PE HUB article on Wellington Financial's 15th anniversary

ICYMI, here is an article by Kirk Falconer about our firm’s 15th anniversary that appeared online yesterday.

Wellington Financial’s McQueen spots opportunity in an uncertain market

Mark McQueen, president and CEO of specialty finance firm Wellington Financial, sees opportunity for private debt providers as a result of volatile equity markets, especially if continued uncertainty creates challenges for tech companies seeking risk capital.

“You sense a mood among private investors on the equity side who are sensitive to shifts in stock markets,” McQueen told peHUB Canada. “As we see from time to time in the wake of big equity corrections, there’s always the possibility of retrenchment.”

Stock values have recently swung back and forth due to China’s economic slowdown, commodity price declines, and other factors. A report by Buyouts, a peHUB Canada affiliate publication, suggests uncertainty born of the correction is causing private equity investors to step carefully, and may delay some transactions.

McQueen feels this situation could open doors to alternative capital sources, including innovation-focused lenders like Wellington.

“Technology companies need to raise financing in good times and bad,” he said. “If the IPO window is shut, companies with great growth profiles will be looking for the most efficient way to raise capital,” he said. “I think there’s an opportunity for us to play a role.”

Toronto-based Wellington, which this month celebrates the 15th anniversary of its first growth financing, provides term, venture and amortizing loans to Canadian and U.S.-based companies, the bulk of which are in technology sectors. Transactions range from $2 million to $30 million in size and typically engage companies with current year revenue in excess of $5 million. Most of these are venture-backed.

Wellington’s investment pace has been steady over ups-and-downs in market cycles, McQueen said. He believes this owes to consistent demand for a “flexible, less dilutive and cost-efficient capital solution” that offers an all-weather alternative to traditional bank debt and equity.

McQueen believes Wellington has an additional advantage in its experience and knowledge about innovative ecosystems. These qualities count for a lot in a period of uncertainty, he said. They may also account for Wellington’s recurring partnerships with VC firms and entrepreneurs on both sides of the Canada-U.S. border.

The firm’s current fund, Wellington Financial Fund IV, has so far made $43 million of loan commitments this year, putting it on track to match the $90 million deployment of 2014. Much of this activity has been in the United States, where 32 of the last 40 financings were located.

Intensified U.S. deal-making is the result of Wellington’s lending model, which “helps companies through a non-amortization structure,” McQueen said. The firm also had the good luck “of showing up on the heels of the financial crisis, when American VCs were looking for new partners.”

Wellington has been just as active exiting portfolio investments. To date this year, it has chalked up five closed and pending realizations. They include Bluestreak Technology, a video solutions platform bought by Espial; Xactly, a sales incentives software company that wrapped up an IPO on the NYSE; and Maxymiser, a marketing cloud tool acquired by Oracle.

Liquidity events will augment the firm’s “already attractive” risk-adjusted returns, which since inception have averaged net 9.5 percent, McQueen said.

McQueen believes there is room for more exits in the near future, despite uncertainty: “It shouldn’t drive away the best technology buyers.” He is less optimistic about technology IPOs.

McQueen co-founded Wellington in 2000 with Ken Rotman, managing director of Canadian private equity firm Clairvest Group. The publicly listed Clairvest, which also manages institutional partnerships, has been Wellington’s lead investor, helping it to raise a total of $440 million via four funds. The largest, Fund IV, raised $200 million in 2013.

Over time, the firm has led close to $600 million in private debt financings from its offices in Toronto, San Francisco and Santa Monica, Calif.