By ROD ORAM
David Teece, the expatriate New Zealand business academic and consultant who has bought into clothing manufacturer LWR Industries, has teamed with two Auckland investment bankers to form i-cap partners, a boutique Australasian/North American merchant bank.
With his two new colleagues, Nick Lodge and Tony Hannon, who have wide local experience, Mr Teece aims to offer investors the opportunity to tap into a flow of deals here and in North America.
``No other organisation based in Auckland is connected like us to North America,'' says Mr Teece, a professor of international business and finance at the University of California Berkeley.
Mr Teece has been consultant for international companies for more than 25 years and has established a network of contacts, mainly in North America.
The bank will also benefit from two analysts on Mr Teece's payroll in Emeryville, a San Francisco suburb near Berkeley. ``Their skill levels are really high, with 10 years' experience in new ventures,'' he says.
Opportunities will be presented to investors across the board from venture capital in the new economy to private equity investments in the old economy. The bank will issue in quick succession prospectuses for three funds starting in a month or so:
* The i-cap venture partners will seek initially to raise about $NZ5 million from New Zealand investors. The fund will invest in technology and start-up companies in Australasia and North America.
* The i-cap equity partners fund, number one, will seek some $15 million. It will target investments in Australasia where new capital and skills can enhance the performance of existing businesses. A typical example is Mr Teece's investment in Christchurch-based LWR.
* The i-cap mezzanine partners will seek some $25 million to be deployed as short-term debt finance for corporates. Mezzanine finance, slotting between principal and subordinated finance, is a relatively under-used tool in New Zealand but i-cap sees the potential to expand it.
Current stock market turbulence underscores the need for strong management skills i-cap says it will bring to its investments.
``The volatility helps us with buying opportunities and we can offer investors a way to steer clear of it by being involved in more managed investments,'' says Mr Hannon, who has held senior investment banking positions at Westpac and Bancorp.
Mr Teece says he was attracted to invest in New Zealand because of its open economy created by 15 years of reforms.
``But I have to say that quickly before it changes,'' he says in an oblique reference to the change of Government and economic agenda.
``The last round of wealth creation was from the privatisation of state companies. The next round has to be associated with innovation and entrepreneurship.''
The three partners see no shortage of opportunities. Reforms made big changes to the public sector. Now it is the turn of the private sector to change further.
``The private sector has lagged five to 10 years behind in business models. There is an opportunity here to clone what has succeeded in North America,'' says Mr Teece.
LWR is an example. He says it was ``a very complicated company for its size'' because of the diversity of products it made as a legacy of import controls. Over recent months it has divested businesses to focus on its core sportswear lines with the aim of turning its strong regional brand into a global one.
Taking a different tack, i-cap is also seeking to build new businesses from pieces of existing ones. It is already active in, for example, the services sector.
``We can roll up a number of smaller businesses to achieve synergies,'' says Mr Lodge who has had investment banking experience at Westpac and then within Fernz (since renamed Nufarm) and Brierley Investments.
On the venture capital side, Mr Teece says there are plenty of opportunities to make small investments to build a strong, diversified portfolio. Through his California connections he foresees working on a range of deals and through successive rounds of financing on each. The bank, typically, might lead on the first round of seed finance where the sums are small while other investors ``piggyback'' on the deal. In subsequent, larger rounds, one of the other investors might lead while i-cap ``piggybacks.'' Swapping roles allows the loose-knit group of venture capitalists to share the workload and participate in deals together.
``Relationships are the key to access to a flow of capital and deals,'' Mr Teece says.
If i-cap can successfully apply its strategies, Mr Teece believes other expats will be attracted home to invest and use their management skills. ``If we can get some of these ideas smoking along, more New Zealanders will come back.''
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