Wealthy business clan rides wave of panic selling 'When the seas are rough, we're out sailing,' says head of holding company who sees once-in-a-lifetime opportunity in market crisis
reportonbusiness.com
GORDON PITTS
From Friday's Globe and Mail
November 21, 2008 at 3:35 AM EST
Amid the greatest panic selling in 80 years, the most patient money in Canada is seeing huge buying opportunities in the current market crisis.
"We are actively looking in all areas of our business," said Hartley Richardson, who heads the holding company of his wealthy Winnipeg-based family, which has interests in property, energy, agribusiness and wealth management.
While the family has not made a major purchase, the current conditions offer a once-in-a-generation chance to buy beaten-down assets in areas where it is already an experienced player, Mr. Richardson said.
Among the targeted sectors are out-of-favour energy, including the oil sands of Alberta and the Williston Basin in Manitoba and Saskatchewan, where the Richardsons have been investors for many years.
"When the seas are rough, we're out sailing," said Mr. Richardson, president of James Richardson & Sons Ltd., referring to its active drilling program in the Williston and the family's appetite for acquisition.
The Richardsons' private equity arm, for example, owns shares in Opti Canada Inc., a partner in the Long Lake oil sands project near Fort McMurray, Alta. Opti's shares have been beaten down mercilessly, closing at $1.30 yesterday on the Toronto Stock Exchange, far from the $25 of this past summer.
"At a certain level, we're a buyer," said Mr. Richardson, one of 11 fifth-generation family members who own the business. "These are long-life projects that are going to be around for 40 years."
The irony is that the slowdown may ultimately help the oil sands by reducing labour costs, allowing some projects on the backburner to be pulled back into serious consideration, he said.
This contrarian approach, he said, is the benefit of being a private family business that is not subject to the short-term scrutiny of analysts and public shareholders. "The benefits to being private are never more so than they are in a market like this," he said.
He said family members have always seen the best opportunities to make transformational changes in the business when it can go against the flow.
He cited the example of his grandfather, James Richardson, who founded a securities firm in 1926, only to suffer the shock of the stock market crash three years later and then the Great Depression. The family worked through it, and the business did well for 60 years before being sold to Royal Bank.
"That is my compass," he said.
Similarly, the company invested in energy when the oil price was depressed in the late 1990s, and in agribusiness and grain-handling when commodity markets were soft.
But the family, whose commercial roots lie in the grain-handling business, was not comfortable with the meteoric rise in commodity prices that propelled stock valuations to record highs over the past year.
The insanity struck him when someone suggested it was "amazing" that Potash Corp. of Saskatchewan was worth more in market capitalization than the Royal Bank of Canada.
He agreed it was amazing, because it did not reflect reality. "Commodities do not defy gravity, and they do not continue to go up forever," Mr. Richardson said.
Because of the over-leveraging of the North American economy, the family's private equity arm has been sitting on $650-million in uninvested funds for the past 18 months.
"We couldn't get our minds around the risk-reward profile," he said. "Basically people were not pricing risk into anything they were doing. "
He said the family, whose companies are well capitalized, feels almost more comfortable as the giddiness seeps out of the market. "Things like integrity and relationships and trust are coming back to the front of people's minds," he said.
But he, too, has been surprised by the speed and depth of decline: "This correction is far more severe than anybody could have imagined. This time, when the other shoe fell, it was the whole shoe store."
The Richardsons are not in a hurry to buy assets because the U.S. de-leveraging will take time and stimulus packages have yet to take effect, he said.
The company continues to build its wealth-management arm, Richardson Partners Financial Ltd., but Mr. Richardson concedes it has felt the same pressures as other asset managers. It reached a peak earlier of $8-billion in managed assets, but Mr. Richardson says: "I can assure you we aren't there today." |
