Private Equity

That time Brent Belzberg fought Imperial Capital

A David v Goliath battle on Bay Street.
OPM 4 min read

Move over The Last Dance, I am launching my own docu-drama re-hashing stuff that happened in the 90s. On Wednesday, the Globe's Andrew Willis wrote about the launch of a new high-powered debt fund. Private Debt Partners plans to raise a $750 million fund. The venture is backed by Stephen Lister who also took the role of chair. He is an under-the-radar mogul - I only learned of his name while researching the Belzberg saga, which I wrote about last year.

I am impressed by what I imagine is the ROI potential of that Jordan documentary, considering it's mostly a collection of old footage and some interviews, telling a story practically everyone knows. Creativity is overrated! I guess there are ideas like that hiding in plain sight. The contrarian, value-oriented filmmaker would have probably said that MJ is overdone and the real opportunity is in a Muggsy Bogues documentary. Anyways, I am re-booting my own Belzberg series. This time, I will talk about a battle of Bay Street titans that took place in 2001, which involved the above-mentioned Stephen Lister, among other biggies.

To recap from where I left off, Sam Belzberg built a publicly-traded empire in the 80s called First City Financial. But in the early 90s, it crashed Trump-style under the weight of excessive debt. Nephew Brent Belzberg wrested control away from Sam at the shareholders' meeting in 1991. He then oversaw a complex workout, involving 4,000 bondholders and $2.3 billion in debt. Creditors were so angry some of them sent him death threats. In the end, First City changed its name to Harrowston and was left with a rump of an asset base.

Much of this was chronicled by reporter Patricia Best back then and I am borrowing liberally. Once Harrowston was restructured, Brent started taking stakes in private companies, essentially creating a junior Onex. But Brent liked cheap value investments and Old Economy plays and as the tech mania bubbled up in the late 90s that style was way out of favour (not unlike today).

By 2000, the stock of Harrowston had done nothing for nearly six years and was trading at a 40% discount to its net asset value. Investor sentiment was captured by the following quote Ira Gluskin gave the Globe:

"Brent has been too conservative for too long. He says values are too high; well, values are always high. He's afraid to take the risk."

Wow! That's an incredible public diss! And people say millennials on Twitter invented snark! All the more surprising given how reticent Gluskin has been more recently about overtly criticizing the Catalyst funds he has been stuck in.

In May 2001, an opportunistic investor called Unity Capital acquired about 11% of Harrowston shares and made a hostile bid for about $160 million in cash and stock. They were essentially turning the Belzberg family's own playbook on them. Their plan was to break up the company and distribute the proceeds to shareholders. By using paper, they were in effect paying for the acquisition using the target's own money. Bold! Obviously, Harrowston resisted, since they could do the breakup themselves. Eventually, TD Capital came in to save the day, making a friendly all-cash bid valuing the company at $210 million. This was not a bad outcome, considering Harrowston had started as a bankrupt shell trading for pennies.

Unity Capital was the vehicle for Imperial Capital and Bay Street grandee Jack Lawrence's Lawrence & Co. Imperial Capital was run by Jeffrey Rosenthal and Stephen Lister. The latter, now chair of Private Debt Partners. Taking a run at Harrowston was quite a bold move for these two relative newcomers, still in their thirties back then.

In that same March 2000 Globe article, reporter Patricia Best quotes Brent, then around 50 years old, as saying: "Thanks a lot for calling, nobody calls me anymore." Sad! A few months after the sale of Harrowston, Brent would start private equity firm TorQuest, raising $135m for its first fund with the backing of four of the big banks and Teachers. And in March 2020, Torquest closed its fifth fund at $1.375 billion. So it's fair to say that Brent came back big time. The quote about no one calling Brent made me wonder: which mogul might today be down and neglected but has the potential for a spectacular comeback? Give me a minute while I order some flowers for Bonnie Bloomberg.

Torquest takes a kinder, warmer, gentler approach to private equity. This probably makes Sam roll over in his mausoleum. Brent Belzberg is described as the "mayor of Bay Street" because he has so many friends. But if I learned anything from watching a lot of Ozark and Narcos, it's that when you make an enemy, you also make three friends. The math is so much better! Think of all the conflict that transpired in what I just told you. Brent started his career as an assistant to Sam Belzberg in 1979. Sam had been running First City for 35 years when Brent ousted him. They stopped speaking after that. Ira Gluskin disses Brent while he's down. Imperial Capital makes a hostile bid financed by Jack Lawrence. TD Capital (now Birch Hill) comes along as a white knight and snaps it away. That's plenty of material for creating ill will. And yet these players have all subsequently managed to prosper despite these skirmishes in a supposedly tight-knit business community. Maybe they all reconciled and are one happy family, but that would only prove my point: there's little long-term price to be paid for being combative. This will only embolden OPM Wire! I am cancelling my flower order for Bonnie Bloomberg.

You can read my original story on Sam Belzberg here.

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