5% to 3% weight in your overall portfolio would certainly be appropriate.

 

Rob Wallis:

As we look to the year ahead, what risks do you see out there that could affect economic growth and stability for Canada specifically?

 

Keith Allan:

Well, I think people are very worried about the recession, whether we’re entering a recession or not. When I look at what the climate is and the current conditions of the economy, I feel like we’re there already. And I suppose if interest rates continue to rise, which again, I’m not so sure they will, that could provide some serious headwinds, but overall, I’m bullish on what 2023 has in store. I think the first half might be touch and go, but I certainly feel there’s opportunity for growth in the second half.

 

Rob Wallis:

For Canada specifically, or overall, for the global economy?

 

Keith Allan:

For Canada specifically. Again, it’s such a commodity driven country, and whether you are for or against energy and crude and oil and all of that, the reality is, oil is such a big part of the Canadian landscape and we’re in a full market for oil. And yes, a lot of that has to do with the war unfolding in Ukraine. When we look at other resource commodities, it’s a good place to be right now – and those stocks are the ones that have been best performing. So, I think Canada is in a strong position and as I said, I’m bullish on what 2023 has in store. I don’t believe we’re in a bear market rally. I think this is the beginning of what could be a very promising year, but I think it’ll take time. It’s not going to happen in Q1, unlikely in Q2. I think we won’t see some meaningful gains until the latter half of the year.

 

Rob Wallis:

Well, that kind of sounded like a prediction case.

 

Keith Allan:

No, no predictions.

 

Rob Wallis:

Would it be fair to say that you’re positioning portfolios to take advantage of any growth that happens and you’re not overly defensive right now?

 

Keith Allan:

I think right now we’re still remaining a little bit defensive. Our cash position is high, we’re encouraging clients to keep dry powder available to keep that cash on hand. As we progress through Q1 here in Q2, our cash positions for clients will probably start to hold a lower weight in cash and start to employ some of that capital elsewhere. We haven’t made any huge fundamental changes to the portfolios post-Christmas. We made a few model changes prior to Christmas. But overall, we’ve kind of stayed the course here and our clients are starting to see some meaningful gains, especially over the last three months. So, I think overall we’ll always look at ways we can improve our clients’ portfolios, but I think our positioning is quite strong right now. As the year unfolds, we’ll look at what tactical decisions we can make to continue to achieve meaningful gains for our clients.

 

Rob Wallis:

Got it, Keith. So, final question, how positive are you that we will end the year in a positive space?

 

Keith Allan:

I’m very confident about it. I feel like the first half will be kind of touch and go similar to what we saw in the latter half of 2022, but I think as we enter the second half of 2023 we’ll be able to see some meaningful advancements in capital markets and as such in our clients.

 

Rob Wallis:

And you’re positioned to take advantage of all of these upsides, as well as protect from any down position.

 

Keith Allan:

Absolutely. You never want to be reactionary in our industry. We want you to be forward-looking; you want to anticipate and be able to act before the market does and I feel like we put ourselves in that position.

 

Rob Wallis:

Awesome. Keith, thank you for your time. It’s a pleasure to have you on the Polestar podcast and we look forward to welcoming you back at the end of the year and we’ll see what happens.

 

Keith Allan:

Thank you, Rob.

 

Disclaimer

The information provided in the podcast transcript is designed for general informational purposes only and is not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.

Join Jason interviewing Mehdi and Barry from Three Shore Development in our last episode of the Polestar Podcast by VELA Wealth. They’re talking about forming a win-win partnership, discipline and planning, entrepreneurship journey, and approaches to dealing with uncertainty.

 

 

About the Guest – Mehdi Shokri

Mehdi is inspired by the desire to create meaningful change through development and is driven by an overarching passion to make neighbourhoods better. He aims to align visually-inspiring environments with sustainable and profitable solutions. To read more, please visit the Three Shore website.

 

About the Guest – Barry Savage

Barry values precision and process. His goal is to take a focused, structured approach to development, and values the methodical process of any project. His passion is to carefully consider all details in order to execute a plan that works for all stakeholders. Inspired by the urban vibrancy of other big cities, Barry is interested in how land use can shape and create homes and communities. To read more, please visit the Three Shore website.

 

About the Host – Jason Boudreau

Jason has built VELA Wealth into an established life and estate planning firm, guiding families as they make meaningful choices at the intersection of life and wealth. Jason’s areas of expertise include intergenerational wealth transfer and estate planning with a focus on advanced insurance-based solutions that incorporate philanthropy and legacy planning. Leveraging these specialties, Jason brings a fresh perspective and outside-the-box thinking to the strategic planning process. To read more, please visit the VELA team page.

 

 

The episode is also available on:

    

The Podcast Transcript

 

Jason Boudreau:

Welcome everyone to the Polestar Podcast by VELA Wealth. Today we have two very special guests Mehdi Shokri and Barry Savage, Co-Founders of Three Shores. We’re going to be talking about their entrepreneurial journey and having them share about what led them to where they are today, and then also some look forward to the future. I’ve had the opportunity of getting to know both of them over many years and watching them grow into what is become a very cool company that we are excited to be aligned with. I’ll turn it over to them to give some background on how Three Shores started, evolved and then we’ll get into some details on the life and entrepreneurial journey.

Mehdi and Barry, maybe just one of you can jump in, or even both of you, and just share about the journey to Three Shores and how it became what it is today.

 

Mehdi Shokri:

Sounds good! Well, first of all, thanks for having us on your podcast, Jay. We’re excited to be part of this. So, just kind of jumping into your question on how we started Three Shores. So, roughly seven years ago Barry and I met. I believe in two instances we were meeting without realizing how connected we actually were, but I was looking for somebody to help me out at the time. I was in the capital market space at CBRE with my role being to facilitate finding development opportunities or investment opportunities on behalf of other clients in British Columbia. I just finished selling a high-rise property and a gentleman who had purchased it really needed the expertise to have someone take him through the entitlement process and basically all the way through to construction. Knowing that it was a pretty unique ask, generally, developers are the ones who going to do that in-house, I reached out to one of my contacts, a well-known individual in the industry who right away jumped and said “I got the perfect guy. You need to call him. He’s just left working for a large developer, so you want to connect with him soon because he’ll probably get really busy fast”. So, anyway, that’s how I got the first introduction to Barry. Coinciding with that, I was helping another client of mine sell a site, Barry was on the other side for a developer who wanted to acquire a property that I was selling. Personally, I am very good at finding opportunities, dealing with capital stock, structuring the deal essentially, and Barry was really the one who’s taken it through the process and got things done to see the development through. We both realized that we’re helping some people make a lot of money and we quickly decided we should be doing this together.

 

Barry Savage:

Well, I think that another thing that kind of made us a good fit to be a company is that we have a really complementary skillset. Going through working for other developers, one thing that I noticed is that you do need to have people who have specific skillsets that complement each other because in our industry you have to know the big picture, but you also have to know really detailed information. I think that’s one of the things that makes Mehdi and I a good pair – he’s let’s call it the big thinker and he can see an overall strategy where we want to go and look at it from say forty thousand feet in the air, and my skills are more on the day-to-day detailed stuff. He can come up with a big picture, but then we know we can execute it.

 

Mehdi Shokri:

And I’ll probably add to that. Speaking for myself, I started in the industry as a lone wolf. I quickly realized the importance of building a team and obviously to grow you’re going to need help. I wasn’t always the best at understanding how to ask for help or facilitate help in my early days. I wanted to take on everything myself. A bit of a control freak–still am, but definitely learned quickly that you have to find the right help. I think what made it also very unique for me, at that point in my career things were definitely on the trajectory to be getting really busy for me, but I still really had a tough time finding somebody that I trust and who would actually get things done. I know I’m pretty much a “gut” guy in a lot of instances, and in a minute, I saw how Barry operated to his point, how different he was in so many ways than myself. I think the key thing for us is that we immediately had a connection of trust in what we were both good at. So, I think that really skipped a lot of the questions frankly around how to find a partner and like go through the dating process, we kind of jumped right in there and started working together.

 

Barry Savage:

Well, the other thing is that we both came from well-established careers, both successful at what we do. So, I think we we’re both comfortable knowing what our strengths and weaknesses are, and that helps when you know what lane you’re supposed to be staying in and that you don’t vary from. That’s always the conflict that you have between partners – you have them varying between what the role is within the company. Without sitting and writing down on paper our roles we both just intuitively know what we’re good at and what the other person’s good at and we let them take the ball and run with it and we don’t try to interfere in each other’s business.

 

Jason Boudreau:

So, Three Shores is two years old now, right?

 

Barry Savage:

We’re 7 years old.

 

Mehdi Shokri:

Yes, we went further after that connection was made. We decided that given where we were, still in inner prior roles, we weren’t going to move slowly and steadily, right? I was very aware of the conflict of sort of wearing two hats – being representative of other developers and capital partners that this wasn’t supposed to be something of the gun where we were just going to start taking on the world. So, after a couple of projects, things started to escalate, and it became clear to both Barry and me that it was time to roll all our activities into Three Shores. So, about two years ago we officially enrolled all of our activities.

 

Jason Boudreau:

So, thinking about where you are at today and what you’ve accomplished over the last couple of years since you really went into this, what’s one thing that you are really proud of that stands out for you?

 

Mehdi Shokri:

I’ll jump in. First of all, I think what I’m proud of is that it’s always a tough decision to form a partnership and create a business and obviously put yourself out there as an entrepreneur, but I think what I am proud of is that we’re very thoughtful about why we did this. We’re not dissolute, we didn’t just say okay, we’re going to jump in and we’re going to be developers now on our own even though we could have our egos to go that route because we had very successful track records in what we did. We definitely wanted this to be done in the right way and we wanted to make sure if we were going to do this, ego aside, we weren’t to become the next big developer or we were copying and pasting all the same kind of formulas that are out there to do in the industry. So, I’m proud that we stuck to that. I mean we were quite principled from the beginning, and I think we continue to have that same intention with everybody we talk to. We want to be involved, we want to be the face of this company and we’re committed to frankly not doing deals over the right partnerships and the right projects that just don’t align with why we did this in the first place.

 

Barry Savage:

Well, I would say the thing for me that I’m the most proud of, and it seems a bit of an odd thing, is I’m actually more proud of the stuff that we walk away from than the stuff that we actually do. I think that goes back to both Medi and I, and our experience in dealing with new developers. They inevitably do projects that are way too big for them and they shouldn’t be doing. I think Mehdi and I have the discipline to know what type of project we should do first and what should we do second and how should we grow methodically with purpose. We weren’t ever trying to jump further than we probably could have if we really wanted to push it. I think that this shows all of our partners that we have the discipline to know when to walk away from something and I think that’s important in our industry. People get caught up in doing the biggest and the best thing that they can do and sometimes taking a step back and being a little bit more conservative is the best business plan that you could have.

 

Jason Boudreau:

Yes, that totally makes sense. From business books or articles you read, and podcasts you listen to, you hear about some of the most successful people in the world, whether it’s Elon Mask, Bill Gates or Warren Buffett, and constantly what I hear as a commonality between them is they’re defined by what they say NO to, versus what they say YES to.

 

Barry Savage:

Well, and I think based on my background I used to do big projects such as two hundred plus million dollars projects. We had the discipline to start off doing a thirty-five million dollars project, right? I think a lot of people in our industry would not go back and go on to a small project like that, they would think it’s too small and would be eager to do bigger.

 

Jason Boudreau:

Interesting. So, pulling on that thread a little bit – how would you define success? This can be an individual thing, it can be a joint thing. I’m curious to know as you both are entrepreneurs, you’re in a unique business in real estate development, and obviously have tons of experience. We’re talking about the fact that you’re proud of the fact that you say NO to things, you’re proud of the fact of the discipline you stick to. So, to carry on that, how would you define success then for yourselves?

 

Mehdi Shokri:

Coming back to the purpose of all this, the money was never really the driver, nor was the ego. It was actually about the impact. So, for me, the purpose of what I am living for and some of those bigger philosophical questions really started to come into my mind as I was trying to better understand why I was happy and why I wasn’t happy about the things I was doing in my prior role. When I was committed to moving to Three Shores, I thought I would always tell myself that success will be about the reputation and the acknowledgment from the people that I care most about. That we did things right, we were good stewards, we were good people and built good relationships, had some humility and sincerity and were not just greedy. Again, our reputation would speak for itself after we went down the road years away and reflected on our company. That to me was really what I thought hopefully a successful outcome would look like. And it still is.

 

Barry Savage:

I think I’m along the same lines. The other thing that I would say is that for us our partners are always really important whether it’s our business partners or our consultants who we treat as partners whether it’s the community and the neighborhood that we’re working in. I think for whatever project we’re doing to be successful, all of our partners have to participate and gain from whatever we’re doing. For example, we did not have to put a daycare into the project that we are doing on W 3rd Street, but we thought that was the best thing to do and if that enhances that neighborhood at all, then that is a success.

 

Mehdi Shokri:

It kind of triggered another point that I was thinking of when Barry mentioned partnership. I think in general we were really hopeful that we did not have to entertain whether it was a deal or a partnership that wasn’t completely aligned with the type of people we wanted to work with.  For us in the end, success will be defined by the people we work with. I don’t say from a place of being cheesy about it, I actually mean it. If we start doing things such as working on behalf of partners for the wrong reasons, then that won’t be something I will look back at and say we succeeded in our mission. If we continue to stick to what we said about being aligned, and that might mean we lose some really big opportunities, then I think we’ve succeeded in what we said we were going to do.

 

Jason Boudreau:

Speaking from our experience, obviously, we’ve got a project on the go together, and I really feel like it’s a true partnership with you. You’ve come to us, said that you’ve got this opportunity, and offered to reach out to our network and help bring in the capital, while you’ll take the development on. Then, you are providing these quarterly updates that we’re able to send to our investors. People read them and they feel really good about it. It’s very professional. A lot of what I’ve seen in the development industry and smaller developers in particular around the city or even the province is there isn’t necessarily that level of professionalism, but you seem to have really brought that to the forefront. That to me just instills greater confidence for us as partners, but of course most importantly, for our investors who are partners of ours, right? So, speaking firsthand from experience I can definitely attest to the fact that you have brought that mentality to the forefront.

Just to sort of flip it a little bit, I am curious to know what keeps you awake at night. Because one thing is to talk about all the amazingly positive things that are happening but as a fellow entrepreneur I know they’re things that don’t allow me to sleep every day and I’m curious to hear from you – what keeps you up?

 

Barry Savage:

I would say in the current economic climate it’s protecting our partner’s money that they’ve entrusted to us, right? I mean that’s obviously for every developer it always has to do with the bottom line and in our case, it’s at least for me, it’s no different. It’s trying to do whatever we can to protect not only the equity that we’ve put in projects but to protect the equity that all of our partners have put in.

 

Mehdi Shokri:

I would echo that. Obviously, we’re very mindful of our reputation lasting. What keeps us up at night is also the opportunity that I see in front of us because I think we’re clearly in an environment where those who execute and follow up on what they say are the ones who will see these times. They’ll find the greatest opportunities and how we grow from this. Speaking to Barry’s point about protecting our investor capital and staying true to what we promise in the first place – those are all very top-of-mind realities that we’re dealing with but it’s also things that you can’t control. Accepting that, right? It is hard enough for me personally because as I said before I’m a bit of a control freak still… you try to think of all the various things that can come at you even in whether it’s in the good times or in times there’s more chaos. But it’s definitely a lot of managing expectations that probably I’d say is what keeps me up at night and making sure that you’re doing it the right way.

 

Barry Savage:

Actually, early in my career, one piece of advice that I was given was “if you want to be able to sleep at night you have to let things go”. Sort of what Mehdi said, there are things in our industry that we have absolutely zero control over. Take interest rates, right? Yes, we have no control over that. So, I don’t let that bother me because there’s nothing I can do about it. But what you want to do is you want to be prepared for it and have a plan on how you’re going to react. Those are the things that keep you up at night. But that’s what you’re thinking if someone’s coming in saying you know there’s another 75 basis points coming next month, right? The thing that will keep me up is not those 75 basis points coming up, the thing that will keep me up is do I have a plan on how I’m going to address it?

 

Jason Boudreau:

Yes, yes, that totally makes sense. One of the things that I’m curious about from your perspective is…From my side as an entrepreneur, one thing I’m guilty of is always looking at the horizon and thinking about where do I want to go versus where I’ve come from right?

 

Mehdi Shokri:

Or where you are now…

 

Jason Boudreau:

Yes, right. In the present.

 

Barry Savage:

I’m laughing a bit because that’s Mehdi’s lane. I don’t have to worry about that, I’m just looking at the present and how do I get to tomorrow. How do I get the project to tomorrow and the next day and the next day. I’ll let Mehdi look at the horizon.

 

Jason Boudreau:

It’s interesting to hear you share that because I just came from our office. You know Rob, my business partner. We’ve been involved in strategic planning for next year over the last couple of months and a lot of these conversations come up and it’s a very similar dynamic where I’m out there, sort of being head in the clouds, visionary, seeing things progress in a certain way, and then Rob said to me “Okay, now how we can execute that?”. He can see the vision and all the execution points and so we’ve got this great complementary skill set which I’m obviously very grateful for and that gate that does keep me grounded, right? Because I can always sort of chase the horizon or look at the horizon and sort of not look back to see where we’ve come from or have that eye on the present. That said, I’m curious about you how do you feel relative to what you set out when you decided to really jump in headfirst a couple of years ago into this thing to where you’re at today? How do you feel in the progress that you’ve made thus far and then what are some things you’re looking to accomplish that you haven’t yet?

 

Mehdi Shokri:

I’d be the first to say that I always battle looking forward and how we’re going to grow and all that kind of stuff. Or even looking back and not wanting to repeat maybe mistakes or experiences that I fear happening again. I think our mentality has been really about how we manage what environment we’re in and the journey so far has been really about like Barry alluded to earlier being able to say No right now.

I personally grew up in a world where success was defined by how many deals you did and there is almost a habit that needs to sometimes be broken in my own psyche world. Let’s say the shiny new ball – you don’t want to start chasing it and especially in this environment because as crazy as it is we are now seeing more and more opportunities, more than ever, and fortunately we built a good reputation where we have brokers coming to us now, trusting us and our abilities, telling us about off-market deals and sharing sensitive information about how to kind of structure some of these deals that it’s getting to the point where it’s now time to be able to have the discipline to say No. So, I think right now being committed to understanding that you can’t do everything, and you’ve got to stay focused on how you’re going to get to Barry’s point the next day is really kind of everything for me right now.

 

Barry Savage:

I think all businesses and partners need to have discussions. Mehdi and I set out what our goals would be over the next year. And again, we go back to the discipline, to stick to what that plan was, right?

Forget about a lot of the noise that’s going on but try and stick to what we thought was the best course for us when we were planning ahead and to try and stick to that. So, if we, for instance, in our case if we decided we want to do one wood frame and two concrete projects for this year coming up – that’s what our goal is. What the discipline becomes is what are the two best concrete projects and what is the best wood frame project to stick to, right? I think that’s what we’re trying to do and that’s what we want to do.

 

Jason Boudreau:

That makes sense. In the last couple of years when you really decided to jump in headfirst and you look at where you’re at today. Do you feel like you’re where you want to be, are you ahead of schedule or behind? What do you feel you’re at? Has it evolved?  I’m sure it’s evolved.

 

Mehdi Shokri:

I mean I’m never satisfied. So, I do not know how to answer that question (laughing).

 

Barry Savage:

So, that being said, if we were to look today and go back two and a half years ago when we decided that we’re going to do this full time we’re probably almost exactly where we said we wanted it to be. I think the difference is that we have a lot more opportunities that come forward now we’re picking and choosing the right one. But in terms of the number of projects we set our goal out, we’re pretty close to being right on our original plan. Maybe some stuff shifts maybe by six months or so, but it’s pretty close.

 

Jason Boudreau:

I think that obviously speaks to that discipline mindset that you have brought in – sticking to that plan. That’s really good to hear.

When we talked earlier about how you define success. I know Mehdi you said you are never satisfied or how did you frame it? When you define success and what’s important in your life today and of course look forward, do you feel like you’re successful?

 

Barry Savage:

For me, I think it’s actually too early to define whether you’re successful or not. I think we need to get through the next year or two before you will truly be able to say whether we were successful or not. Because of the projects that we’re doing right now – we haven’t completed one yet, right? We’re getting close on two that are going to be completed early sometime next year. But until you get to that stage I don’t know if you can say you were successful or not.

 

Jason Boudreau:

What about you Mehdi?

 

Mehdi Shokri:

I probably look at it a little differently because again, I come back to the point of not being able to control everything. I try not to look at success so much by what the end result is because some of those things are completely out of your control as to how they end up being successful or not whether it’s for the good or on the opposite side of what success looks like from a financial metric. I think for me I would still say it’s too early only because when I really thought about moving into this space there were a lot of mental health discussions that I was having with some business coaches and counseling and a lot of things, especially through Covid that really opened up my eyes to what success and happiness look like. I think I’m still going through this journey. I think for me as a broker in the Capital Market Space I never really felt like I was completely understood and that was probably more to do with my own shortcomings–not leaning in, or opening up to people about what kind of person I really was with my closest friends and relationships. I defined success as being a top broker in the country, or in the office, and that’s all I needed to know to keep me in line with my job.

Now it’s more about making sure that the relationships I have, and people really get to know who I am and I truly feel like I’m also doing my part in allowing them to know who I am. So, again, relationships take time. That’s why I think it’s too early to say. I think until those relationships really mature in this new space that we’re operating in, I won’t fully feel like I’m successful.

 

Barry Savage:

Well, I think for both of us as we go through our careers success is different, right? You know when we’re both young and didn’t have families career would define your success, right? Now it’s somewhat secondary.

 

Jason Boudreau:

Let’s talk about that a little bit because obviously, I know you both are family men and I am as well, and our families know each other. How do you want your kids to see you down the road? For me, I’m always lead by example person, right? I look at my kids and I think they’re going to emulate what I do way more than what I say or tell them to do. So, I’m curious about that from your side. How do you look at that when it comes to your kids and how they look at you?

 

Mehdi Shokri:

That’s a heavy question.

I didn’t have a father growing up, so just going right to the core of it – I want to be available. My entire intention when I became a dad was that I was going to be there all the time. So, now to some extent I maybe overcompensate because I’m a head coach for both of my boys and they’re playing more soccer than I ever realized would ever happen. So, my part-time job is really coaching kids’ soccer.

I do it because what I’m hoping for is that not only that I’m available but to your point that you lead by example and you want them to see when you commit yourself to something you do what you say and you’re accountable and you’re reliable, and you’re not a flake. All those things are part of why I’m doing this and why stick to it and I don’t try to veer off and do a half-ass job at anything that I’m involved with them, but I think I also want them to feel safe. I feel like if I’m there I don’t necessarily need to tell them what to do, but I want them to know that at this age, in particular, my kids are so young, that the feeling of safety is everything which I don’t feel like I had that necessarily as a kid. So, again compensating a little bit for my own childhood trauma. I think for me, that’s what I’m really trying to do as a parent right now more than anything – is just to give them that feeling that no matter what there’s not only somebody there but they’re in a safe place–that they can be themselves, they can talk to me and they can do whatever they need really.

 

Jason Boudreau:

That’s awesome, thank you for sharing.

 

Barry Savage:

I think it’s kind of along the same lines as what Medhi said. It is to be there.  There is a neighbor of mine who is in our industry, and I would say he has been on the same journey as us, but he’s probably eight to nine years ahead of us in terms of how they set up. I remember one of the things that he said to me when he saw me walk the girls to school and he said, “Those are the things that you need to enjoy because you’ll be amazed at how fast it’ll be gone”. And so that sticks with you, you want to make sure that you’re there, that you’re around, that you can participate.

 

Jason Boudreau:

Yes, totally and that’s certainly one of the advantages that being an entrepreneur lends itself that you can build that flexibility into your life and at the same time it’s always that dangerous line. You commit to something too much and all of a sudden, you’re way on the other side.

 

Barry Savage:

I agree. When I made the move from working at a development company to doing stuff on my own, I definitely worked more on my own, but it also at the same time gave me more time to spend with the kids. So, those are the trade-offs you make, right? You at home, it’s nine o’clock at night and you’re working, but you don’t necessarily feel bad about it because then you’re able to take the kids to soccer, you’re able to go to their swimming lessons. Whereas if you’re at a development company you’re there for a specified period of time and you never have that flexibility.

 

Jason Boudreau:

Yes, totally!

We’re closing in on our time together. So, continuing the family conversation. The last question I love to ask entrepreneurs is if they are talking to the next generation or your kids and sharing about life aspirations, what are some of the things that you would share with them, or maybe you do share with them now about the future or about what they want to achieve in their life?

 

Barry Savage:

I think the main thing is that they have to be passionate about something that they love to do and when they start off whatever their job is at the beginning the amount that they’re getting paid should be irrelevant. The question should be do you love doing it? And if you do then you’re going to be able to make a career out of it. If you don’t love doing it, you shouldn’t be doing it. It doesn’t matter how much you’re getting paid for it because you’re never going to be satisfied and you’re never going to be happy.

 

Mehdi Shokri:

I hundred percent agree. I wish I had that kind of guidance because I was naturally a good academic student in high school and university but coming from a Persian background and having parents who generally want you to be a lawyer or a doctor. Basically, it was very much in my mind that those were called the defined successful jobs that you could have. I think I’ll go a bit further than what where Barry was going with. Maybe it’s too early now but to your point, we’re talking about them a bit older is to be true to themselves and be comfortable with who they are. I know how much harder it gets when you become a teenager and people start to judge you and start to question whether or not you’re weird or you’re cool or whatever it is. So, I think it’s just that again that feeling of just knowing that they’re safe like I said earlier and that they are a hundred percent good the way they are. I think when you get to that point when you’re passionate about something you can only have clarity in mind about what you’re passionate about and that you’re comfortable with who you are. So, I guess setting them up for that moment, right? As I said, I thought I knew what I wanted to do when I was younger, but I know now I was confused because I didn’t really know if I could be myself in a lot of ways.

 

Jason Boudreau:

Interesting.

 

Barry Savage:

It’s funny because when I was growing up one of the things I loved was maps, right? So, when I was going through my education, I actually wasn’t going to be a planner or to be doing development or doing real estate even. When I was going through university that wasn’t what my end goal was. I always thought that I was going to go with land use, but I was more going towards land use in terms of forestry and getting it to grow to master’s in forestry. It’s amazing how things changed after one Co-op semester. I was working in a planning department and that totally changed what I wanted to do and that’s what I was saying – I knew what my passion was maps and that type of planning, right? But you never know where it’s going to take you to.

 

Jason Boudreau:

That’s great. Thanks for sharing that. Well, I think we’ll end it there on a high note because I mean I love hearing about your entrepreneurial journey, and then I love for our listeners to learn about who are the people behind the businesses that we talk about on these podcasts. I’m really grateful that you took the time here and thank you for sharing and being so open. It’s been great having you.

 

Mehdi Shokri:

Thanks. It was great. I appreciate it.

 

Barry Savage:

Thank you.

 

Jason Boudreau:

Stay tuned for the next episode of the Polestar Podcast by VELA Wealth.

Our most recent episode of The Polestar Podcast by VELA Wealth features Kori Chilibeck and Matt Moreau, founders of the social enterprise The Earth Group.  The Earth Group exists entirely to provide school meals to children globally through a worldwide agreement with The United Nations World Food Programme (WFP).

Hosted by Rob Wallis, Kori and Matt will share the journey of the Earth Group, its social initiatives and business model, challenges they faced during the pandemic, difficulties they experience while building new relationships with well-known brands, and their successful stories on changing minds and lives.

 

 

About the Guest – Kori Chilibeck and Matt Moreau

Kori Chilibeck and Matt Moreau met in 2005 while working at Skiers Sportshop in Edmonton, Canada. Through extensive travel their eyes were opened to the dire circumstances in which a large percentage of the world lives. This instilled a sense of responsibility to do what they could to create positive change in the lives of people who need it most. In 2005 Matt and Kori started a social enterprise called Earth Water and donated 100% of their net profits to the United Nations World Food Programme. Please visit The Earth Group website to learn more.

About the Host – Rob Wallis

Rob Has provided senior financial planning and advice to VELA clients for over 15-years. He 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. To read more, please visit the VELA team page.

 

The episode is also available on:

    

                                                                               

Live-drawn board performed during the Gravity 2019 event in Vancouver.

 

The Podcast Transcript

 

Rob Wallis:

Hi, welcome to The VELA Wealth Polestar Podcast. Today we have the pleasure of having Matt Moreau and Kori Chilibeck from the Earth Group. We will be talking about their business and what they’re up to in the world.

We have the pleasure of welcoming these guys to our Gravity event, when we did in-person events back in 2019. It is incredible as it was over three years ago and how much the world has changed and moved on in that time.

It’s pleasure to have you back, and welcome. Before we jump in, could you tell us a little bit about the Earth Group? And then we’ll get rolling from there.

 

Kori Chilibeck :

Sure! The Earth Group is a social enterprise that right now sells water, coffee and tea in various countries all over the world. We use our profits to provide food, water and education to some of the poorest children on the planet through our partner, the United Nations World Food Program.

 

Rob Wallis:

I’m just looking at the board that we had live-drawn when you were in Vancouver in 2019 and it says you guys had four million meals served. How many meals have you had to that now?

 

Matt Moreau:

By the end of this year, we’ll probably be sitting about the four and a half million mark. Can get into it, but COVID certainly put a damper on things for us. We had to switch our model the year that COVID hit in 2020 and did a program locally and funded 50,000 meals for people here in the City of Edmonton with the local food banks.

 

Rob Wallis:

Got it. So, let’s talk about Covid. How was that for the Earth Group?

 

Kori Chilibeck:

It was, uh… it was devastating and it happened quickly. I remember Matt and I were sitting at the office, looking at revenue for the month and I think it was one of the worst months we’ve ever had since we ran the company out of an old van. It was bad. It got back quickly too. What are your thoughts on that Matt? Sorry, I might be exaggerating.

 

Matt Moreau:

Not at all. 85 percent of the revenue disappeared overnight. We were very heavily invested in channels such as hotels, cafes and restaurants, catering companies and airlines. And all these things just basically disappeared overnight. So, it certainly put the fear of God in us for a little right there.

 

Kori Chilibeck:

Yes, we actually had a contract with Hilton Hotels in Japan going through the Olympics. Obviously, the Olympics got cancelled and pushed a year. Then, when it actually happened, all the hotels were empty because they didn’t allow anybody in the country. So instead of potentially the best year we had ever had on record, it ended up being one of the worst.

 

Rob Wallis:

And how were regular retail sales during that time?

 

Matt Moreau:

Most of that disappeared as well. If we’re talking about regular grocery stores, people that used to walk into a store, grab a sandwich and a bottle of water, and head back to their office just weren’t doing that anymore.

So, our product is never going to sell in a 24 pack. We’re not here to compete with Nestle. So, that was the only water product that was moving in these stores, and we saw a lot of single use stuff in the lunch out disappear as well.

 

Rob Wallis:

Crazy. How it is now?

 

Kori Chilibeck:

Well, things have changed a lot. Again, it just happened all of a sudden: really picked up and I would say we probably had our busiest six months that we’ve ever had as a company right now.

 

Matt Moreau:

Yes, we’ve picked up. Speaking for myself, a few months there was kind of feeling of sorrow and I was terrified of what was going to happen with the business and everything. Then we just sort of dusted ourselves off and started finding spots that were still open and knocking on doors that were still in business. Places such as cafes, party bakeries were one of those spots.

Fast forward to today, we’re just starting a nationwide launch with all the Cobs bakeries across the country. The film and television industry were still operating, and they were really looking for a product that had a story for social enterprises support. So, we picked up a lot of great new business there.

With these new distribution channels and then everything else coming back online as far as the catering companies in the hotels and so forth, as Kori says, things are going really well right now.

 

Kori Chilibeck:

I think during COVID we had a lot of time to plan and find other avenues that we hadn’t explored. We were thinking about anything and everything. So, I think after two years of working the phone, sending e-mails, sending samples, trying to grow business when the world turned back on again. We had all these leads out there that just all the sudden started coming together all at once. So, it was nice.

 

Rob Wallis:

Great. And were you able to maintain relationships with the bigger companies such as Hilton?

 

Kori Chilibeck:

Well, Hilton is tricky because there are a lot of factors. One, it was in Japan and the Canadian dollar increased over COVID by about 16-17% against the Yen. So, we just became more expensive over COVID by quite a bit. Then, with the shipping situation globally including huge increases in shipping, we just became a very expensive product outside of Canada. Even with inside of Canada shipping has been difficult. The prices are starting to come down now and we probably ended up landing almost 30% more in Tokyo than we were before COVID.

So, it really put a damper on sales in that part of the world right now. We’re hoping that’s going to come back now and that things are starting to normalize a little bit.

 

Rob Wallis:

So, in terms of the story, what is the story of the Earth Group? How did you come up with the concept and what was the journey from there to where you are now?

 

Kori Chilibeck:

Well, it started as a spoiled kid growing up in Edmonton, realizing that the world was not what I thought it was. I went to university at the U of A, played hockey, went on family ski trips, didn’t really realize that 90% of the world wasn’t living the same lifestyle I was.

I had taken a year off of school, I was on a Mount Everest basecamp expedition with my girlfriend, now wife, and we were going up towards basecamp dressed as your typical North American tourists, wearing big North Face down, puffy outfit on, and there’s a kid behind me carrying three people’s backpacks and heading up towards basecamp. And we passed this old man on the trail, who was going the same direction as us, and he had a big woven basket on his back. He was totally barefoot, no gloves, no hat, no jacket, just like some ripped pants and an old shirt, and we asked him what he was carrying. He says, “I get paid $0.25 US a day to carry this basket, I don’t really know what the items are and it’s not something I can afford”. When we looked inside the basket, it was just cans of Coca-Cola.

So, at that point I started to realize that either directly or maybe indirectly, some of the biggest companies in the planet were making money literally off the backs of the poorest people in the world.

So, came back to Edmonton and thought, well, why couldn’t you have a company that could compete against the biggest brands and biggest companies in the world? But at the end of the day, we would give back to people who really, really needed it. So, that was sort of the idea of the company in the very early days.

 

Rob Wallis:

Got it. I’m seeing you two drink bottles of the Earth Water right now, and it’s in aluminium or aluminum for our North American listeners. What was the impetus  for choosing aluminum as a material of choice for the water?

 

Matt Moreau:

Kori and I are probably the only owners of a bottled water company that encouraged people, not to drink bottled water. For the most part, we’re very lucky here in Canada to be able to go to a tap and fill up from there.

So, we’re aware that we’re creating an impact on the planet through our operations and that single use plastic is a major global issue. So, we were looking at things thinking, how can we lessen our impact on the planet’s a little bit? We found out that aluminum gets recycled at a much higher rate than plastic and takes less energy to recycle. So, we got these fully reusable and recyclable aluminum cans that can be rinsed out, resealed, and used over and over again.

And I think that’s been a big kind of boom to our success as well through COVID. We made that transition basically a couple months before COVID hit and then had the last couple years to tell that story to people about how we have this product that is lessening the impact on the planet and just has a little bit of usability to it.

 

Rob Wallis:

Can you please tell us why aluminum has a higher recycle rate than plastic?

 

Kori Chilibeck:

I think there’s a couple reasons. In Canada, a lot of things changed since the 50s, when they started putting beer in aluminum cans. The beer industry created a really good recycling programs with the deposit on it. There is a value to aluminum whereas plastic is a bit of a false value. We put a value on it through the deposit system whereas aluminum is a commodity that’s traded on the open market. I think that stat is 70% of all aluminum ever created since the beginning of time is still being used today. So, it’s an amazing product that way.

So, the actual facilities do recycle because there is an actual market for the recycled material. Whereas with plastic it’s difficult to utilize recycled plastic and even trying to make other plastic bottles out of recycled plastic bottles creates a lot of energy and a lot of waste doing that. Whereas aluminum is just that much better. It’s exponentially better.

 

Rob Wallis:

Got it. What is your first product?

 

Matt Moreau:

The Earth Water was the first product. Sort of a water for a water idea.

By buying Earth Water you could provide water relief for someone somewhere in the world whether that was digging distribution points or wells or so forth in refugee camps.

As we’ve grown into coffee and tea and a little bit of apparel, that message has expanded from just providing water relief to funding school meal programs as well.

 

Rob Wallis:

And the other products that you’ve launched are coffee and tea, have I missed one?

 

Matt Moreau:

We do a little bit of apparel. For example, we were just sponsoring the Edmonton Folk Music Festival last weekend and we have hats and T-shirts and things like that. So, a little bit of that on our online store as well.

We’re really hoping, I would say in early 2023, to have some sparkling water and flavored sparkling waters as well. Kori’s got some other product threat perhaps on the go here as well.

 

Kori Chilibeck:

Yeah, I was trying to diversify the product line a little bit.  We’re changing up our packaging over the next months, hopefully early in the New Year. We’re trying to get more sustainable and do different things. There’s always a way to make things better because we’re a small company, we’re able to switch to new packaging quickly. Whatever the next greatest thing that comes along that’s more sustainable, benefit environment and maybe caught more cost effective – we can look at that immediately because we don’t own $100 million production lines that we’re able to switch over to something better.

 

Rob Wallis:

So how do you use the Earth Group to help the planet?

 

Matt Moreau:

Our main focus is school meal program. So, kids are given a safe place to go during the day, free food, free water and then provided that all important free education. So, better educated kids grow up to have higher earning potential, they’ll have less kids on average and they’ll make it to university. Effects of these school meal programs are enormous.

 

Rob Wallis:

Right, and how do people that need your help find you?

 

Kori Chilibeck:

Well, we really work closely with our partner, the United Nations World Food Program. So, they’re the experts, not us. We work in Edmonton majority of the time and we’re just not out in the field doing that. We’re really honored to work with some of the most passionate people on the planet. Essentially, they come to us every year and give us sort of a list of three or four places in the world that have the greatest need in their eyes. We work with them and fund projects that we feel that we can make an impact on, and we do try to do a project every year somewhere else in the world. For example, Tajikistan, Bolivia and then the Philippines. It depends on what’s happening in the world.

Also, and we do try to focus on places that aren’t in the public eye a lot. We try to focus on places that are sort of the world’s bit forgotten, but still need a lot of help.

 

Rob Wallis:

Could you give us an example of that?

 

Kori Chilibeck:

Sure. We did a project in Bolivia which is the poorest country in the Latin America. There was very little aid going into the country. Their school meal projects were actually about to be shut down before we came in there. They were running out of funds and we thought this was a great place for us to go in and help. So, I think we funded 500,000 meals in Bolivia.

 

Rob Wallis:

Wow.

 

Kori Chilibeck:

Obviously, 500,000 school meals over a certain amount of time.

Then there were other projects happening such as solar panels, and some green-houses. So, the world programs got all these amazing projects that they sensibly pitched to us and we try to get involved as best we can with the funds that we have.

 

Rob Wallis:

And how did you get the relationship with the UN to create the partnership?

 

Matt Moreau:

Months upon months of phone calls and emails and sending out packages and concept ideas around what this company would stand for.

Thankfully, there’s a gentleman out in Ottawa who finally answered the call and showed some interest in what the concept of the company was and at the end of that first year, we were able to give a small $7,000 check. I think at that point it was ok. We’ve decided to see what we can do in the second year. In subsequent years we were just able to continue coming back with bigger and bigger checks.

The financial side of it is one thing, but the reality is we’re still really small company and the World Food Program works with partners like Vodafone, Pepsi and Kraft who are donating millions or tens of millions of dollars. So, we are able to help a little bit financially, but it’s also just the awareness around what we’re doing as well. We’re one of the only products in the world to bear United Nations logos. When someone walks in and buys a bottled water at IKEA, they turn the bottle over and they can start reading about the World Food Program. Samething happens in places such as Fairmont Hotels and The Four Seasons and really all across the country.

So, we’re able to do a big chunk of awareness for what they’re doing as well, which is equally important.

 

Rob Wallis:

So, do you have companies that seek to shop your products more now than five years ago, and how is the social enterprise landscape shifting demand and visibility of the Earth Group?

 

Kori Chilibeck:

I mean, when we started the Earth Group, the word “social enterprise” barely existed. That was just sort of very new to the landscape. In fact, we probably didn’t even call ourselves a social enterprise at the beginning, because I wasn’t even aware of what it was. Now, the world has changed quite a bit in this regard.

Well, I know the consumers are looking for companies that make a difference. As much as one really wants to pour Coke, Pepsi, Nestle, Unilever, they don’t really care about those companies. Giant, publicly traded companies that are just everywhere. So, there’s not really much of a choice.

When people walk into a Fairmont hotel or a Hilton Hotel and see the Earth Water and see this story – that differentiates that spot from what everybody else is doing. They realized that maybe that hotel cares about what’s happening on the planet and actually searched out a product that does something a bit better.

I think for a lot of years, we felt like we were a bit ahead of the wave. And now I feel like the world sort of catching up to what we’re doing and maybe understanding that people need to focus on products that are trying to do something good in the world because, to be honest, that’s really a way to make great changes. I’m hoping that we’re sort of hitting. We’re in the right place and at the right time where people are looking for these types of products.

 

Rob Wallis:

As individuals, how do you define success? Matt why’d you go first?

 

Matt Moreau:

I’ve got a young family of a 3-year-old and a 10-month-old. I hope that this company is around for 30 years from now and that we can do some incredible things as far as putting people into school, educating them, being very aware of our environmental footprints, finding ways to combat that and be able to do that. Hopefully, some of that kind of the kids can glean some things from that.

If I’m sitting here 30 years from now, looking back, I would hope that there’s some good successes there along the way. Kori and I are so lucky to have been able to speak at all sorts of events over the years, whether it’s Rotary clubs, churches, university groups or business associations and hearing from people…We just got a note into our website a week ago. Someone saying that the path that they’ve chosen to go into for both work and school was kind of heavily influenced by a talk that they heard from Kori and I gave about six years ago.

Making people aware that we as businesses have the power to change the world for the better and that we as consumers literally have the power in our pockets to change the destiny of someone’s life simply through everyday purchases, simply through something boring as a bottle of water – is pretty cool.

 

Kori Chilibeck:

I think Matt said a lot about the way I feel too.

If someone like Nestle ran the same way we do – we could solve world hunger in a matter of years.

So, maybe there’s the next big thing coming down the pipe that someone thinking about, heard us talk or saw our business model and said “hey, maybe I can work my company the same way” and next thing you know they turn that into a $10 billion company and we’re able to really make some huge changes.

From our own sort of success, from our company, it’s again just that number that we talked about at the beginning of the show. We want those meals to be up to 50 million meals, we want to have these crazy numbers out there that we’re really starting to move the needle and starting to help people.

It feels amazing to send 50,000 meals to someone, but it feels incredible when it starts getting to that million-meal range and start to really make some significant changes in people’s lives. That momentum is something hopefully we can capitalize on and maybe other companies seeing this will react as “they just did a million meals, let’s match that!” and will throw another million in there. Now we got 2,000,000 and sort of get the world a little bit galvanized around what people are trying to do. These small things make huge differences.

 

Rob Wallis:

Matt you’ve mentioned 30-year time horizon quite a few times in your answer. If we were sitting down in 30 years, what would you like the Earth Group to have achieved if we were looking back over those 30 years?

 

Matt Moreau:

Well, like Kori said, if we can get to the point where we call you and say we’re making a donation and it’s literally funding millions upon millions of meals for people. To have created legacy projects in certain countries around the world where we’ve been able to support them year after year. To have been able to do that with the support of certain companies. We worked with IKEA for six years now, let’s say we’re lucky enough to work with them for another 30 years, really trying to build some landmark programs for them where they know that every bottle of water that they sell is benefiting a certain project. Doing the same thing with the Fairmont’s and the Hilton’s being able to come to these companies with more than just a couple of products like we are today, whether that’s for the beverage products or food items, or who knows, tech ideas, apparel for sure. For example, every time we sell one of our hats, we can feed and educate a kid for a week.

It’s really about every product that we sell. We sell a case of water, we sell a bag of coffee – we have a certain dollar amount that goes to the World Food Program. Leading with that transparency that as a consumer or a corporation when you buy that from us versus the Coke, the Pepsi or the Nestle, here’s the change that we can create in the world.

 

Rob Wallis:

You mentioned somebody reached out to you after you spoke six years ago? When you talk to young people, what do you share with them and what do you think inspires them?

 

Kori Chilibeck:

We try to share as much as possible – just to do something you are passionate about. I know that’s bit cheesy, but the reality is if you love what you do, you’re probably going to be very good at it and you’re going to be happy. For most people, doing something they’re passionate about, probably something good, something that’s doing something positive in the world and doesn’t have to directly feeding children, but it can be all sorts of things that just make the world a little bit better place no matter what you’re doing. We try to convey that just go out there, be passionate, tenacious.

Matt and I’ve been told so many times, I can’t even count, that we should shut the company down, that it’s not a real company, it’s terrible idea, that we are going bankrupt, it’s awful, to get other jobs and move on.

And that’s happened a lot. Some very influential, successful people have told us that over the years and sometimes it shakes you a bit, but we’ve just been “Nope. This is what? This is the path. This is what we believe in, we have to go, we have to do it no matter what anybody says”.

And that’s another thing to tell young people. People are going to tell you not to do it or you can’t do it. That’s total BS. You can do anything you want.

If you believe in, and you are passionate about it – just honestly don’t give up until it’s over, and even then, it’s not over. We’ve been beyond over and still come back from the edge and build the company back again.

 

Rob Wallis:

You guys must have learned a lot of resilience over the years then.

 

Matt Moreau:

Resilience. Tenacity. We often would tell a story about how we approached IKEA for about four years. Anytime we’re in a major city, we go introduce ourselves at the store. We would send out handwritten notes, send out samples. And finally got a call back from someone said “Listen guys, please just leave me alone. We have a contract with Nestle..” but that two-minute call turned into 10 minutes and 10 minutes turned into 45 minutes. As we said earlier, now we’ve been working with them for multiple years and we’re talking about perhaps expanding to other countries outside of Canada.

As Kori said, “It’s never dead”. Even if it was a “no” on January 1^st doesn’t mean it might not be a “yes” on June 1^st. We just kept on calling and setting the reminders in the calendar and respectfully harassing people as much as possible.

 

Rob Wallis:

Totally. So, if you were to come do the journey again, would you have done anything differently?

 

Kori Chilibeck:

That’s a really good question.

Every time someone says, “oh, but maybe it wouldn’t be exactly where we are if we would have done things differently and learned the extremely tough lessons we learned along the way”, which are super important. Now when you look back and realize you’ve learned a lot. So, I don’t know if I would change anything. Maybe I would have got a better accountant and lawyer on the first day to give you a little bit better advice. But other than that…

 

Rob Wallis:

We’ve done a podcast on that recently too, by the way. Reference: Key Considerations to Make When Selling a Business.

 

Kori Chilibeck:

Yes, there’re two things to tell people when they’re starting a company: get some good accounting and legal advice. But beyond that, I can’t think of anything I’d want to change.

There have been some ups and downs, but most of the time it’s been up. What do you think Matt?

 

Matt Moreau:

I have to agree. It’s like you say, it all led us to where we are today and those horrible lessons, those bad, tough days where you don’t even want to get out of bed because you’re struggling that much. Like you said, Rob, it builds resiliency and brought us to where we are today.

I think that’s where, as Kori mentioned, you find something you’re passionate about. It makes it that much easier, when it’s just week after week of “no” or month after month of getting beaten down or whatever the latest incident is. If you’re incredibly passionate about it, there’s a way to drag yourself out and get back at it.

 

Rob Wallis:

Yes, absolutely. Does anything keep you guys up at night anymore, given what you’ve been through? Far from children.

 

Kori Chilibeck:

Far from family and kids… It seems like there’s always a fire burning somewhere that needs to be put out. It hits you on some random Tuesday afternoon that you weren’t expecting… Maybe don’t keep me up like they used to just because I know that Matt got my back, and we can and we’ve accomplished so much and going over some pretty terrible things. So, these things sometimes seem a little bit on the minor side when they come up and we… I’m optimistic all the time. At least on my end I still have some sleepless nights, but there maybe not as many as they used to be.

 

Rob Wallis:

So, in terms of wrapping up, could you explain to our listeners where they could find your products in Canada?

 

Matt Moreau:

You can find us in place like IKEA, Cobs, handful of Fairmont hotels, lots of hotels across the country. You guys are in Vancouver – the Vancouver Aquarium carries us.

We’ve been really lucky to start getting some phone calls from some major universities across the country lately, which five years ago never would have happened because they were completely locked up in Coke and Pepsi contracts. Places like Whole Foods. What am I missing?

 

Kori Chilibeck:

You are in Vancouver, so, Tacofino got it. Simon Fraser University has got some, especially in the student union building. I believe UBC started to put some in the SUB building now.

Lots of cafes and little restaurants are carrying our products. We are trying to focus on that type of stuff.

 

Matt Moreau:

And another thing is – if you head into a cool cafe, grocery store, whatever it is, and you don’t see our products it would mean a lot for a manager to hear from someone “Hey, did you know this product exists here?” We can make cold calls all day long, and generally speaking, people don’t want to talk to us because off the hop they just conceive or perceive us as a bottled water company, but we’re really not that. Bottled water happens to be one of the vehicles that we’re using to try to affect change. The coffee, the tea – are the same things. So, those warm introductions go a long, long way for us.

 

Rob Wallis:

Thank you, Matt. Thank you Kori. I really appreciate your time and your energy and your passion. Look forward to seeing you soon.

 

Kori Chilibeck:

Thanks for having us on.

 

Matt Moreau:

Thank you.