We buy, build, and hold exceptional Western Canadian businesses. If additional capital is required, external investors can participate through subordinated preferred securities at fixed, high-yield, and non-amortizing payments.
These are unsecured obligations that rank ahead of our common equity and behind all other indebtedness. Full terms are in the certificate and subscription agreement.
Bridging the Business Succession Gap
In its January 2023 Succession Tsunami report, the Canadian Federation of Independent Business found that 76% of Canadian small business owners plan to exit their businesses within ten years, putting more than $2 trillion of business assets in play. Only 9% have a formal, written succession plan. Nearly half have no plan at all. The result is an overwhelming supply of sellers relative to the number of qualified buyers in an inefficient private market, and entry valuations well below what comparable quality trades for in the public markets.
Lab One Capital exists to be a permanent home for a portion of those businesses. We are not a private equity fund or a search fund. We acquire family-held companies in Western Canada, pair each one with a seasoned operator who steps into the seat, and hold them indefinitely.
Investing with Lab One Capital
Public market investors have spent the last several years absorbing volatility that has little to do with the underlying performance of the businesses they own. We think there is a better trade available further down market.
The businesses we buy are small, established, and unglamorous. They change hands at multiples well below public comparables, not because they are lower quality, but because very few buyers are willing and able to operate them. That gap is the source of the return, and we share it with our investors through a fixed coupon rather than asking them to underwrite equity risk alongside us.
In exchange, investors accept illiquidity. These are multi-year holdings with no public market and no maturity date. We think that is a fair trade, and we price it accordingly. Current series terms, including the interest rate, redemption mechanics, and applicable guarantees, are set out in the certificate and subscription agreement provided on request.
Investor Benefits
By entering into a high-yield debt agreement with Lab One Capital, investors are able to achieve their investment objectives:
Above Market Yield
We lend against businesses that were bought at lower entry multiples than comparable public companies trade at, in a market with more sellers than qualified buyers. That pricing gap, plus the premium investors earn for accepting illiquidity, is what funds a coupon materially above what public fixed income currently pays.
Fixed and Non-Amortizing
Interest is fixed for the life of the security, simple, cumulative, and non-compounding, and is payable quarterly in arrears. Principal is not amortized, so investors receive current income without having to redeploy returned capital. Any unpaid interest accrues and is paid on redemption. No dividend may be paid on our common shares while interest to investors is not current.
Where You Rank
Preferred securities rank ahead of all classes of our common shares in payments, distributions, and on a liquidation or winding-up. They are unsecured obligations and are subordinated to all other indebtedness, including bank debt, real property financing, and trade payables. We put this plainly because the coupon is compensation for exactly that position, and any investor worth having will ask.
Priced Off Cash Flow, Not Sentiment
There is no public market for these securities, so their value does not move with headlines. That is not the same as being low risk. It means the return depends on the operating cash flow of a small number of private businesses rather than on what the market thinks of them this quarter, and we report on that cash flow annually.
Diversification
Investors are exposed to a portfolio of operating businesses rather than a single company, and specified guarantor entities within the portfolio guarantee the obligations. The guarantors are named in the security documents and vary by issuing entity and series.
Meat and Potato Businesses
We are not buying the next hot technology story. We buy businesses that have solved the same core problem for thirty years and will keep solving it for another thirty. They are specialists, largely unaffected by trends, and often held by the same family for decades. We pair each one with an operator who takes real equity alongside us and who brings a professionalization playbook that has worked from bottle depots to industrial services.
Reporting
Within 120 days of each fiscal year end, holders receive an annual summary covering operating results, outstanding debt, coverage ratios, preferred securities outstanding, material acquisitions completed during the year, and whether any distributions were made to common shareholders. The summary is prepared internally and is not audited.
Lab One Capital exists to be a permanent home for a portion of those businesses. We are not a private equity fund or a search fund. We acquire family-held companies in Western Canada, pair each one with a seasoned operator who steps into the seat, and hold them indefinitely.
Invest With Us
If you are an accredited investor under British Columbia securities laws and would like to review current series terms, get in touch. Nothing on this page is an offer to sell or a solicitation to buy a security. Any investment is made solely on the basis of the subscription agreement and security certificate.