John Barber convinces Torstar to give him new platform for his tired tall tales

It has been a few years since I’ve written about a discredited former Globe and Mail columnist by the name of John Barber (see prior post “Barber’s Blazing Beretta” Jan 28-09). The reason being, at least from the perspective of an outsider, was that the Globe’s management finally got tired of his biased invective and took away his municipal column several years ago — leaving him with no platform to pursue his decade-long vendetta against Billy Bishop Toronto City Airport and its governing body, PortsToronto.

In a strange twist of fate, Mr. Barber has found a new vehicle for his specious airport tales: The Toronto Daily Star. Apparently, the Star knew nothing about the fact that Mr. Barber’s former employers had to deal with a defamation action in relation to his coverage of the airport and its governing body, in addition to the same kind of erroneous material that he is now peddling via last weekend’s Star. And while his most recent Star column falls under an “opinion/commentary” headline, one would assume that the Star would be interested in i) accuracy, and ii) avoiding the appearance that it is aiding a Globe and Mail castoff in his pursuit of a long-standing vendetta.

A couple of my Twitter followers asked for a description of Mr. Barber’s most recent falsehoods, and I’m only too happy to oblige:

Mr. Barber’s claim:

“three century-old ferries so decrepit federal authorities have repeatedly threatened to decommission them in the name of public safety — and probably should. (Instead, Transport Canada has settled on the crude expedient of cutting the antique fleet’s permitted passenger loads, presumably to limit losses from the anticipated disaster.)”

Mr. Barber declines to mention that the ferries in question are owned and operated by the City of Toronto.

Barber claim:

“handsomely subsidized island airport”

Billy Bishop Toronto City Airport is not subsidized and receives no funding from any level of government. PortsToronto, as owner and operator of Billy Bishop Airport, receives no Federal grants (by law) and is entirely financially self-sufficient. Barber knows all of this as a result of his earlier litigation experience. In addition, PortsToronto paid $2.4 million in gross royalty charges to the Federal government for 2014, and an additional $2.9 million in Payments In Lieu Of Taxes to the City of Toronto. Rather than receive a “subsidy,” as Mr. Barber claims, PortsToronto and Billy Bishop Airport are a direct net contributor to the public purse.

Barber claim:

“…their almost-new ferry soon to be replaced by a brand-new pedestrian tunnel built by a public authority for more than $80 million.”

The Marilyn Bell I ferry to Billy Bishop Airport, acquired in 2009 (without taxpayer dollars), is not being “replaced” by the pedestrian tunnel, given that the airport will still need to provide regular ferry access for Ornge ambulances, as well as catering, fuel and delivery trucks, for example. The new tunnel is required to improve the passenger experience, and became warranted after passenger traffic increased from ~25,000 passengers per annum a few years ago to more than 2 million. Modest local traffic surges will also be moderated, which is an added bonus.

Moreover, PortsToronto financed the $82.5 million pedestrian tunnel under a Public-Private Partnership model, financed completely by Airport Improvement Fees collected from Billy Bishop Airport passengers. The use of the “public authority” language, when combined with the earlier “handsomely subsidized” claim, leaves readers with the impression that Federal taxpayers are subsidizing the construction of the tunnel. To be clear, there are no taxpayer dollars involved in the construction or maintenance of the tunnel. This is irrefutable.

In fact, it is Billy Bishop Airport passengers who subsidized the City of Toronto when PortsToronto agreed that new city water and sewer mains could be combined with the tunnel project, saving City taxpayers $10 million on their own, previously-announced utility main upgrade project (which dated to the era of former Mayor David Miller).

Barber claim:

“Or maybe the airport will have already gone bust by then, and Torontonians will finally realize they don’t need any ferries to reclaim this precious stolen property.”

Billy Bishop Airport was built on land that was largely a silty swamp in the early 1930s, reclaimed from Toronto Harbour by a predecessor agency to PortsToronto. It was “stolen” from no one, as in evidenced by photographs taken at the time.

I’ve written to the Star’s public editor, Kathy English. One can only hope that she will put a stop to Mr. Barber, at least on this topic, once and for all.

(disclosure – this blog, as always, is an Opinion Piece, reflecting a personal view, and in no way represents the views of PortsToronto, its Board/Staff or the federal government)

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Canaccord Genuity “Striking while the iron is white hot” at Under Armour

It has been a few years since I regularly shared some of the more interesting equity research reports I see each day. I know it’s not a tech stock, but Under Armour (UA:NYSE) is grabbing everyone’s attention right now, and for good reason.

Sure, the share price chart is almost straight up and to the left. UA shares are up 210% over the last two years, blowing by Nike’s still impressive ~80%+ performance and the S&P’s ~20% gain. The Baltimore-based company definitely gets credit for having the best style and fabrics right now, according to those I trust in such matters. And picking Spieth and Curry as brand ambassadors was either lucky or brilliant — and their own success must be helping raise awareness in North America. I’m just back from a couple of weeks in the U.S., and I couldn’t help but notice that UA logos were definitely outplacing Nike and Adidas on the folks I came across in the three or four states I visited — regardless of the age group of the wearer or the apparent economic snackbracket. Peter Lynch would be proud of me for noticing such things.

After beating on the most recent quarter, Canaccord Genuity’s Camilo Lyon increased his share price target. Here’s his note from this morning:

Striking while the iron is white hot; reiterate BUY, new $105 PT (from $97)

Investment Recommendation

UA’s Q2 beat (7c EPS vs. 5c consensus) showcased another quarter of impressive top line momentum, with sales growth of 29% (31% ex-FX) handily beating our 24% estimate. Once again, sales growth was broad based with footwear (+40%), international (+93%) and DTC (+33) leading the charge. Gross margin contracted by 83bps, primarily due to FX and air-freight, partially offset by robust growth from DTC and Connected Fitness.

In addition to strong innovation and an improving presentation at retail, UA is capitalizing on the excitement around its athletes (e.g. Steph Curry, Jordan Spieth, and Misty Copeland). To that end, we welcome the planned increase in marketing spend in Q3 as it will strengthen UA’s position in key growth categories like basketball, golf, and women’s. Longer term we believe this will translate into incremental revenue growth opportunities.

As we anticipated, management raised both full year revenue growth guidance to 25% (from 23%) and the low-end of EBIT range to $405-$408M (from $400-$408M). With improving execution and multiple growth drivers spread across categories, channels and geographies, our conviction in UA’s ability to reach $10B in sales over the next 5 years is further emboldened. We reiterate our BUY rating and raise our PT to $105.

Investment Highlights

• Apparel growth of 23% was driven by new introductions of strong performing styles (e.g. Armour baselayer) as well as expanded golf and hunting collections. Basketball (Curry One) and running (SpeedForm) drove 40% footwear growth. Also, 39% accessories growth was driven by new introductions in bags.

• We believe golf apparel (ameliorated by Jordan Spieth’s success), women’s training (boosted by elevated fashion styles), and incremental space allocation at wholesale (in kids/outdoor at key retailers like Academy) should continue to drive apparel growth in 2H15 (we are projecting Q3 growth of 22%). We believe new introductions in basketball (e.g. Curry One Low) and running (e.g. SpeedForm Fortis, Flow Grid, Twist and Bandit) will deliver accelerated growth in footwear (we are modeling 40% in Q3).

• UA’s investments in its footwear business (especially basketball) are paying dividends. The Curry One is driving market share gains in both DTC and wholesale, leading to increased distribution at key retail partners. We believe this will be most evident in specialty mall retailers (e.g. FL/FINL) where UA has been under-penetrated/represented historically, mainly due to lack of compelling product. Now with the success of Steph Curry, UA will smartly leverage this partnership to drive further gains in the category via exciting new product launches. Initiatives like the recent partnership with FL’s Champs Sports to establish shop-in-shops called “The ARMOURY” should further accelerate UA’s share gains while also boosting comps for FL.


Our $105 target is based on a blend of 60x our 2016E EPS, 30x EV/EBITDA, and DCF.

(disclosure: we own UA in our household)

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Seven weeks after Welsh Carson sale, CPPIB Secondaries Head departs

Published on July 23, 2015 by in General

Seven weeks after selling our interests in private equity behemoths PAI and Welsh, Carson, Anderson & Stowe to Harbourvest (see prior post “Why did CPPIB sell our stakes in buyout firms PAI and Welsh, Carson & Stowe?” May 31-15) as part of a $1.5 billion deal, AltAssets reports that Yann Robard, CPP Investment Board’s Head of Secondaries & Co-Investments, is leaving at the end of the month. According to CPPIB’s website, Mr. Robard is a Dalhousie grad and had previously worked at Paul Capital Partners in private equity, with a turn at CIBC World Markets and JP Morgan Chase. Mr. Robard joined in 2001, which would make him the longest-serving member of the 61-strong senior CPPIB management team.

There can be only three likely reasons why he’s leaving what is arguably the best job in the world for anyone in the secondary and co-investment business: I) he was lured away with a very attractive offer, II) he was pushed out, or III) he has personal, health or family reasons for wanting to spend a year or three “on the beach” after a long career in the capital markets. I suppose we’ll know soon enough if it was either of I (should he show up gainfully employed somewhere else post Labour Day, after a five week summer break) or III (should there be a sighting this December of Mr. Robard training in Hawaii, say, for the International Ironman competition).

If neither of those two things happen come December, CPP beneficiaries are left to speculate that our longest-serving senior manager was pushed out of a key role, overseeing billions of dollars of transactions over the past number of years. Which turns the mind to the recent US$500 million Welsh, Carson secondary sale. As I wrote seven weeks ago, we inexplicably sold a stake in a fund which had produced a 14% IRR according to data published by the California State Teachers Retirement System (CPPIB refuses to disclose such information). I say “inexplicably” since CPP’s target return is inflation plus 4%, and both of Welsh Carson’s X and XI funds had beat that hurdle rate. Moreover, Welsh Carson XI has performed better than 36 of the 54 trackable LBO funds that CPPIB has put our money in (see prior post “How many of CPP’s Private Equity Funds Are Underperforming Bonds?” May 28-15). If dumping decent PE funds doesn’t make sense to you, particularly when fresh capital flows into the plan each and every week from payroll deductions (which means we didn’t need the Welsh money to redeploy elsewhere), perhaps it was equally surprising to CEO Mark Wiseman or some of CPP’s board members (such as the respected Douglas Mahaffy) when the news became public.

According to CPPIB’s press releases and public utterances, you’d assume that we’ve never done a bad co-investment deal — at least not one that’s “material” to the overall investment program. I say that a bit tongue-in-cheek because we’ve pointed out more than a few of them in this space over the years, including EMI (went bankrupt in 2011), Freescale, SunGuard, TXU (see prior post “12 questions CPP Investment Board won’t be answering on BNN today” Jan. 17-13) and CHC. In a slap at the transparency Gods, CPPIB’s media spindoctors only ever talk about our Skype flip and similar investment successes (see representative prior post “CBC falls prey to CPPIB’s spin doctors” Jan. 8-13). Based upon the public positioning of the program’s positive results, we should have bent over backwards to keep Mr. Robard as the head of what we are told is a wildly successful global co-investment program. His 14 years of institutional knowledge was likely an important counterweight to the majority of CPPIB’s leadership, who are largely very recent hires.

Which makes it all the more curious when senior folks depart Canada’s largest capital pool in the wake of a $1.5 billion transaction that, to an outsider anyway, didn’t compute. This is a great opportunity for CPPIB to truly earn that seat on the Board of the Canadian Coalition for Good Governance.

Given the conflicting signs, we deserve some real insight into what’s going on with our business.

(disclosure – this post, like all blogs, is an Opinion Piece)

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TSXV-listed Tio Networks acquires Fund III portfolio co. Softgate Systems

The news came out earlier today that TIO Networks (TNC:TSXV) has acquired Softgate Systems, a Wellington Financial Fund III portfolio company. Based in New Jersey, Softgate provides consumer retail bill payment solutions in dozens of U.S. states. We’ve been in for more than three years, successfully partnering with Joe Allegra of Edison Partners and Steve Piaker from Napier Park Global Capital. Congrats to Rick Auletta and the rest of the Softgate team on the pending deal.

If you’ve lost track with the summer and all, this is the third portfolio co. from our 2006-vintage Fund III to be acquired since March. Constellation/InterAct, Espial/Bluestreak, and now Tio/Softgate. Interesting that all three acquirers are publicly-listed in Canada, while two of the targets are U.S.-based tech firms. As we tell our LPs, it really has become one market.

Here’s the TIO release:

TIO Networks Corp., (TSX-V: TNC) (“TIO”), North America’s leading cloud-based bill payment processor, today announced it entered into an arm’s length agreement (the “Acquisition Agreement”) to acquire Softgate Systems, Inc. (“Softgate”), a New Jersey corporation and a leading provider of consumer retail bill payment solutions. The acquisition is expected to close later this year subject to satisfying applicable regulatory approvals and satisfaction of customary closing conditions.

Total value of the transaction is approximately USD$31 million consisting of: (i) A cash component of up to USD$5 million; (ii) A USD$5 million promissory note (subject to adjustment); (iii) issuance of 25 million TIO shares to the Softgate Shareholders; and (iv) assumption of approximately USD$2.5 million of net debt based on balance sheet at signing.

The transaction is transformational and positions TIO as the largest North American provider of walk-in bill payment services, through its wholly owned subsidiaries which would include Softgate, as well as making TIO one of the leading providers of payment processing and receivables management to national and regional utility, wireless, and cable bill issuers in North America. With the addition of Softgate, TIO will have an augmented national platform from which to provide extensive non-bank financial services to the unbanked, under-banked, and unhappily banked millennial population.

On a pro-forma basis the combined companies have trailing 12-month revenues of more than CAD$100 million. Softgate’s calendar year 2014 revenues grew 18% to USD$36 million as compared to the previous year. TIO expects that the enhanced processing scale of the combined companies as well as revenue and integration synergies will generate USD$5 million in incremental EBITDA per year.

“We’re very excited to welcome Softgate as well as its valued management, employees, partners and clients to the TIO Family”, said Hamed Shahbazi, CEO of TIO Networks. “TIO and Softgate have been commercial partners for more than eight years, and we have been very impressed with how the company has evolved and built a well-diversified national network of walk-in locations. This is a significant step for TIO and will be a launching point to bring our services to a much larger segment of the United States. TIO and Softgate was always a natural combination based on our cultural alignment and our years of commercial collaboration.”

“We’re excited to join forces with TIO and create a new emerging competitor in the multi-channel bill payment and receivables processing marketplace,” said Rick Auletta, CEO of Softgate. “We look forward to working with the TIO team to meet the growing financial needs of bill issuers across the country. Between our respective competencies, it is clear that both TIO’s and Softgate’s customers will really benefit from the skill and scale enhancements brought about by this unique combination.”

In addition, TIO has agreed to appoint Joe Allegra from Edison Partners and Steve Piaker from Napier Park Global Capital to its board upon the closing of the transaction.

“We’re looking forward to joining TIO’s board and helping the company continue its growth path. TIO’s team has shown a strong ability to allocate capital smartly and grow shareholder value” said in a statement issued by Joe Allegra and Steve Piaker.

Financial Technology Partners LP and FTP Securities LLC served as exclusive financial and strategic advisor to Softgate in this transaction.


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VAdm Mark Norman on “What right looks like”

Published on July 7, 2015 by in General

That’s not my line, but it certainly struck a chord with me. “What right looks like.”

It comes from a directive penned earlier this week by Vice-Admiral Mark Norman, Commander of the Royal Canadian Navy. Although it hasn’t been released to the public, there’s nothing about his message that is secret; and it is certainly worth sharing with the denizens on Bay Street and across the innovation ecosystem.

As much as the military has drawn attention regarding harassment and gender issues, a survey of the senior ranks of Canadian investment banks and VC firms would show that Canada’s military isn’t the only place that can — in some corners — do better on the diversity and sensitivity front. At its core, Admiral Norman’s message is about judgment, culture and core values. Something that every entrepreneur thinks about when they go through the first, second and even third phase of hiring. The challenge becomes, as the Navy found, ensuring that the core ethical / cultural ethos is maintained when an organization gets very large, or long in the tooth.

Equally so, however, for smaller firms. As I found 15 years ago on Bay Street, even if everyone knows “what right looks like”, that doesn’t mean they want — individual by individual — to admit that something wrong might be going on in the corner office. It is easier to turn a blind eye, and pull a Sgt. Shultz. That’s why, in part, whistleblowers are still a rarity in Canada. And, sadly, why American whistleblowers are usually women, as Time Magazine highlighted some years ago.

Everyone who runs a company will be able to find a way to apply this Admiral’s message to their own firm, whatever sector they play in. Bravo Zulu to Admiral Norman for not mincing words, and giving the business community a sense of just how strong Canada’s military leadership really is:


Several months ago, we undertook the task of reviewing personal conduct in the RCN and found that it required a course correction. Since the release of our own report, I have been both inspired and heartened by the actions taken by all levels of leadership in the RCN to bring our culture more in line with the expectations of Canadians. That is why, like many of you, I was dismayed by the findings of Mme Deschamps; to imagine that there are individuals within our ranks who have experienced such heinous treatment is deeply disturbing, and cause for concern. For this reason, I think it is important to put “a fix on the chart”, and provide some broad guidance for the continued modernization of our culture, which is integral to our ability to deliver excellence at sea for Canada.

While we await both the report from LGen Whitecross, and the resultant direction from the CDS, I want to commend you for continuing the corrective action already implemented to eliminate behaviours that promote a sexualized culture and sexual misconduct in the RCN. Your efforts to date to foster a working environment that promotes transparency and facilitates open dialogue across members of all ranks, has laid the groundwork for follow-on initiatives. In much the same way that we continue to tackle the issue of organizational culture through our RCN Code of Conduct, our future success in eliminating sexual misconduct from the workplace will hinge on our ability as leaders to reinforce behavioural expectations within our own “guardrails”. Going forward, our message must be positive, consistent, and unambiguous: to identify the champions of this resolution, we must start by looking in the mirror.

Although the original purpose and scope of our internal analysis was different than that of Justice Deschamps, it should come as no surprise that the root causes of sexual misconduct are very similar to those we have found in our own work on issues of personal conduct. In particular, the inconsistent application of deck-plate leadership, the intentional contravention of well-established rules and regulations, and the misuse of alcohol are all common and defining features of the collective findings of the past several months.

Though we cannot let the actions of the few define who we are as an institution, we must openly acknowledge that sexual misconduct is an issue within the RCN. Our people deserve to operate in an environment that promotes unequivocal respect for all the members of our team – irrespective of gender or sexual orientation. There is no excuse for disrespecting anyone, degrading their dignity, eroding their trust, or abusing rank and authority. Furthermore, there is no excuse for any person who witnesses or is informed of these types of behaviours and fails to intervene.

Let me be clear: I do not consider the misconduct characterized to date to be inappropriate behaviour- rather, I find it to be absolutely unacceptable behaviour. There will be no room in the RCN for those who do not agree with, or fail to demonstrate their complete commitment to supporting our shared responsibility in this regard.

In the short term, we have an opportunity through the normal rotation of personnel and changes in command and key appointments, to improve our ability to communicate and outline our core organizational values, and the expectations of conduct we have set for our team. This includes facilitating sometimes uncomfortable discussions, and helping our people to understand what constitutes sexual misconduct, and the damaging effect it has on victims, unit cohesiveness and ultimately, operational effectiveness.

It is genuine concern for our sailors, the divisional system, and our ability to look after our shipmates that have anchored our proud past. This time will be no different. For this reason, we will fully commit to implementing any and all further direction with diligence and vigour, while we continue our own work to finalize the RCN Code of Conduct. I am confident we, as leaders, will continue to define and emulate for our sailors and officers “what right looks like” as we effect real and positive change.

Yours Aye,

(disclosure – I’m the Hon. Captain of the RCN)

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