How our private businesses deliver value

At Cymbria, we believe that the ultimate measure of success with our private businesses will be the shareholder value they produce over the long term. Financially, we measure this value creation through earnings growth and free cash flow generated by our businesses. This in turn determines the internal rate of return (“IRR”), the annualized money-weighted rate of return for a collection of investments over its holding period.

In addition to our original investment into EdgePoint Wealth Management, Cymbria has made investments into five private businesses. Our investment in EdgePoint has delivered an IRR of 125% per year while our five other private businesses in aggregate have delivered an IRR of 28% per year.ⁱ We’re pleased with the financial performance of our private businesses thus far. However, we also recognize that such returns are likely to moderate in the future. Material drivers of our IRR were the successful sales of Real Matters Inc. and MDA Corp. Both were sold at higher valuation multiples than our initial investment, leading to returns that exceeded the underlying businesses’ growth rates. While we still expect pleasing returns, our goal is to hold our three other private businesses indefinitely, and it’s unlikely for businesses to persistently grow more than 20% per year over very long periods of time.

While our financial performance is an important benchmark, it’s ultimately a reflection of our operational performance – our ability to deliver better value for our clients, customers and patients. We view this as a leading indicator of future growth and it translates into customer loyalty, an enduring brand and, ultimately, higher revenue, profitability and returns on capital.

Update on your private businesses

In 2024, our focus for Cymbria’s three newer private businesses was building the foundation for long-term, profitable growth rather than making any new private investments. While investment management, pest control, lending operations and physiotherapy may seem unrelated, the challenges of scaling any business – whether through technology, people or capital allocation – tend to follow similar principles.

1. Over the last six years, HomePro Pest Control has been able to grow earnings at 37% per year – a more than tenfold increase over our holding period.ⁱⁱ Beyond these numbers are the operational improvements that fueled this success. From day one, Simon, HomePro’s President, had a clear vision – leverage technology as a foundation for scalable growth. Before our acquisition, customers placed orders via fax, phone or even handwritten orders – a labour-intensive process prone to human error. Our priority was digitizing the ordering system, eliminating paperwork and streamlining operations. This transition evolved into a seamless online portal, making the ordering process as intuitive as shopping on Amazon. With a fully digital system, we can now provide customers with valuable insights into their pest control spend and measure service effectiveness. We have seen the infusion of technology create meaningful differentiation and premium service offerings across many industries and we believe the pest control industry is no exception.
   
   

2. When we partnered with Inovatec, the business was built by two exceptional entrepreneurs who ran everything from finance to operations to product to sales and marketing. To build a foundation for long-term growth, we knew we had to invest in three areas: (1) building out the management team with complementary expertise in sales, product delivery and finance; (2) investing in our product to adapt it to U.S. workflows; and (3) broadening our reach into adjacent verticals in Canada beyond our core software product. Despite going through an investment phase, the business has grown revenue at 15% per year over the last four years.ⁱⁱⁱ
   
   Our investment is now showing early signs of success. Our new team members have developed a deep understanding of the business and are driving strong operational outcomes. We have successfully launched with key U.S. customers providing us with a beachhead into the American market. Our innovation is adding value and our new products are generating strong interest. We have built a reputation as more than just a software vendor but as an expert in lending operations. Today, we’re more confident than ever in Inovatec’s team and growth potential.
   
   

3. We reinvested capital into our existing private businesses, particularly our physiotherapy clinic group, Leading Edge Physiotherapy. Over the past two years, we have grown to nine clinics in Edmonton, five in Calgary and five in Kelowna. Some of our clinics were built from the ground up, while others were strategic acquisitions. We invite you to visit our clinics and see our progress firsthand – we take great pride in the quality of care we provide and are excited to bring the Leading Edge experience to more communities across Canada.

Leading Edge Physiotherapy clinics in south Calgary (left) and downtown Calgary (right)

All else being equal, we prefer to reinvest capital into our existing private businesses. We believe some of the best investment opportunities come from within because: (1) our private businesses have generated high returns on capital and can deliver consistent returns irrespective of the overall market; (2) our private businesses have advantaged operating models enabling us to grow revenue and improve efficiency; and (3) the risk profile is lower because we have developed industry expertise and have established relationships with our management teams whom have shown to be good stewards of capital. We believe this approach to reinvestment is like Berkshire Hathaway’s acquisitions of MidAmerican Energy Co. (its public utility) and Burlington Northern Sante Fe Corp. (its railroad). These purchases allowed each company to allocate capital and generate stable returns, independent of broader market fluctuations.

Business owners buying businesses

At Cymbria and EdgePoint, we follow a single time-tested investment approach that has proven effective over multiple decades. However, we’re constantly striving to get better and improve the application of our investment approach. One way we achieve this is through our active involvement in the operations of our private businesses, whether it’s EdgePoint or our newer private businesses in Cymbria. We see ourselves as business owners buying businesses and we believe that makes us better investors and operators.

As a Cymbria shareholder, you have entrusted us with your capital and we want to share insights from our hands-on experience – whether by improving as public investors or as business operators. To facilitate this, I will be launching a regular column to share key learnings from managing our private businesses. We hope this will provide deeper insight into our investment approach and how we aim to continue delivering pleasing returns for Cymbria shareholders.