Caisse Immunotec Venture Vol 4 No 1 (spring 2007)

S r

e n e th m p o u fr o r gr e y t t et ui sl Eq w e ne at A iv Pr

PART

$2.8 B

07 20 1 g o. n ri 4 N p . s l vo

Total of private equity investments authorized in Québec in the last two years.

Private equity in Québec: a full spectrum of products generates solid results The private equity strategy of the Caisse de dépôt et placement du Québec has six components and provides a full spectrum of products for Québec entrepreneurs. In this issue, Partners looks at the broad efforts made to deploy the strategy over the past two years.

In 2004, the Caisse’s Private Equity group revised its investment strategy for Québec. Today, its product offering covers the needs of Québec companies in every development stage, with a wide range of creative solutions and partnerships whose distinct characteristics meet entrepreneurs’ specific needs. The Caisse supports the best management teams and has the resources to make additional investments in certain companies to assist with growth projects.

The results of the strategy speak for themselves: in two years, private equity investments totalling $2.8 billion have been authorized in Québec, almost 65% of them in 2006 alone. Moreover, frequent use of a partnership approach increases the scope of the amounts invested and the services offered. In short, the Caisse is working with other financial industry players to optimize the financing available to Québec’s entrepreneurs.

in this issue 2 Customized services for mid-sized enterprises 4 More support for small business. / A leader in succession financing for Québec businesses. 5 Productive venture capital activities. 6 Succession planning Consult specialized advisers for a successful business transfer. 9 Focus on Partners Laboratoire Médical Biron continues to expand 10 Immunotec receives $9 million.

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Customized services for mid-sized enterprises In 2003, the Caisse created a team that focuses exclusively on the needs of mid-sized businesses in the manufacturing, distribution and services sectors, to assist them financially and to provide more effective market intelligence. The team offers customized solutions, adapted to today’s business conditions, in amounts ranging from $2 million to $25 million.

The Caisse’s Medium-sized Businesses team has made quite a few investments since inception. In fact, 33 transactions amounting to $257 million have been authorized to facilitate growth, succession and sustainability projects.

To increase the productivity

of Québec’s

manufacturers, the Caisse created

the Québec

Manufacturing Fund in October 2006.

The team has also organized five workshops to make numerous Québec entrepreneurs aware of the opportun­ ities presented by emerging markets. The workshops, which also enable them to share their experience and expand their networks of business contacts, have been received very favourably by entrepreneurs. The Caisse has published Faire des affaires en Chine, a brochure on doing business in China, available in French only at www.lacaisse.com. It was also involved, in partnership with BDC, Société générale de finan­ cement, Inves­tissement Québec and Québec’s Ministère du Développement économique, de l’Innovation et de

l’Exportation, in a SECOR study of China’s impact on the Québec manufacturing sector, and it has commissioned a follow-up on the study.

Creation of a Manufacturing Fund

Québec’s mid-sized businesses, especially in the manufacturing sector, are operating in an increasingly tough environment under strong pressures: competition from emerging economies, the strong Canadian dollar, which reduces the profit margins, their productivity differential (20% to 30% lower than that of U.S. competitors), under-investment in equipment and automation, and succession challenges. To increase the productivity of Québec’s manufacturers, the Caisse created the Québec Manufacturing Fund in October 2006. This new fund, which will emphasize investments that increase plant efficiency, will make investments

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of $7.5 million or more in mid-sized manufacturers that are headquartered in Québec and have annual revenues of $50 million to $250 million. The fund offers the advantage of being managed by professionals drawn from manufacturing and finance. Its mana­gers therefore have financial expertise and operational experience, which gives them a definite strategic edge. Moreover, the investment philosophy favours active involvement in the investee companies and therefore offers more than capital. The Caisse is the lead sponsor of the $100 million of initial funding.

Major commitment to leveraged buyout funds

The Caisse has made a commitment to invest $160 million in Novacap’s next round of fund raising, or 25% of the capital subscribed for each of

the firm’s specialized funds, which will total about $650 million. Novacap is a leading growth and buyout group that invests in traditional and techno­ logy companies that dominate a market niche. Novacap accelerates their activities significantly by emphasizing organic growth, acquisitions and strategic alliances. The new Novacap funds will be involved in large transactions, investing $10 million to $50 million in companies with revenues of $25 million to $300 million. Moreover, investments of $5 million to $25 million will be made in technology companies at an advanced development stage, with a focus on growth projects, spinoffs and restructurings. As a result of this partnership, the Caisse can take advantage of majority stakes in companies, which it cannot acquire directly, while benefiting from the operational experience of Novacap’s managers.

The Caisse and Novacap, which have been partners since 1981, are furthering a productive alliance that increases their visibility and strengthens their mutual penetration of the North American private equity market, especially in Québec.

investments of $5 million to

$25 million will be made in

technology companies

at an advanced development stage

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More support for small business In the small business segment, which is already well served by tax-advantaged funds, banks, the Desjardins Group and several government players, the Caisse has adopted a partnership strategy. Rather than deploy its own regional network alongside these wellestablished institutions, the Caisse formed a strategic partnership with the Business Development Bank of Canada (BDC) in 2003 to create the AlterInvest fund. BDC manages the fund and distributes the products through its network of regional offices. This approach has proved beneficial. It has provided additional capital to small

businesses in Québec and has increased the Caisse’s investments in the province. By the fall of 2006, the fund’s $300 million was fully invested. About 300 transactions were carried out, most of them in Québec, with the majority in small businesses, as indicated by the average investment size of $1 million.

A CANADA-WIDE PRESENCE

A Canada-wide presence

ATLANTIC WEST

4.2%

20.6%

QUÉBEC

43.2%

Moreover, the partnership with BDC has met expectations so effectively that is has been renewed for three years. Last November, the Caisse invested $165 million in a second Canada-wide fund with a total budget of $330 million. The fund will make investments in the form of subordinated debt.

ONTARIO

32.0%

A leader in succession financing for Québec businesses Many Québec companies will have to meet the succession challenge in the years to come and must start getting ready now. The inadequacy of the solutions available to finance the transfer of profitable companies from one generation to another prompted the Caisse, back in 2000, to launch Accès Relève, the first product designed especially for this market. Accès Relève offers a comprehensive, multidisciplinary approach to meet the many needs of businesses faced with the succession challenge.

transfer process, the Caisse recently partnered with two financial institutions, National Bank and Royal Bank, to distribute Accès Relève to their commercial customers.

To make the product accessible to a larger number of entrepreneurs and to make contact with them earlier in the

The Caisse’s initiative has inspired a number of financial institutions to create their own succession products.

The Caisse’s investments and commitments in this area totalled almost $50 million at year-end 2006. The rate of business transfers will intensify in the years to come as many business leaders from the baby-boom generation reach retirement age.

It has therefore served as a catalyst in this niche. The institution’s initiatives also include various value-added activities, such as two workshops on succession (Québec City and Montréal) for potential partners, a document on business transfers, available at www.lacaisse.com, and several presentations and conferences on succession.

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Productive venture capital activities Rather than investing directly in Québec technology and life sciences companies in the start-up and growth phases, the Caisse now invests in local and foreign venture capital funds that are active in the province.

Its four-pronged strategy contributes to a stronger and more competitive venture capital industry in Québec, and increases the sources of financing for local companies. Moreover, the Caisse has a substantial leverage effect on the venture capital available by attracting new investors. In this way, it helps provide a full spectrum of venture capital financing in Québec, through funds that cover companies at the seed and startup phases as well as those specializing in firms at more advanced stages of development. The Caisse also helps organize specialized seminars to disseminate the industry’s best practices.

Strategy 1 // Invest in Québec funds well

As for the Caisse’s partner funds, they have invested a total of $80 million in about 15 Québec companies, in addition to having attracted $40 million of coinvestments for these deals. Strategy 2 // Make co-investments with funds

Strategy 4 //

to finance growth projects of

Attract foreign venture

technology companies

capital to Québec

At the end of 2006, two co-investments totalling $24 million had been made in Québec in partnership with ven-­­­ ture capital funds. As planned, the Caisse has therefore started up its co-investment program, which calls for $150 million of investments over three years. In this way, it will contribute its financial capability and interna­ tional network to promote the growth of local companies supported by its partner investors.

Eight funds from outside Québec (three American, one European and four Canadian) have already set up operations in Montréal, injecting new capital and enabling local technology companies to benefit from the Caisse’s international network.

positioned in technology venture capital

Over the past two years, the Caisse has committed a total of $247 million to about a dozen funds that are collectively deploying more than $1 billion. It has already surpassed its initial objective of investing $200 million in funds over three years.

Moreover, the Caisse has commissioned a study that will help determine its positioning in the biotechnology sector, especially its approach to companies in the pre-start-up phase.

Strategy 3 // Support funds that specialize in Québec technology start-ups

The objective of investing $20 million over three years in Québec technology start-ups has already been exceeded with $30 million of investments.

A catalyst for the venture capital industry

The Caisse has acted as a catalyst for the venture capital industry. It has contributed to the creation of about 10 Québec funds, as well as three funds that specialize in start-ups. It has also encouraged a number of foreign funds to set up in Québec. The Caisse’s venture capital investments and commitments in Québec totalled almost $400 million as at December 31, 2006.

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Succession planning Consult specialized advisers for a successful business transfer In this issue of Partners, we address the third of the six factors that you, as an entrepreneur, must consider to carry out a successful business ownership transfer: prepare a succession plan well in advance; ensure your business is organized and simplified; consult specialized advisers; define your expectations, role and financial requirements; consider technical, tax and testamentary aspects; and encourage transparent communication among the people concerned.

It is essential to put in place

a structure and instruments that ensure the various

stakeholders can achieve

their objectives.

Important issues

The transfer of a business to a new team, whether it consists of family members, company managers or external resources, involves a number of considerations and various players, such as successors, managers, employees and relatives. It involves a series of steps that must be completed according to a precise schedule. During this process, you and the people around you will have to step out of your usual comfort zones to make decisions that go beyond day-to-day management. Sensitive matters will have to be addressed, such as power sharing, selection of a successor and the support provide by you to ensure that person can exercise leadership, co-operation by the various parties, fulfilment of expectations, assistance you and the successor will give each other to carry out your succession plan and

retirement plan, gradual delegation of responsibilities and assurance you can play the desired role in the process. In addition to subjective and emotional issues, this process involves accounting, financial, tax and legal considerations. It is therefore essential to put in place a structure and instruments that ensure the various stakeholders can achieve their objectives. This often involves recourse to advisers who can foster a transfer that is orderly, successful and harmonious.

Turn to friends and other entrepreneurs

You should not hesitate to consult friends who know you well, from personal, family and business standpoints. You should also seek advice from other entrepreneurs who have already gone through this process or are dealing with the same concerns.

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you should retain

an adviser who specializes

in business transfers and will provide

assistance and counsel.

Information gathered in this way will help you assess your own situation and the avenues open to you, and will determine fundamental questions that have to be asked, options and solutions that have already proved their usefulness and difficulties that should not be overlooked. This initiative can also identify advisers who will help you effect a successful transfer process. The person you consult has to be a friend who has nothing to gain from the situation, who has relevant experience and who can identify with your position. Obviously you will have to be prepared to hear this person out, even if you are unsettled by the information you receive.

Select a main adviser with experience

In general, you should retain an adviser who specializes in business transfers

and will provide assistance and counsel during the various stages of the transfer plan. The adviser must be familiar with the complex inter-relations that such a process entails and be recognized for the ability to listen, communicate, coach, resolve conflicts and implement action plans. After an initial evaluation, the adviser must provide a detailed plan of the proposed process as well as a realistic schedule. He must also specify when other specialized advisers should be brought in to address technical, accounting, tax, legal and other considerations. The adviser is usually a specialist in human resources or business advisory services, and must be able to ask the right questions and propose solutions conducive to harmony and trust. He must help you as an owner to reflect on your future, your role and your interests,

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and he must be able to fully grasp the family context, the role of your spouse and the interests and concerns of your family as well as the employees of your business. The adviser will have to evaluate how the successor can develop his managerial skills over the years and how his integration should take place. He can become a coach who helps the successor enhance his planning, communication, teamwork, timemanagement and decision-making skills so that he can develop the leadership needed to gradually take over the running of the company. Finally, the adviser must foster communication among all the stakeholders and reassure them at each stage of the process.

Retain control over the process

You must have complete confidence in your adviser. You must know the role that he intends to play and the assumptions he has developed. Throughout the process, you must be kept informed of the progress of the various initiatives. You will have to oversee and retain control over the process and its results. At companies that have a board of directors or an advisory committee, the owner and the adviser should be asked to report regularly on the progress of the work and the satisfaction of the various parties concerned. Since the transfer process involves several specialized advisers, the main

adviser must ensure that their proposals can be integrated adequately and the objectives reached on schedule. In short, if you involve specialists in the process, you can maximize the chances of a successful transfer and be sure that your business will continue and can undertake forwardlooking projects.

Don’t hesitate to contact us for more information about our Accès relève Succession solution: (514) 847-2838.

The Collège des administrateurs de sociétés offers training in corporate governance for business succession The Collège des administrateurs de sociétés, which was created in March 2005 by the Faculty of Administrative Sciences at Université Laval, the Caisse de dépôt et placement du Québec, the Autorité des marchés financiers and the Québec government’s Ministère du Conseil exécutif, offers training programs to establish and promote the most rigorous governance standards. Its new three-day governance program for business succession is designed for entrepreneurs concerned about ensuring the longevity of their businesses, whether the succession candidates have been identified or not. The next training sessions will take place in Fall 2007, in Montréal and Québec City. More information and training dates are available at www.cas.ulaval.ca.

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Focus on Partners Laboratoire Médical Biron continues to expand The Caisse’s Medium-sized Businesses team recently authorized several million dollars of financing for Laboratoire Médical Biron. The company would like to continue its expansion in the years to come and now has the resources to act quickly on business opportunities, whether they involve making acquisitions, expanding its network of collection centres and services, or forming new strategic alliances. The company was founded in 1952 by Denis Biron and has been led for the past 12 years by his daughters, ÈveLyne, Caroline and Geneviève Biron. Laboratoire Médical Biron is highly regarded for the excellence of its collection services and laboratory analyses, as well as its prompt deliver of results to physicians. The company operates a network of more than 100 collection centres in Greater Montréal and the main cities in Québec. Several thousand tests are performed each day at its ultramodern facilities (hematology, biochemistry, virology, endocrinology, microbiology and drug testing). The company began diversifying in 2000 with

the first private sleep-apnea diagnostic clinic and in 2004 with its Apnair Division for the treatment of sleep apnea. Laboratoire Médical Biron also offers various corporate services, such as health days (blood work-up, screening and vaccination). For more than 50 years, as a result of its high-quality, customized services, Laboratoire Médical Biron has been Québec’s leading private medical analysis laboratory. With the aging of the population and increasing reliance on specialized medical tests, this area offers very promising growth opportunities.

“We’ve been asked on several occasions to get involved in various projects. As a result of the transaction with the Caisse, we can study these opportunities and act quickly on the most promising ones.” / Ève-Lyne Biron President, Laboratoire Médical Biron

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Immunotec receives $9 million Immunotec, located in Vaudreuil-Dorion near Montréal, develops and markets food supplements and products, vitamins, personal care products and natural health products.The company’s products are distributed and sold in Canada and the United States through a network marketing system as well as in several other countries under exclusive distribution agreements. Immunotec has been listed on the TSX Venture Exchange under the symbol IMM since January 24, 2007, as a result of a reverse takeover by Magistral Biotech.

Immunotec’s flagship product, Immunocal/HMS 90, is patented and backed by more than 20 years of specialized research on dairy products by Dr. Gustavo Bounous and his team of researchers, in collaboration with universities and a Québec dairy. This milk-protein isolate is now undergoing phase II clinical studies to demonstrate its safety and efficacy in preventing the decline of cancer patients.

Providing venture capital through funds The investment in Immunotec by the Medium-sized Businesses team took the form of a buyout of two of the main shareholders.

“The Caisse’s investment

represents a milestone for our Company. With this solid partner, we enjoy greater credibility, in addition to being able to count on financial support and a business network that will enable Immunotec to reach new heights. This deal, combined with our recent listing on the stock market, will change our Company’s profile considerably.” / chuck roberts President and Chief Executive Officer, Immunotec

The Caisse provides venture capital to Québec companies through partnerships with specialized funds. / Propulsion Fund III, L.P. / SAM Private Equity Sustainability Fund II LP / CTI Life Sciences Fund, L.P. / ProQuest Investments III, LP / ProQuest Investments IV, LP / Go Capital Fund, L.P. / Société en commandite Agechem / GeneChem Technologies, L.P. / Capimont Technologies, L.P. / T2C2 / Bio L.P. / J.L. Albright IV Venture Fund L.P. / Garage Technology Ventures Canada, LP / ID Fund L.P. / Rho Canada Ventures L.P. / MSBi Investment Fund II, L.P. / Brightspark Ventures II, L.P. / Novacap II, L.P. / VantagePoint Venture Partners 2006 (Q), L.P.

The Caisse invests in funds that provide capital for numerous companies at the start-up and expansion phases. It also makes joint investments with them to finance promising projects in addition to taking part in the creation of new funds.

Standing for growth – through partnerships.

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Prime examples of support for local companies

/ Growth

/ redevelopment

Centre d’hébergement Bio Santé Holding inc.

Display unit manufacturing

Biomedical analysis laboratory

Senior residences

Women’s lingerie retailer

Flight simulator

/ acquisition

Water heaters, heating and ventilation

Music and video distribution

Water heater rentals and ventilation

Sports event broadcasting

/ succession planing / expansion

Medical supply distribution

Sound, lighting and video

/ Shareholder buyout Plastics recycling Multimedia

/ co-investment venture capital Farm equipment manufacturing

biopharmaceutic

Industrial piping

information technologies

An entire team dedicated to Québec’s mid-sized businesses Normand Provost Executive Vice-President, Private Equity [email protected]

Michel Brouillette Laval, Laurentides, Lanaudière, Québec [email protected]

Richard Babineau Montérégie, Estrie, Mauricie [email protected]

François Libotte West of Montréal,, Abitibi-Témiscamingue [email protected]

Michel Goulet Accès Relève [email protected]

Claude Lafond East of Montréal, Centre-du-Québec, Bas-Saint-Laurent / Gaspésie [email protected]

Michel Paquette Montérégie, Saguenay / Lac-St-Jean [email protected]

Chantal Laberge Québec Manufacturing Fund [email protected]

To obtain additional copies of this newsletter: [email protected] Ce bulletin est disponible en français et sur Internet. ISSN 1712-5189 / ISSN online 1712-5197 Legal deposit, 2nd quarter 2007 Bibliothèque et Archives nationales du Québec Poste-publications 41061005

www.lacaisse.com Centre CDP Capital 1000, place Jean-Paul-Riopelle Montréal, Québec H2Z 2B3 514 847-2838 Toll-free number: 1 866 330-3936 Peinture à base d’eau à pollution réduite.

Reduced-pollution water-based paint.