Foiled By Oil
In the spring of 2014, oil was trading well north of $100 per barrel. In the West, businesses across the spectrum were booming. The Alberta Advantage was robust, and the skies in Saskatchewan were sunny.
After beginning with one modest building in Brooks, AB, in 2006, Avenue Living now had 5360 residential units under management as of May 1, 2014. We were considered a high growth company and we planned to maintain that momentum. Of course, we were always on the hunt for fresh capital to help us expand.
We started to hear from people in Toronto. After aggressively amassing properties for eight years, it was amusing to hear things like, “You guys came out of nowhere.” But when they asked us how they could help us grow our business, our ears perked up.
Several capital markets groups were interesting in taking us public.
Going public is the ultimate goal for many entrepreneurs, and we were no different. Besides offering major recognition after our years of hard work, it promised a much-needed liquidity event that would ease the constant challenge of accessing capital at the right cost.
After we investigated each suitor, we chose to work with closely with one group of investment bankers.
The problem was mass. Even though we owned and managed more than 5000 units, our closest publicly traded peer had thousands more than us. We just weren’t big enough for our story to gain traction with the stock market, analysts and large scale investors.
The next suggestion the capital markets group had was to merge with one or two of our large publicly traded peers. The idea was explored and there was interest. However, this would have called for the sale of our entire portfolio, and I wasn’t ready to be out of a job — or to sell the company. There was still so much more to be achieved with the business.
Next, our Bay Street friends asked, what about support from a large institutional investor? At first, this seemed like a good idea. The biggest barrier to our company growing and moving forward remained access to capital.
But, even as oil climbed higher and higher, we wondered what might happen with our conventional, perhaps more rigid, eastern investors if the commodities market had a downturn. Because Avenue Living is western-based, with our headquarters in Calgary and properties across Alberta, Saskatchewan and Manitoba, we predicted it would affect our deal. We passed.
Then our investment bankers asked if we would consider working with a large private equity group. This group had vetted our model and they understood our platform.
They gave us a letter of intent stating they would provide us with generous equity, in the range of hundreds of millions of dollars, while we would continue to be the operating base of the business.
As they did their due diligence, oil started its free fall. The commodity markets were in crisis. Needless to say, the dark shadow that loomed over Alberta and Saskatchewan wasn’t limited to the energy sector.
The equity group still liked our business model, but their institutional partners (the ones who would invest the bulk of the money) liked it less and less. Even though our focus on multi-residential acquisitions and property management in secondary and tertiary markets was counter-cyclical, they associated investment in any Alberta company with significant risk.
We needed a new plan.