By Lavern Clarke, Staff ReporterCARIBBEAN Equity Partners (CEP) is wrapping up the deals on two new buyouts, its largest investments to date, pushing the company's total drawdowns from the Caribbean Investment Fund (CIF) to US$27.2 million over its two years of operation.
At the same time, managing director, Dr. David Panton, announced Wednesday that the four-year-old CEP last year emerged the successful bidder, selected from a shortlisted field of five, to take over management of a US$21 million fund called Tiona now renamed the CIF II.
The closed-end equity fund was started in 1999 by the Commonwealth Development Corporation (CDC) as the fourth in a series of investment funds under the Commonwealth Private Investment Initiative.
But CDC opted out after the fund failed in its mandate to create long-term sustainable businesses in emerging economies while achieving commercial returns. The remaining partners gave PriceWaterhouseCoopers the job of finding a fund manager to run it.
Panton told the Financial Gleaner that the Tiona funds, from which no disbursements have yet been made, will be rolled into the original CIF. Together, he said, they push the total Caribbean fund portfolio to US$50 million.
The CIF operates in two investing categories buyouts, which are investments in established companies that have perceived growth potential and which CEP takes a hand in managing, and the provision of venture capital.
The buyouts, which range across industries, cover US$3 million in Industrial Gases Limited (IGL), the second largest distributor of liquid petroleum gas in Jamaica; US$3.5 million in Salada, a big distributor of coffee, also Jamaican; and US$3 million in the Trinidad-based manufacturing holding company that has majority interest in Jamaican-based construction supply companies Jalex, which makes aluminum extrusions, and Tropicair, a specialist in windows. The latter deal is also being finalised.
Salada, which owns the Mountain Peak brand, will have three new managers installed as of next week, and the company is now looking to diversify, said Panton, who was recently appointed chairman.
The other two buyout deals being finalised are a US$5 million investment in the largest all-inclusive hotel chain in Barbados; and US$6 million in 'Atlantis', the largest tour attraction company in the Caribbean. Together they account for more than half the total US$20.5 million plowed into buyouts.
Taken together, Panton said, those five investments are now worth a combined US$100 million, having outlined the details of the fund's operations to a luncheon meeting of AmCham members in Kingston.
The 'Atlantis' deal, he told the Financial Gleaner, is worth US$20 million, and CEP has had to go seeking the other $14 million.
The company's venture capital portfolio so far comprises US$3 million in a corporate hotel chain called Cara Hotels; US$1.5 million in a call centre operation in St. Lucia called Helen IT; US$1.2 million in Jamrock, a restaurant operation in Kingston; and US$1 million in a Bahamian tea company called Island Rose.
Combined, the venture capital deals account for 24.6 per cent of total funds invested to date. The Multilateral Investment Fund is the most exposed investor in this category, having contributed 50 per cent of the US$6.7 million, while the other investors average about 10 per cent each, said Panton.
As a general rule, CEP does not participate in the running of those operations, with the noted exception of Jamrock. CEP assumed control of the restaurant operation last year after what Panton said was failure by then managers 5Cs to maintain profitability targets in a company that has a US$2 million revenue potential.
In August, CEP installed a new manager, American Dan Andros who is a 20-year veteran in the restaurant business. As a result, "Jamrock has made money in January and February, and will make even more in March," said the CEP managing director.
Started in 2000, CIF is operated as a limited partnership and has a 10-year life, which is the typical run for private equity funds.
The combined CIF now has nine investors ranging across six countries in three regions of the world, as outlined in table one. Panton was reluctant to supply a break out of the individual investor contributions but said the Caribbean Development Bank has recently put in an additional US$3 million, while the Inter-American Investment Corporation wants to put in another US$2 million.
The CIF's investor partners have basically set broad guidelines as to the countries, sectors and size of the companies in which to invest, but the investment decisions are made by a worldwide committee of eight, listed in table two, who teleconference monthly.
When Prime Minister P.J. Patterson launched the fund, it was announced then that no more than 25 per cent of the available portfolio should be invested in any one country. In addition, CEP has no window for small players to access the CIF since the investors have decided that it is too costly to accommodate small players whose operations tend to be loose, and therefore more high risk.
CEP's minimum equity injection in any deal is set at US$500,000. However, there are exceptions, with Panton advising that one of the deals now being brokered is for US$400,000.
Though CEP's operations are not confined to the CIF, the fund is its substantial earning base. It gets a management fee, but its real earnings from the CIF will come at the back end when CEP exits the respective investments. The equity managers are looking for annualised returns of no less than 25 per cent on each of the deals, said Panton.
Noting that "the venture capital portfolio has been very challenging" and that six months ago CEP had considered writing off its Jamrock investment, Panton now says the performance of the total investment portfolio is "strong."
Under the structure of the CIF, CEP has two more years in which to invest the entire fund, but Panton said they would have got there by the end of this year. They begin exiting investments in 2004, either through public listings, sell backs or sourcing new buyers.
