Taking advantage of crises

Cymbria was born from the belief that the structure of an investment vehicle is an important component of long-term results, and a key element of this structure is having access to a permanent pool of capital (i.e., as Cymbria is a publicly listed investment corporation, capital for investment is available to sustain private business interests for an indefinite time horizon). This was true when Cymbria had its initial public offering during the 2008-09 global financial crisis, and was just as true in 2020. The availability of permanent capital gives us the freedom to act differently in challenging economic conditions, which we see as an important competitive advantage. Not only are we able to invest in exceptional businesses when investor capital may be scarce, but our business-owner partners can also take a long-term perspective and reinvest in their businesses despite a slowdown in the economy.

In April 2020, Cymbria invested in MDA Inc., the former MacDonald, Dettwiler and Associates. MDA was founded 52 years ago and is a Canadian supplier of mission-critical space-based technologies. The company has a long legacy of success in high-profile space programs, such as Canadarm and RADARSAT, and is a leader in a number of space-related technologies that include earth observation, space robotics and satellite subsystems. These end-markets are seeing accelerating growth as lower costs and improved technology enable new use-cases. With its incredibly talented workforce, MDA is well positioned to benefit from these trends and see pleasing growth over the next decade.

At the end of 2020, Cymbria invested in an industry-leading technology services company that provides mission-critical software to financial institutions in North America. This company provides end-to-end solutions that support the credit application, adjudication, funding and loan management processes. In many instances, the company is replacing paper-based, on-premise systems with a modern cloud-based architecture that improves the quality and efficiency of the underwriting process. Going forward, we expect the following two trends will drive continued market share gains for this company: (i) increasing automation through better usage of software; and (ii) the replacement of legacy on-premise systems with cloud-based alternatives. Most of all, we are excited to be partnering with two exceptional entrepreneurs to support the growth of their business.

Our private investment approach intentionally sets a high bar: we look to partner with competitively advantaged businesses with long runways for growth, operated by exceptional business owners. While it can be tempting to deviate from this approach, the importance of investing this way was never clearer than during the crisis. In 2020, our business-owner partners were faced with many challenging operational decisions with limited near-term visibility:

• Pest control: In the initial wave of pandemic lockdowns, pest control activity was deferred and there was widespread fear that tenants would stop paying rent. Many competitors were laying off technicians and office staff. Do you follow your competitors and reduce headcount to improve the cash flow of your business?

• Space-based technologies: A ban on international travel created supplier delays and slowed manufacturing productivity. A major customer declared bankruptcy. With more uncertainty than ever about future growth, do you reduce your spending on research and development (R&D) meant to support future growth initiatives?
  

While we are not out of the crisis yet, we believe that the decisions companies make in tough economic conditions can truly differentiate a company going forward and allow it to emerge stronger on the other side. Cymbria has a permanent pool of capital that can continue to support our businesses through an economic slowdown and we are proud that it has enabled our business-owner partners to take a long-term perspective and make decisions for the next five years, rather than the next 12 months:

• Our pest control business has been able to provide exceptional customer service and safely deliver its services in difficult times. The service quality has opened new doors, allowing the business to materially grow market share and revenue. In periods of slower activity, we invested in training programs for employees and executed on operational improvements like paperless billing that have built the foundation for future growth.

• MDA has continued to invest in R&D to support the next generation of space-related technologies, including Canadarm3 and digital satellite systems. In addition, we have made key infrastructure investments to establish the foundation of a standalone Canadian MDA. A slowdown in the aerospace industry has given us an opportunity to make key hires and strengthen the leadership team. We now have the people and processes in place and are ready to scale.
  

Much has been written about what makes a great business. Our focus has always been on our business-owner partners who run our businesses everyday. We do not believe they would be great businesses without these outstanding leaders and entrepreneurs.

If you know the owner of a great business who has a similar approach to running a business and is seeking a like-minded partner to build for the future, please send them our way at ihaveagreatbusiness@edgepointwealth.com.