NEW YORK – Marc Michel, managing director and group head of TD Capital Communications Partners (TDCCP) suggests the key to future success in the private equity market may be adhering to past practices. “People are going back to things that have worked for them in the past,” he says. “And I think they’re starting to apply some of the criteria, that we have always applied, like is there a proven demand model for the business or are we just hoping that people start to order furniture online and change their behavioral patterns.”
Formed in 1995, TDCCP targets investment opportunities in the media and telecom industries. The firm operates within TD Capital, the private equity arm of TD Securities. TD Capital also includes Canadian Private Equity Partners, Private Equity Investors, Mezzanine Partners and Technology Ventures.
With its “very focused” investment strategy, Michel says the firm looks for what he calls “lower beta” plays – companies with proven demand metrics and manageable competition.
“We don’t like going into businesses that have low barriers to entry, which is exactly what happened in the CLEC business, where you had 20 guys going into a market,” he says. “We have always looked for places where the competitive dynamics were very manageable.”
TDCCP cites a “perfect example” of this in the wireless tower business. With every tower protected by zoning regulations, Michel says the business has “terrific competitive dynamics.”
Other examples include Telemundo, which is the number two player in the Hispanic market – a market with only two major players – and Reiman Publications, a specialty magazine and book publisher. “Reiman has a real franchise in its market, and we’re always looking for very defensible franchises that can generate high rates of turns for long periods of time,” Michel says.
The firm’s primary investment sectors include wireless, cable, bandwidth, towers, broadcasting, Internet infrastructure, rural local exchange carriers (RLECs) and publishing.
Michel says TDCCP takes a diversified approach to its portfolio: A mix of cash flow positive type media companies with telecom companies that are developing and not yet cash flow positive telecom companies to offset some of the volatility it might experience.
TDCCP’s deal flow ranges from seed-stage investments to buyouts. “For example, we’ll invest in a wireless start-up, like a Triton or a Telecorp, but we are not taking consumer demand risks there, we know that the dogs are going to eat the dog food already, and so what we are really taking is execution risk, financing risk and management risks,” he adds. TDCCP will also not go into seed situations in emerging industries, where the demand curves have yet to be proven.
“We started up a company this year, Eon Communications, which is a great example of this,” says Michel. “In the U.K. there are still quite a number of homes that are not passed by cable, and we had an opportunity to get a franchise that had been unbuilt covering about 3,000 homes in the U.K. and we backed an experienced management team that had done it before to build a new cable business.”
TDCCP did similar deals with Mountain Union, where it started a company against a proven management team in the wireless tower business in the U.S., and Capital MT, a provider of medical data services. “We have done it over and over again, and it’s been successful for us,” says Michel.
No matter what the investment is, Michel says management is the key. “We want to combine great franchises that are very defensible with terrific first-class management teams,” he adds. “We spend our time with management teams making sure that we have the right people and the best people, which we call top-grading, sitting in all of the functional seats in the companies.”
TDCCP’s approach with its portfolio is to be a great partner with the management team focusing its time and energy on the overall strategy. “We spend our time making sure the right people are sitting in each functional chair within the company and that the company is properly capitalized so that it can execute its plan,” says Michel. “If we’re getting involved in decisions that are deeper down, like how a product should be priced or what packaging should be used or which advertising firm should we hire – then we’ve backed the wrong management team, in our view.”
David Weisman, president and chief executive of Mountain Union, says TDCCP is extremely knowledgeable and has been quite supportive of his management team. “Their knowledge extends to the industry, and that’s become some of the most helpful participation, in other words, they network into the industry,” he says. “In our case, we not only have a discussion of our company, we have a discussion about the entire industry, peer groups and the public companies, so there’s a constant interface and involvement with an understanding what our goals are as well as a macro view of where the industry is going.”
Having been in the business for over 30 years through both TD Capital and TD Securities, Michel and his team at TDCCP are able to leverage their vast array of connections and make the most of their long institutional memory of what’s worked and what hasn’t. “We didn’t get caught up in sort of the irrational exuberance that a lot of funds did, where they thought everything was going to work and what’s happened is those demand curves were never proven.”
To date, TDCCP has invested about $953 million in a total of 57 companies throughout the U.S., Canada and Europe. The firm’s investment professionals are split among its offices in New York, where Michel manages 13, and London, where Managing Director Jose Brena heads up a team of seven. TDCCP participates in deals as a lead, co-lead or co-investor with investments ranging from $10 million to $60 million over the life of the deal.
The firm is fully funded by TD Bank; however Michel says the firm’s ultimate goal is raise its own fund, in the fashion of Canadian Private Equity Partners, which raised a C$635 million ($405.5 million) fund last year. “It’s something that we will be pursuing next year,” he says.
Following are some of TD Capital Communications Partners’ portfolio companies:
Alaska Native Wireless LLC (Anchorage, Alaska) secures PCS licenses to provide advanced wireless voice and data services throughout the U.S. including Alaskan Tribal Lands.
Other investors include Council Tree Communications, Madison Dearborn Partners and Arctic Slope.
CT/Telemundo (Hialeah, Fla.) is the second largest broadcaster of Spanish language television programming.
Other investors include Council Tree Communications, Madison Dearborn Partners and Arctic Slope.
CurtCo Robb Media LLC (Acton, Mass.) is a publisher of the Robb Report and other high-end lifestyle magazines.
Other investors include CurtCo Media Labs.
EON Communications (Morpeth, England) constructs and operates broadband cable networks. The company produces digital communications networks providing digital interactive television, fixed line voice telephony, Internet access and high-speed data services to residential and business users in Southwest Scotland and Northwest England.
Other investors include Madison Dearborn Partners, GE Capital Telecom and Incepta Partners.
Mountain Union Telecom (Alexandria, Va.) owns, operates and manages towers and rooftops serving the wireless telecommunications industry.
There were no co-investors.
Nassau Broadcasting (Princeton, N.J.) provides wireless communication and paging services. The company provides mobile phone service and paging under several brand names.
Co-investors include Spectrum Equity Investors and Grotech Capital Group.
Prime Communications LLC (Austin, Texas) is a manager of cable systems.
Co-investors include Prime Cable and The Carlyle Group.
Rural Cellular Corp. (Alexandria, Minn.) provides mobile phone service and paging under several brand names.
Co-investors include Madison Dearborn Partners and Boston Ventures Management.
Triton PCS Holding Inc. (Malvern, Penn.) provides wireless communications services. The company is a provider of wireless broadband PCS services in the Southeastern U.S., and provides services in a contiguous area covering approximately 13 million.
Other investors include Chase Manhattan, J.P. Morgan, Desai Capital and First Union Capital Partners.
Western Wireless (Bellevue, Wash.) is a provider of wireless communications services in the western U.S. The company offers cellular services, as well as custom calling services such as call forwarding, call waiting, voice message storage, conference calling and retrieval and no-answer transfer.
Other investors include Providence, Goldman Sachs.
TD Capital Communications Partners is located at 31 W. 52nd St. 20th Fl., New York, NY 10019, Tel: 212.827.7760, Fax: 212.827.7238.
The firm’s Web site is www.tdcapital.com
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