The founders of EdgePoint used a startup capital of $2.5 million to create a value of $1.5 billion (and counting) for their business in a little over ten years of operation.
Cymbria: an enticing and inspiring exit strategy
They had $5.5 billion in assets under management (AUM) after the first five years, which is a more accurate comparison. right after the financial crisis of 2008! And to top it off, they didn’t even have a mobile app! Do you remember the days before robo-advisors, when the asset management business was considered to require a low amount of initial capital investment?
We are aware that the startup capital for EdgePoint was approximately $2.5 million because a related public vehicle, Cymbria, contributed approximately 20% of that amount. Other investments made by Cymbria up until this point have almost invariably been stocks that are traded publicly.
In practice, however, Cymbria does not have a “go-anywhere mandate.” Cymbria has made no secret of the fact that it is interested in acquiring privately held businesses over the past few years.
Cymbria is looking to acquire privately held companies with annual revenues between $15 million and $100 million. The following are some of the criteria: a management team already in place, a low level of cyclicality, a history of good returns on capital, and an easy-to-understand business model.
There will be no new businesses, no turnarounds, no hostile takeovers, and no situations involving auctions. All of this is very reminiscent of an advertisement that Warren Buffett used to publish when he was looking to acquire new companies.
Cymbria guarantees a speedy response, abstains from intervening, and takes a patient, long-term stance. In practice, they are positioning themselves in the same way that Berkshire has: as an alternative to private equity buyers who are obsessed with cost cutting, leverage, and flipping businesses.
When asked about private equity in 2008, Warren Buffett responded as follows:
“You can sell your company to Berkshire, and we will donate it to the Metropolitan Museum, where it will have its very own wing and remain there in perpetuity if you choose to do so. You could also sell it to the proprietor of a pawn shop, who would then take the painting, enlarge the breasts on it, and hang it in the shop’s window.
Eventually, a man wearing an umbrella would see it and decide to purchase it.”
This particular language has not been revisited by Cymbria, and it is advised to the consumers not to act in such a reckless manner.
In 2018, the investment advisor for Cymbria, EdgePoint, took more concrete steps to generate deal flow by employing someone who is dedicated to private investments specifically. Before joining EdgePoint, he was employed at Tim Hortons, where he went by the name Jason Liu.
You need not be concerned because he also worked for Onex and in investment banking; he was not working the drive-through at Tim Hortons. As a matter of fact, Berkshire Hathaway and a private equity partner that is well-known for its methods of cost-cutting are indirect owners of Tim Hortons. This is a classic Buffett contradiction.
Cymbria has approximately $800 million available in liquid assets (that is, in marketable securities). In addition to this, it has the ability to borrow money and issue additional shares. About 10% of the company’s shares, which are currently valued at approximately $138 million, are held by the four key players behind Cymbria. Another one of this product’s selling points is the possibility of forming partnerships with highly successful people who have extensive professional networks.
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