The Wireless Age is a SaskTel Mobility wireless dealer with operations throughout Saskatchewan. Allen Cowie, CEO, and Rob Duguid, Founding Partner and CEO at PFM Capital, discuss PFM’s investment in The Wireless Age, among other events.
What made this investment attractive for both parties?
Allen: The business had a long history of good profitability, but the former owner was being held back by the ownership structure.
Rob: A founder tends to be more risk-averse as they move along in their life cycle and hold capital back from the business as opposed to redeploying it. The investment we made was the right thing to do for the former owner as well as the business. What originally attracted us was your management team. We also liked how technology was evolving in the sector and how your company was positioned strongly in a highly competitive market.
What is the nature of the investment?
Rob: We partnered with Allen in a management buyout of the former owner. The company was already quite profitable, so we were able to put in a sizable piece of sub-debt (secondary to a traditional bank loan) that the company could easily support with existing cash flow. That allowed us to keep the equity bucket a little smaller, which enabled us to be close to equal partners with management going into the transaction.
Allen: As management, that structure was a tremendous advantage. Also, we tailored the repayment of the sub-debt to the cash flow of the company. It was manageable for us to set as a certain number of dollars per month.
How did you know there were concerns with the business?
Allen: When we first met, we talked openly about how The Wireless Age was very profitable but struggled from a cash flow perspective because it was not the only business the owning company held. Cash had been removed from our operations to support other businesses. It had put us in a fairly weak position.
Rob: Over the past several years, we have taken a collaborative approach in deciding what to do with the cash that is generated by the company. We’ve worked together to decide whether to take advantage of acquisition opportunities or dividend the cash out to shareholders.
A collaborative approach is key to exploring and deciding what’s best for a business. Working closely together enables solving problems, diversification, and sharing a future vision.
Watch this video titled Doing What’s Best for the Business with excerpts from this conversation between PFM Capital and The Wireless Age.
What’s next for the partnership?
Rob: We are still looking at growth. We’ve been working together quite closely on ways to diversify.
Allen: When working with PFM, I’ve never felt like I was dealing with a lender. Conversations were never about covenants, ratios, how are we going to get paid back, and what type of return are we getting. Our quarterly meetings were always around what is happening in the business, positive or negative, and what is best for the business. It has allowed our company to thrive, keeps us accountable, and provides great opportunities for our people.
Rob: Absolutely. Even when we had a legal agreement in place and contemplated that something might happen by a certain date, when we got to that point it no longer seemed to make sense. We sat down and talked about it and revised it accordingly. It has been a flexible relationship.
What advice do you have for owners who require capital?
Allen: Look for the relationship that helps support your vision for the business. So many people wait and rush to secure financing when they need to purchase something, or they have a short-term need that they did not see coming.
Rob: It’s a good point. When capital is needed for a succession plan and a management buyout, founders and entrepreneurs should start the process early. It takes a bit of time to bring the team along. The founder needs to be ready for it and accepting of it. It’s also important for the entrepreneurs to make sure that the vision for the company is shared with the investor and that the investor can bring more than just capital, such as identifying business opportunities for growth, other human resources the company may need, or relationships with other types of financial institutions.
Interview has been edited for brevity and clarity.
First published in the December 2020 edition of The Business Advisor.