The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A BISX-listed firm yesterday said its newly-created venture capital subsidiary can exploit “over $100m to $200m in opportunities” provided by Bahamian companies that need reinvigorating.

Julian Brown, pictured, Benchmark (Bahamas) president and chief executive, told Tribune Business that the group’s Benchmark Ventures unit is targeting established businesses that need new “capital, management and direction to thrive in the 21st century economy”.

While Benchmark Ventures’ creation, as part of a wider restructuring, dragged its parent to a $776,900 total comprehensive loss for the 2018 full-year, Mr Brown voiced optimism that it could become “a significant part of the group” within the next five years.

He added that Benchmark (Bahamas) would have “no objection” to eventually taking companies it invests in public via an initial public offering (IPO), which is how private equity and venture capital firms typically exit their investments in developed markets.

Benchmark Ventures made a small $10,625 contribution to its parent’s bottom line in the 2019 first quarter, and Mr Brown said of the unit: “We think there’s a great need for it. The Bahamian economy is an $11bn economy, and we believe there is over $100m to $200m of opportunities in the economy that can use our expertise and capital.

“Businesses that are mature, with good market share and good, strong brands, we believe that kind of business is available, and what we see in the local economy is a lack of management and expertise in being able to make these businesses perform in today’s more competitive environment but that does not mean these companies are dead.

“They just need some renergising, and we believe we have the skill sets to do that. We’re really very, very positive and excited about this venture.”

Benchmark Ventures is targeting an under-served niche given that the Bahamian economy has traditionally lacked private equity/venture capital finance in a substantial, organised form.

These funding forms effectively represent a missing link in business financing needs. While the government and its various agencies, including the Entrepreneurial Venture Fund and Small Business Development Agency (SBDC), are focused on entrepreneurs, start-ups and micro businesses, there is little attention being paid on graduating small businesses to become medium-sized or even larger companies.

That is typically where private equity/venture financing comes into play in developed countries, with pooled investor capital taking ownership positions in companies in a bid to generate higher profits and returns. This sometimes involves major corporate turnarounds, and the installation of new management teams to effect the desired revival.

This is the space Benchmark (Bahamas) is now seeking to fill with its new subsidiary, and Mr Brown yesterday said it was open to following the typical private equity model of exiting investments via IPOs to public investors.

“We’re looking to put risk capital into mature and stable businesses in The Bahamas that are looking for fresh capital investment,” he reiterated. “Some that are larger in size have not migrated into a 21st century environment, and are looking at a transition in ownership and looking for investment to come and take the business over, and give it management, direction and capital.

“We think they exist in the economy at the moment. With the right management and capital we think they’ll thrive. We’ll eventually look at taking them public if the situation warrants. That will be our strategy as well. Own it, put capital into it, fix the business and position it so that the public can participate with us. We’ll take the initial risk.”

The proliferation of family-owned businesses in The Bahamas, a number of which have succession issues, also creates potential for a private equity/venture capital-type operation. But not all such takeovers have succeeded, BSL Holdings’ disastrous acquisition of City Markets being one of the most prominent failures.

Benchmark Ventures lost $497,781 during 2018, which Mr Brown attributed to having to “put a lot of money into it last year to get it going”. Benchmark (Bahamas) had some $4.279m in cash on its balance sheet at year-end, with assets exceeding liabilities by a net $11.191m.

The unit’s creation was part of a wider Benchmark (Bahamas) restructuring that has resulted in the BISX-listed entity becoming a holding vehicle, with “all the assets” shifted down into its various subsidiaries which will function as the operating, income generating ventures for the publicly-traded parent and its shareholders.

These subsidiaries include two Class 1 broker/dealers, Benchmark Advisors and Alliance Investment Management. Mr Brown explained that the former, which is BISX broker/dealer member, will be the entity through which all trades will be executed on behalf of both Bahamian and international clients.

Alliance, meanwhile, will function as the Benchmark group’s “administrative” broker responsible for vetting all clients, seeking out new business, opening accounts, compliance and taking/placing orders for execution by Benchmark Advisors.

Through its software investments, Mr Brown said the group aimed to provide a platform through which clients of registered investment advisers and non-Class 1 broker/dealers could place and execute trades.

“One of the sticking points in the local market is raising capital to be a Class 1 broker/dealer,” he told Tribune Business. “It takes $300,000 of capital. One of the strategies is to set up that broker/dealer [Benchmark] up to trade for the group and have other licensed, registered investment advisers who have clients trade through us. We’re setting up a platform to do that

“It’s going to be seamless and very, very sophisticated. We hope to launch that by the third quarter.”

Benchmark (Bahamas) real estate arm last year invested $70,000 to acquire a bedroom unit in the GoldWynn project at Goodman’s Bay as it seeks higher yielding capital returns than those presently available on bank deposits.

Mr Brown added that lease renewal negotiations for the two anchor tenants at its Carmichael Commercial Centre, Bank of The Bahamas and the NUA insurance agency, were set to begin in two to three weeks.

Suggesting that the process would be relatively smooth, he told Tribune Business: “There’s potentially more revenue streams coming in as we renew those leases. Things on Carmichael Road are very, very hot, and it’s one of the prime places in the country to run a business.

“This is the third time of renewal. We’re pretty comfortable with each other. We know what the market is. We’ve been leasing space for the last 12 months so we know what the price per square foot is and believe they understand that number.”

Benchmark (Bahamas) generated a $188,703 profit for the 2019 first quarter compared to a net of $268,631 for the same period in 2018, with all subsidiaries contributing positive earnings. The parent is still providing a guarantee for Alliance to operate as a going concern following previous losses.