ANNUAL REPORT 2019
TABLE OF CONTENTS
Chief Executive Officer’s Message
Management's Discussion and Analysis
Management's Report
Independent Auditors' Report
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Shareholder Information
Corporate Information
2
3
35
36
39
43
78
Back Cover
KNOWLEDGE BASED - PARTNER FOCUSED
CLAIRVEST IS ONE OF CANADA'S LEADING PROVIDERS OF
PRIVATE
TO MID-MARKET
FINANCING
COMPANIES AND CURRENTLY HAS OVER C$2.4 BILLION
OF CAPITAL UNDER MANAGEMENT.
EQUITY
CLAIRVEST MANAGES ITS OWN CAPITAL AND THAT OF
THIRD PARTIES, THROUGH CLAIRVEST EQUITY PARTNERS
LIMITED PARTNERSHIPS.
CLAIRVEST PARTNERS WITH MANAGEMENT TO INVEST IN
PROFITABLE, SMALL AND MID-SIZED COMPANIES TO
BUILD VALUE
IN THE BUISINESS AND GENERATE
SUPERIOR LONG TERM FINANCIAL RETURNS FOR
INVESTORS.
CHIEF EXECUTIVE OFFICER'S MESSAGE
FELLOW SHAREHOLDER,
I am pleased to share with you the conclusion of another productive and successful year for Clairvest. From new investments to fold-in
acquisitions to exits, and capital raising for the portfolio as well as for our own future, your management team was busy executing on all
fronts.
Shortly after concluding Fiscal 2019, Clairvest held the first and final closing of CEP VI at the fund’s US$850 million hard cap. Clairvest
remained as the single largest investor in our fund at a US$230 million commitment alongside US$620 million from third-party limited
partners. I am pleased to say that this was the strongest fundraise in our company’s history and we were, again, materially
oversubscribed. The demand we have met with for this fund was simply overwhelming, making it possible to raise well over $1 Billion in
capital commitments. We insisted on an US$850 million cap because this is the appropriate fund size for our team and our strategy. The
reception in the market was a tribute to the quality of the people you have working for you at Clairvest and the results they, as a team,
have been able to generate.
For our industry, the last five years have been categorized by unprecedented activity. During this time, more money has been raised,
invested and distributed back to investors than in any other period in the industry’s history and many are starting to question how long
the good times can last. For us, the question isn’t so much when the next downturn will happen but rather, how we will manage it
successfully when it does. It pays to be ready to act when the downturn arrives. With a strong capital base, a solid team and a proven
investment strategy, we are confident that we will be able to take advantage of a potential market slowdown.
Through our disciplined, knowledge-based approach, we work to uncover opportunities that have the potential to yield outsized returns.
The time we invested to integrate deeper into our chosen domains instead of chasing overpriced deals, will come to serve us well when
the market cools down. We successfully did that with the recent blockbuster exit of Rivers Casino, an opportunity that originated in the
heart of the last economic downturn, and generated an outstanding return, in USD terms, of 8.4x invested capital and an IRR of 46%. In
addition to the Rivers Casino exit, we generated outstanding returns on two other exits during the fiscal year: MAG Aerospace for an 8.3x
multiple of capital and 57% IRR and Centaur Gaming for a return of 11.2x multiple of capital and an IRR of 29%, again both in USD terms.
In the last five years, with greater competition, private equity returns have slowly declined toward public market averages. At Clairvest,
we have continuously beat the public markets and are a top quartile performer in our industry. At the investment level, we have
completed 47 platform investments and fully or partially exited 35, in aggregate turning $733 million into $2.65 billion for a consolidated
(all the good and bad combined) multiple of invested capital of 3.6x, which is a number we are proud of and industry leading. We have
also supported entrepreneurs achieve their ambition across a wide variety of industries and build terrific companies that have created
jobs for thousands while serving their respective customers.
Over the past 5 years, our book value has grown at a compounded annual growth rate of 16.5%, after tax, despite an average cash
balance of 36%. In contrast, the S&P500 has delivered 8.6% pre-tax, reflecting solid out-performance by Clairvest on an absolute and,
particularly, on a risk-adjusted basis. For the 12 months ended March 31, 2019, Clairvest’s book value per share grew to $51.44, or by
18% including dividends paid.
On the new deal front, we are pleased to add two new companies to our portfolio, both originating from a multi-year effort in our chosen
domains. The first is an investment in a Texas based IT Services company called Meriplex Communications. Meriplex designs, implements
and manages Intelligent Network Solutions that are powered by best in class technologies for business customers throughout the United
States. The second investment is in the residential HVAC replacement and maintenance space, supporting the leading independent
residential HVAC contractor in Canada, called Right Time Heating and Air Conditioning Canada. In both investments, we are partnering
with “all-in” management teams and investing our capital toward an aggressive growth plan over the next several years.
Our success is made possible by the many people involved with our firm. Thank you to Clairvest’s fund partners, the management teams
of our investee companies, our employees and our board members. Your support, commitment and hard work provide the means to
continue building shareholder value in Clairvest Group.
Respectfully,
Ken Rotman
Chief Executive Officer
2
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2019
June 26, 2019
The Management's Discussion and Analysis ("MD&A") of financial condition and results of operations analyzes significant
changes in Clairvest Group Inc.'s consolidated financial results, financial position, risks and opportunities. It should be read
in conjunction with the audited annual consolidated financial statements and related notes for the year ended March 31,
2019 ("consolidated financial statements").
The following MD&A is the responsibility of Management and is as at June 26, 2019. The Board of Directors carries
out its responsibility for review of this disclosure through its Audit Committee. The Audit Committee reviews the disclosure
and recommends its approval to the Board of Directors. The Board of Directors has approved this disclosure.
INTRODUCTION
Clairvest Group Inc. ("Clairvest" or the "Company") is a private equity management firm that specializes in partnering with
management teams and other stakeholders of both emerging and established companies. The Company's shares are traded
on the Toronto Stock Exchange under the stock symbol "CVG".
Clairvest invests its own capital, and that of third parties, through various Clairvest Equity Partnerships (together,
the "CEP Funds") in carefully selected companies that have the potential to generate superior returns. These Partnerships
include the following:
Clairvest Equity Partners III Limited Partnership ("CEP III")
Clairvest Equity Partners IV Limited Partnership ("CEP IV")
Clairvest Equity Partners IV-A Limited Partnership ("CEP IV-A")
Clairvest Equity Partners V Limited Partnership ("CEP V")
CEP V HI India Investment Limited Partnership ("CEP V India")
Clairvest Equity Partners V-A Limited Partnership ("CEP V-A")
Clairvest Equity Partners VI Limited Partnership ("CEP VI")
Clairvest Equity Partners VI-A Limited Partnership ("CEP VI-A")
Clairvest Equity Partners VI-B Limited Partnership ("CEP VI-B")
The Company concluded that its ownership interests in the CEP Funds, which meet the definition of structured
entities under International Financial Reporting Standards ("IFRS"), do not meet the definition of control under IFRS.
Accordingly, the financial positions and operating results of the CEP Funds are not included in Clairvest's consolidated
financial statements.
The Company's consolidated financial statements include those subsidiaries which provide investment-related
services and that the Company controls by having the power to govern the financial and operating policies of these entities.
The following entities, which are significant in nature, provide investment‐related services on behalf of the Company.
Clairvest GP Manageco Inc.
Clairvest GP (GPLP) Inc.
Clairvest Funds GP Inc.
CEP MIP GP Corporation
Clairvest USA Limited
Clairvest General Partner Limited Partnership
Clairvest General Partner III Limited Partnership
Clairvest General Partner IV Limited Partnership
Clairvest General Partner V Limited Partnership
Clairvest employs various acquisition entities in structuring its investments, all of which are controlled by Clairvest. These
acquisition entities, which are accounted for at fair value in accordance with IFRS as described in the Critical Accounting
Estimates section of the MD&A, include the following:
3
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2019
June 26, 2019
2141788 Ontario Corporation ("2141788 Ontario")
2486303 Ontario Inc. ("2486303 Ontario")
CEP III Co-Investment Limited Partnership ("CEP III Co-Invest")
MIP III Limited Partnership ("MIP III")
CEP IV Co-Investment Limited Partnership ("CEP IV Co-Invest")
MIP IV Limited Partnership ("MIP IV")
CEP V Co-Investment Limited Partnership ("CEP V Co-Invest")
MIP V Limited Partnership ("MIP V")
CEP VI Co-Investment Limited Partnership ("CEP VI Co-Invest")
MIP VI Limited Partnership ("MIP VI")
Clairvest Special Limited Partner VI Limited Partnership ("CEP SLP VI")
2141788 Ontario, a limited partner of CEP III Co-Invest and CEP V Co-Invest, is a wholly owned acquisition entity of
Clairvest. 2486303 Ontario is a wholly owned acquisition entity of Clairvest, which together with Clairvest, directly and
indirectly holds a 100% interest in Clairvest Equity Partners Limited Partnership ("CEP"). CEP was an investment fund held
by third-party investors until December 2015. Clairvest's relationship with CEP III Co-Invest and MIP III, CEP IV Co-Invest and
MIP IV, CEP V Co-invest and MIP V, and CEP VI Co-Invest, MIP VI and CEP SLP VI are described in the Transaction with
Related Parties and Off-Statement of Financial Position Arrangements section of the MD&A.
As at March 31, 2019, Clairvest, through these acquisition entities, had 16 core investments in 8 different
industries and 4 countries. One was a joint investment with CEP III, five were joint investments with CEP IV and CEP IV-A
(together, the "CEP IV Fund"), and eight were joint investments with CEP V, CEP V India and CEP V-A (together, the "CEP V
Fund"). Clairvest also held an investment in the Grey Eagle Casino and a residual interest in Wellington Financial.
The table below summarizes Clairvest's direct and indirect investee companies ("investee companies") as at
March 31, 2019:
4
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2019
SUMMARY OF CLAIRVEST'S INVESTEE COMPANIES AS AT MARCH 31, 2019
June 26, 2019
Investee
Company
Industry
Segment
Geographic
Segment
Ownership
Percentage(19)
Cost of
Investment
(millions)
Net Cash
Investment
(millions)(20)
Description of Business
Fair Value of
Investment
(millions)(21)
INVESTMENTS MADE BY CEP III CO-INVEST ALONGSIDE CEP III
Chilean Gaming
Holdings(1)
Gaming
Chile
36.8%
$
27.8
$
13.8
$
INVESTMENTS MADE BY CEP IV CO-INVEST ALONGSIDE CEP IV/CEP IV-A
Centaur Gaming(2)
Gaming United States
N/A
$
—
$
—
$
County Waste of
Virginia, LLC ("County
Waste")(3)
Waste
Management
United
States
13.0%
$
14.8
$
14.8
$
Davenport Land
Investments(4)
Other
United
States
Northco / Top Aces(5)
Canada
Specialty
Aviation &
Defence
Services
18.7%
(Davenport
North) &
13.4%
(Davenport
South)
38.7% / 23.9%
$
2.2
$
1.9
$
$
59.1
$
11.6
$
Impero Waste
Systems, LLC ("Impero
Waste")(6)
Waste
Management
United
States
6.0%
$
3.0
$
(2.0)
$
Momentum
Solutions(7)
New Meadowlands
Racetrack LLC (the
"Meadowlands")(8)
Specialty
Aviation &
Defence
Services
Gaming
Canada
4.4%
$
—
$
—
$
United
States
Equity investment
rights
$
6.4
$
4.2
$
61.8 An investment vehicle which holds an equity interest
in various gaming entertainment complexes in Chile.
CEP III ownership: 37.7%
7.8 The owner and operator of the Hoosier Park Racing
& Casino in Anderson, Indiana and the Indiana Grand
Casino and Indiana Downs Racetrack ("Indiana Grand
Casino") in Shelbyville, Indiana.
Clairvest, CEP
IV and CEP
investment in Centaur Gaming during fiscal 2019.
IV-A realized their
31.2 A private regional solid waste collection company
servicing customers in the states of Virginia and
Pennsylvania.
CEP IV and CEP IV-A ownerships:
30.7% and 4.9% respectively
3.2 Comprised two entities ("Davenport North" and
"Davenport South") holding real estate surrounding
a casino in Davenport, Iowa.
CEP IV and CEP IV-A ownerships:
44.1% and 7.0% of Davenport North and
31.6% and 5.0% of Davenport South respectively
55.9 Northco is a specialty aviation services company
operating across Canada. Top Aces is a supplier of
advanced adversary services across three continents.
CEP IV and CEP IV-A ownerships:
49.9% and 7.9% of Northco respectively
29.1% and 4.6% of Top Aces respectively
0.5 A regional solid waste collection, recycling and
disposal company servicing customers in the states
of Connecticut and New York.
CEP IV and CEP IV-A ownerships:
14.4% and 2.3% respectively
0.8 Momentum Solutions is a Toronto based, inter-
leading strategic
connected global network of
support companies.
CEP IV and CEP IV-A ownerships:
10.3% and 1.6% respectively
10.7 Operates North America’s premier standardbred
horse racing track located in East Rutherford, New
Jersey.
CEP IV and CEP IV-A ownerships: equity investment
rights
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Clairvest held 30,446,299 units of Chilean Gaming Holdings, a partnership which held a 50% interest in each of Casino Marina del Sol and Casino Chillan and a 73.8%
interest in each of Casino Osorno and Casino sol Calama.
Clairvest realized its investment Centaur Gaming during fiscal 2019 and received cash proceeds totaling US$166.8 million. As at March 31, 2019, Clairvest is entitled to
deferred consideration on the sale of up to US$8.4 million through to July 2021.
Clairvest held 7,374.67 Class B units, a US$1.7 million promissory note with a stated interest rate of 12% per annum and a US$2.7 million convertible promissory note
with a stated interest rate of 15% per annum from County Waste, and 174.3 units of Spare Lots, LLC ("Spare Lots"), a company affiliated with County Waste.
Clairvest held 1,408.81 units of Davenport North, 1,298.21 units of Davenport South and a US$0.6 million promissory note from a partner of Davenport Land
Investments.
Clairvest held $22.0 million in convertible debentures of Northco with a stated interest rate of 10% per annum and a fee of 2% per annum, and 3,867 common shares of
Northco. Clairvest also held 667.9553 common shares of Top Aces.
Clairvest held 4,817.86 Class A units of Impero Waste. The investment was realized subsequent to year-end.
Clairvest held 4,477 common shares of Momentum Solutions.
Clairvest held US$5.4 million in secured convertible debentures of the Meadowlands with a stated interest rate of 15% per annum and US$0.7 million in preferred debt
with a stated interest rate of 3% per annum. Clairvest also held warrants which entitle it to invest in equity securities subject to certain conditions.
5
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2019
June 26, 2019
Investee
Company
Industry
Segment
Geographic
Segment
Ownership
Percentage(19)
Cost of
Investment
(millions)
Net Cash
Investment
(millions)(20)
Description of Business
Fair Value of
Investment
(millions)(21)
INVESTMENTS MADE BY CEP V CO-INVEST ALONGSIDE CEP V/CEP V India/CEP V-A
Gaming
United
States
7.6%
$
16.0
$
16.0
$
36.1 A licensed video gaming terminal operator in Illinois.
Accel Entertainment
Inc. ("Accel
Entertainment")(9)
Also Energy, Inc.
("Also Energy")(11)
Digital Media
Solutions, LLC
("Digital Media
Solutions")(12)
Renewable
Energy
United States
10.0%
$
11.6
$
11.6
$
Marketing
Services
United
States
13.8%
$
1.0
$
(5.8)
$
GTA Gaming(13)
Gaming
Canada
$
9.0
$
7.5
$
0.6%
(Ontario Gaming
GTA) &
13.5%
(Ontario Gaming
West GTA)
Head Digital Works
Pvt. Ltd. ("Head Digital
Works")(10)
Gaming
India
32.7%
$
46.8
$
42.5
$
Meriplex
Communications, Ltd.
("Meriplex
Communications")(14)
Right Time Heating
and Air Conditioning
Canada Inc. ("Right
Time HVAC")(15)
Information
Technology
Residential
Services
United States
18.1%
$
6.7
$
6.7
$
Canada
15.0%
$
6.4
$
6.4
$
Waste
Management
United
States
14.0%
$
10.6
$
10.6
$
Winters Bros. Waste
Systems of Long
Island Holdings, LLC
("Winters Bros. of
LI")(16)
(9)
(10)
(11)
CEP V and CEP V-A ownerships:
14.9% and 2.8% respectively
12.5 A provider of software and hardware solutions that
enable the monitoring and control of power
production and plant operations for commercial,
industrial, and utility-scale plants in the United
States and around the world.
CEP V and CEP V-A ownerships:
19.7% and 3.7% respectively
10.1 A digital media company which operates as a lead
generation engine for companies in a variety of
different industries.
CEP V and CEP V-A ownerships:
27.1% and 5.1% respectively
9.0 Comprised two partnerships which operate gaming
facilities in the Greater Toronto Area ("GTA") and the
West GTA.
CEP V and CEP V-A ownerships:
1.2% and 0.2% of Ontario Gaming GTA and
26.5% and 5.0% of Ontario Gaming West GTA
respectively
43.6 An internet-based technology and gaming company
with ownership interest in Ace2Three, a leading
platform for online rummy, FanFight, a growing
platform for Daily Fantasy Sport, and Cricket.com, a
leading site for cricket analytics, and WittyGames,
deliverying a mobile social gaming experience.
CEP V India and CEP V-A ownerships:
34.3% and 8.4% respectively
7.0 A company based in Houston, Texas that designs,
installs and manages complex networking solutions
for businesses.
CEP V and CEP V-A ownerships:
35.5% and 6.7% respectively
6.4 A Canadian independent heating, ventilation and air-
conditioning contractor operator out of seven
locations in Ontario and Manitoba and focused
strictly on the residential replacement market.
CEP V and CEP V-A ownerships:
29.4% and 5.6% respectively
11.6 A regional solid waste collection, recylcing and
disposal company servicing customers in Long Island,
New York.
CEP V and CEP V-A ownerships:
27.5% and 5.2% respectively
Clairvest held 283,478 Class D preferred shares of Accel Entertainment.
Clairvest held 202,230 common shares of Head Digital Works and $13.7 million in compulsory convertible debentures with a stated interest rate of 16% per annum.
Clairvest held 1,013,062 Series A preferred stock, 20,080 Series A common shares of Also Energy and a promissory note with a stated interest rate of 10% per annum
from Also Energy.
Clairvest held 6,150,000 Class B units of Digital Media Solutions.
Clairvest held 1,254,000 limited partnership units of Ontario Gaming GTA Limited Partnership and 405,151.2 limited partnership units of Ontario Gaming West GTA
Limited Partnership.
Clairvest held 5,250 common shares of Meriplex Communications.
Clairvest held 6,375,000 Class A preferred shares of Right Time HVAC.
Clairvest held 1,487,773 Class C units of Winters Bros. of LI. and 256,037 units of WBLI II, LLC, an affiliate to Winters Bros. of LI which is owned proportionately by the
same unitholders as Winters Bros. of LI.
(12)
(13)
(14)
(15)
(16)
6
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2019
June 26, 2019
Investee
Company
Industry
Segment
Geographic
Segment
Ownership
Percentage(19)
Cost of
Investment
(millions)
Net Cash
Investment
(millions)(20)
Description of Business
Fair Value of
Investment
(millions)(21)
STANDALONE INVESTMENTS
Grey Eagle Casino(17)
Gaming
Canada
Equity
participation
$
11.0
$
(3.8)
$
8.4 A casino on Tsuu T'ina First Nation reserve lands,
located southwest of the city of Calgary, Alberta.
Wellington
Financial(18)
Financial
Services
Canada
N/A
$
0.2
$
(24.8)
$
2.9 Provided debt capital and operating lines to venture
capital
biotechnology,
communications and industrial product companies in
Canada and the United States.
technology,
backed
OTHER
TOTAL
(17)
(18)
Clairvest held an equity participation interest in the Grey Eagle Casino entitling to earnings between 11.25% to 38.25% of the earnings of Grey Eagle Casino until
December 2022.
Clairvest held a limited partner interest in each of Wellington Financial Fund III, Wellington Financial Fund IV and Wellington Financial Fund V and an interest in the
general partner of the various Wellington Funds.
$
$
0.5
233.1
$
$
0.5
111.7
$
$
20.0
339.5
(19) Ownership percentage calculated on a fully diluted basis as at March 31, 2019.
(20) Net cash investment (proceeds) comprised cost net of dividends, interest and other distributions received but excludes advisory and other fees received, foreign income
taxes incurred by acquisition entities and foreign exchange gains or losses on foreign exchange forward contracts entered into as economic hedges against Clairvest's
foreign denominated investments.
The determination of fair value incorporates the quoted market value of Clairvest's publicly-traded investments and an estimate of fair value for privately-held
investments. The fair value of foreign exchange forward contracts entered into as economic hedges against Clairvest's foreign denominated investments is not included
in this fair value.
(21)
7
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2019
June 26, 2019
OVERVIEW OF FISCAL 2019
An overview of the significant events during fiscal 2019 and those which occurred subsequent to year-end follows:
Overall and Corporate
•
Clairvest's book value increased by $111.4 million, or $7.43 per share, to $778.7 million or $51.44 per share. The
increase was primarily due to net income and comprehensive income ("net income") of $7.87 per share, net of $0.4401
per share in dividends paid. Inclusive of dividends paid, Clairvest’s book value increased by 17.9% during fiscal 2019.
For the fiscal year ended March 31, 2019, Clairvest recorded $204.2 million in total revenue and $119.2 million in net
income, compared to $208.2 million and $123.8 million, respectively, in the prior fiscal year.
• During fiscal 2019, 26,500 common shares were purchased and cancelled under the previous normal course issuer bid
at an average price of $45.31 per share, reducing the number of common shares outstanding to 15,136,495. In March
2019, Clairvest filed a new normal course issuer bid enabling it to make market purchases of up to 760,747 of its
common shares in the 12-month period commencing March 7, 2019. No purchases had been made under this bid to
March 31, 2019 and June 26, 2019.
• During fiscal 2019, Clairvest paid an annual ordinary dividend of $0.10 per share and a special dividend of $0.3401 per
share. The dividends were paid on July 25, 2018 to common shareholders of record as of July 6, 2018. The dividends
were eligible dividends for Canadian income tax purposes.
Clairvest/CEP III Co-Invest and CEP III
• As at March 31, 2019 and June 26, 2019, CEP III had returned 2.3 times invested capital to its third-party investors,
after consideration of general partner priority distributions, carried interest and expenses (“on a net basis”). CEP III
continues to hold one investment as at June 26, 2019. Based on the fair value as at March 31, 2019, CEP III is expected
to generate approximately 2.5 times invested capital or an IRR of over 18% for its third-party investors on a net basis.
Subsequent to year end, Clairvest and CEP III announced they have entered into a memorandum of understanding to
merge Chilean Gaming Holdings with Sun Dreams S.A., creating one of the largest gaming operators in South America.
The merger is subject to several key conditions, including completion of due diligence and entering into definitive
documentation. Chilean Gaming Holdings is the remaining investment in CEP III.
•
Clairvest/CEP IV Co-Invest and the CEP IV Fund
• As at March 31, 2019, the CEP IV Fund had realized or partially realized 7 of its 11 investments, and had returned over
2.4 times invested capital to its third-party investors. Based on the fair value as at March 31, 2019, the CEP IV Fund is
expected to generate approximately 3 times invested capital or an IRR of approximately 24% for its third-party
investors on a net basis.
•
• During fiscal 2019, Clairvest / CEP IV Co-Invest and the CEP IV Fund generated total cash proceeds of approximately
$900 million, primarily due to the successful exits from MAG Aerospace, Centaur Gaming and Rivers Casino, as
described below, and interest payments and distributions received from other investments.
In June 2018, Clairvest and the CEP IV Fund completed the sale of MAG Aerospace, a U.S. based specialty aviation and
intelligence, surveillance and reconnaissance service provider, for total sale proceeds of US$112 million. The sale, in
U.S. dollar terms, generated 8.3 times invested capital, or a 57% IRR over the 5-year holding period. In Canadian dollar
terms, CEP IV Co-Invest received total sale proceeds of $38.2 million against the cost of its equity investment of $4.0
million, or 9.5 times invested capital. Further details are on page 13 of the MD&A.
In July 2018, Clairvest and the CEP IV Fund completed the sale of Centaur Gaming, the owner and operator of the
Hoosier Park Racing & Casino and the Indiana Grand Casino and Indiana Downs Racetrack, both located in the state of
Indiana. The total sale proceeds received by CEP IV Co-Invest and the CEP IV Fund were US$417 million. CEP IV Co-
Invest received sale proceeds of US$167 million and is entitled to deferred consideration of up to US$8.4 million
payable through to July 2021, against its cost of investment of US$26.5 million, which comprised a US$10.5 million
(C$14.7 million) net investment in November 2010 and a US$16.0 million (C$20.0 million) follow-on investment in
November 2016. In Canadian dollar terms, CEP IV Co-Invest received cash proceeds of $219.3 million, generating over 6
•
8
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2019
June 26, 2019
•
times invested capital on the aggregate investment, or a 30% IRR over the life of the investment. Further details are on
page 13 of the MD&A.
In March 2019, Clairvest and the CEP IV Fund completed the sale of Rivers Casino, a gaming entertainment complex
located in Des Plaines, Illinois. The total sale proceeds received by CEP IV Co-Invest and the CEP IV Fund were
US$138 million. CEP IV Co-Invest received sale proceeds of US$36 million (C$47 million) on the sale, against its cost of
investment of $9.1 million. Including the $45.4 million in distributions received by CEP IV Co-Invest through the 9-year
investment horizon, the investment generated a 46% IRR, or 8.4 times invested capital. Further details are on page 15
of the MD&A.
•
Clairvest/CEP V Co-Invest and the CEP V Fund
• During fiscal 2019, the CEP V Fund completed three new investments and partially realized on an existing investment as
described below. As at June 26, 2019, the CEP V Fund had made 8 investments, representing approximately 51% of its
committed capital.
In May 2019, Ontario Gaming West GTA Limited Partnership ("OWGTALP") completed the acquisition of four gaming
facilities in the West Greater Toronto Area (the "West GTA Bundle") for a purchase price of $134 million. OWGTALP
was capitalized with Clairvest and the CEP V Fund owning 45% and Great Canadian Gaming Corporation, the operator
of these gaming facilities owning 55%. CEP V Co-Invest invested $8.8 million in OWGTALP for a 13.5% ownership.
Further details are described on page 16 of the MD&A.
In October 2018, CEP V Co-Invest and the CEP V Fund invested US$17.6 million (C$22.3 million) in Meriplex
Communications Ltd. (“Meriplex”). CEP V Co-Invest invested US$5.3 million (C$6.7 million) in Meriplex in the form of
5,250 common shares for a 18.1% ownership interest in Meriplex. Further details are described on page 17 of the
MD&A.
In November 2018, CEP V Co-Invest and the CEP V Fund invested $21.3 million in Right Time Heating and Air
Conditioning Canada Inc. (“Right Time HVAC”). CEP V Co-Invest invested $6.4 million in Right Time HVAC in the form of
6,375,000 Class A Preferred Shares which are convertible into a 15.0% ownership interest in Right Time HVAC. Further
details are described on page 17 of the MD&A.
•
•
• During fiscal 2019, CEP V Co-Invest and the CEP V Fund received US$31.3 million (C$41.3 million) in distributions from
Digital Media Solutions following a dividend recapitalization, CEP V Co-Invest’s portion of which was US$9.4 million
(C$12.4 million). Further details are described on page 16 of the MD&A.
OUTLOOK
As at March 31, 2019, Clairvest and its controlled acquisition entities had $886.5 million of capital available for future
acquisitions through its cash, cash equivalents and temporary investments ("treasury funds"), credit facilities and uncalled
capital in the CEP Funds.
In April 2019, Clairvest announced the successful fundraising of the CEP VI Fund at the hard cap of US$850 million.
Clairvest, through CEP VI Co-Invest, has committed US$230 million alongside US$620 million of third-party capital to form
the CEP VI Fund. The CEP VI Fund will be the successor fund to the CEP V Fund. As at June 26, 2019, the CEP VI Fund had not
made any investments.
From inception, the Company has invested its own capital in every investment. Clairvest's team of professionals
have all invested significant amounts of capital in the Company which allows Clairvest to approach each investment as
owners and shareholders. As a long-term investor, Clairvest is focused on building value in its investee companies by
contributing strategic expertise, advising on operational improvement and helping its investee companies capitalize on new
opportunities that arise. As at June 26, 2019, Clairvest's current management team has made 47 platform investments and
has realized or partially realized on 35 investments which have in aggregate generated 3.6 times invested capital.
The table below summarizes the status of the CEP Funds as at June 26, 2019:
9
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2019
Status of Clairvest Equity Partnerships
($millions, except year of fund and number of investments)
Clairvest Equity Partners III ("CEP III")
Year of
Fund
2006
Third-Party
Capital
Clairvest
Commitment Total Capital
Percentage
Drawn
C$225
C$75
C$300
79.8%
Clairvest Equity Partners IV ("CEP IV")
2010
C$342
C$125
C$467
89.8%
Clairvest Equity Partners V ("CEP V")
2015
C$420
C$180
C$600
51.0%
Clairvest Equity Partners VI ("CEP VI")
To be determined
US$620
US$230
US$850
0.0%
June 26, 2019
Number of
Investments
Total
8
11
8
—
Currently
Held
1
5
8
—
FINANCIAL CONDITION AND BOOK VALUE
The following table summarizes the Company's financial position and book value as at March 31, 2019 and 2018:
Financial Position
As at, ($000's, except number of shares and per share amounts)
Cash, cash equivalents, temporary investments and restricted cash ("treasury funds")
Carried interest
Corporate investments, at fair value
Total assets
Management participation
Total liabilities
Book value
Book value per share
Dividends per share paid during the fiscal year ended
Number of common shares outstanding
March 31, 2019
March 31, 2018
$
452,325 $
56,484
366,279
911,253
42,599
132,561
778,692
51.44
0.4401
15,136,495
147,924
127,900
515,172
834,889
91,267
167,568
667,321
44.01
0.3621
15,162,995
As at March 31, 2019, Clairvest had total assets of $911.3 million, an increase of $76.4 million during fiscal 2019. The
increase was primarily due to net gain on investment realizations and a net increase in the fair value of Clairvest’s investee
companies.
As at March 31, 2019, the Company's treasury funds of $452.3 million were held in cash and money market savings
accounts rated not below R1-High, investment savings accounts and guaranteed investment certificates rated not below A-,
and other fixed income securities as permitted by the Company's treasury policy. 2141788 Ontario also held $39.1 million in
cash, investment savings accounts and guarantee investment certificates with consistent ratings to the Company’s treasury
funds. Clairvest also had access to $8.8 million in cash held in various other acquisition entities which are controlled by
Clairvest.
Clairvest maintains a $100.0 million revolving credit facility which is participated in by several Schedule 1 Canadian
chartered banks. The credit facility, which has an expiry of December 2023 and is eligible for a one-year extension on each
anniversary date, bears interest at the bank prime rate plus 1.25% per annum on drawn amounts and a standby fee of
0.70% per annum on undrawn amounts. The amount available under the credit facility as at March 31, 2019 was
$100.0 million, which is based on debt covenants and certain restrictions within the banking arrangement. No amounts had
been drawn on the facility during the year and as at March 31, 2019.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2019
June 26, 2019
As at March 31, 2019, Clairvest had corporate investments with a fair value of $366.3 million, a decrease of $148.9 million
during fiscal 2019, $339.5 million of which represented the fair value of Clairvest's investee companies and the remaining
$26.7 million of which represented other net assets (liabilities) held by Clairvest's acquisition entities. The decrease in the
fair value of corporate investments is primarily due to investment realizations and the subsequent distributions made by
Clairvest’s acquisition entities.
Excluding net assets (liabilities) held by Clairvest's acquisition entities, the aggregate carrying value of Clairvest's
investee companies decreased by $169.0 million during fiscal 2019, which primarily comprised the following:
-
The sale of Centaur Gaming which had a carrying value of $192.4 million as at March 31, 2018 compared
to a carrying value of $7.8 million at March 31, 2019, which represented the present value of the deferred
consideration to be received through to July 2021;
The sale of Rivers Casino which had a carrying value of $23.8 million as at March 31, 2018;
The sale of MAG Aerospace which had a carrying value of $21.2 million as at March 31, 2018;
Partial repayment of the Head Digital Works compulsory convertible debentures (“CCD”) of $9.1million;
A dividend recapitalization of Digital Media Solutions resulting in a return of capital of $7.3 million;
Foreign exchange revaluations of investee companies totalling $6.2 million; partially offset by
-
-
- Net proceeds of $10.1 million from Northco/Top Aces;
-
-
-
- Net increase in unrealized gain on investee companies of $52.1 million;
-
-
-
-
-
-
Accrued interest on debt investments and dividends totalling $10.0 million;
An investment of $8.4 million in GTA Gaming;
An investment of $6.7 million in Meriplex Communications;
An investment of $6.4 million in Right Time HVAC;
Follow-on investments totalling $5.6 million in Also Energy; and
A follow-on investment of $3.5 million in County Waste.
Clairvest has implemented a hedging strategy because it has, directly and indirectly, several investments outside of Canada.
In order to limit its exposure to changes in the value of these investments denominated in foreign currencies relative to the
Canadian dollar, Clairvest and its acquisition entities consider and if determined appropriate, enter into hedging positions
against these foreign denominated currencies. For the year ended March 31, 2019, the foreign exchange adjustments made
in Clairvest's valuation of its investee companies is primarily offset by the foreign exchange adjustments made in the
forward exchange forward contracts used to support its foreign exchange hedging strategy, except for its foreign exchange
exposure in approximately 40% of its investment in Chilean Gaming Holdings denominated in Chilean Pesos ("CLP") and its
equity investment in Head Digital Works denominated in Indian Rupees ("INR"), both of which are unhedged. Forward
exchange forward contracts are described in the Derivative Financial Instruments section of the MD&A.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2019
June 26, 2019
The table below details the cost and fair value of Clairvest’s investee companies as at March 31, 2019 and 2018:
CEP III CO-INVEST INVESTMENTS
Chilean Gaming Holdings(1)
CEP IV CO-INVEST INVESTMENTS
Centaur Gaming
County Waste
Davenport Land Investments
Impero Waste
MAG Aerospace / Momentum
Solutions
The Meadowlands
Northco / Top Aces
Rivers Casino
CEP V CO-INVEST INVESTMENTS
Accel Entertainment
Also Energy
Digital Media Solutions
GTA Gaming
Head Digital Works
Meriplex Communications
Right Time HVAC
Winters Bros. of LI
Grey Eagle Casino(2)
Wellington Financial
Other investments(3)
March 31, 2019
March 31, 2018
Fair value
Cost
Difference
Fair value
Cost
Difference
$
61,785
$
27,748
$
34,037
$
60,113
$
28,754
$
31,359
7,843
31,199
3,254
544
819
10,681
55,868
—
—
14,831
2,196
3,019
—
6,444
59,100
—
7,843
16,368
1,058
(2,475)
819
4,237
(3,232)
—
192,394
19,776
3,018
4,100
21,164
10,237
44,926
23,787
34,657
11,314
2,196
3,019
5,068
6,444
55,522
9,058
36,067
12,463
10,055
8,972
43,620
7,016
6,375
11,647
8,351
2,955
319,514
20,034
$ 339,548
15,978
11,621
995
8,972
46,804
6,732
6,375
10,636
11,017
154
232,622
455
$ 233,077
20,089
842
9,060
—
(3,184)
284
—
1,011
(2,666)
2,801
86,892
19,579
$ 106,471
27,258
6,189
9,126
602
40,228
—
—
9,764
11,331
3,626
487,639
20,866
$ 508,505
15,978
6,038
8,254
602
55,968
—
—
10,636
11,017
—
264,525
788
$ 265,313
157,737
8,462
822
1,081
16,096
3,793
(10,596)
14,729
11,280
151
872
—
(15,740)
—
—
(872)
314
3,626
223,114
20,078
$ 243,192
The cost and fair value of these investee companies do not reflect foreign exchange gains or losses on the foreign exchange
forward contracts entered into as economic hedges against the Company's foreign currency-denominated investments.
Significant activities of each investee company during fiscal 2019 were as follows:
INVESTMENTS MADE BY CEP III CO-INVEST ALONGSIDE CEP III
Chilean Gaming Holdings
As at March 31, 2019 and 2018, CEP III Co-Invest held 30,446,299 limited partnership units of Chilean Gaming Holdings,
which has ownership interests in Casino Marina Del Sol, Casino Osorno, Casino Sol Calama, and Casino Chillán which is
currently under construction. The limited partnership units held represent a 36.8% ownership interest in Chilean Gaming
Holdings on a fully diluted basis.
During fiscal 2019, CEP III Co-Invest earned dividends totalling $1.4 million through its interest in Chilean Gaming
Holdings, bringing dividends earned to March 31, 2019 to $15.4 million. Also during fiscal 2019, CEP III Co-Invest received a
return of capital of $1.0 million from Chilean Gaming Holdings which has been recorded as a reduction to the cost of the
investment.
Also during fiscal 2019, management determined that the fair value of Chilean Gaming Holdings should be
adjusted upward by $7.2 million. The fair value of $61.8 million as at March 31, 2019 compares to a fair value of
12
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2019
June 26, 2019
$60.1 million at March 31, 2018 and a cost of $27.7 million. The fair value is adjusted for foreign exchange fluctuations.
INVESTMENTS MADE BY CEP IV CO-INVEST ALONGSIDE CEP IV
Centaur Gaming
As at March 31, 2018, CEP IV Co-Invest held US$17.4 million in term loans with stapled warrants which, subject to
regulatory approval, were convertible upon exercise to 12.7% of Class A and Class B units of Centaur Gaming.
During fiscal 2019, CEP IV Co-Invest realized on its investment in Centaur Gaming and received cash proceeds
totalling US$166.8 million (C$219.4 million), compared to the $192.4 million carrying value as at March 31, 2018. CEP IV Co-
Invest is also entitled to deferred consideration of up to US$8.4 million through to July 2021, which is being fair valued at
$7.8 million as at March 31, 2019 and is adjusted for foreign exchange fluctuations. During fiscal 2019, the realization of
Centaur Gaming, together with the fair value of the deferred consideration and net of foreign exchange gains (losses)
inclusive of foreign exchange hedging activities, resulted in a $30.0 million net investment gain for the Company.
County Waste
As at March 31, 2018, CEP IV Co-Invest held 7,374.67 Class B units of County Waste and 174.3 units of Spare Lots, LLC
("Spare Lots"), a company affiliated with County Waste, collectively representing a 13.0% ownership interest on a fully
diluted basis. CEP IV Co-Invest also held a US$1.7 million 12% promissory note from County Waste.
During fiscal 2019, CEP IV Co-Invest invested an additional US$2.7 million (C$3.5 million) in the form of a
convertible promissory note with a stated interest rate of 15% per annum. Under the terms of the agreement, the
convertible promissory note will be converted into equity units of County Waste if not repaid by December 31, 2020.
During fiscal 2019, CEP IV Co-Invest earned interest totalling $0.4 million from the two promissory notes.
As at March 31, 2019, CEP IV Co-Invest held US$1.7 million in 12% promissory notes and US$2.7 million in 15%
convertible promissory note in addition to 7,374.67 Class B units of County Waste and 174.3 units of Spare Lots, which
represented a 13.0% ownership interest on a fully diluted basis. During fiscal 2019, the management determined that the
fair value of County Waste should be adjusted upward by $6.8 million. The fair value of $31.2 million and a cost of
$14.8 million as at March 31, 2019 compare to a fair value of $19.8 million and a cost of $11.3 million as at March 31, 2018.
The fair value is adjusted for foreign exchange fluctuations.
Davenport Land Investments
As at March 31, 2019 and 2018, CEP IV Co-Invest had a net investment of $1.6 million in Davenport Land Investments. CEP
IV Co-Invest had also advanced US$0.6 million to a partner in the form of a promissory note to help fund its 50% ownership
in Davenport North. The promissory note bears interest at a rate of 12% per annum.
The fair value of $3.3 million as at March 31, 2019 compares to a fair value of $3.0 million as at March 31, 2018
and a cost of $2.2 million. The fair value is adjusted for foreign exchange fluctuations.
Impero Waste
As at March 31, 2018, CEP IV Co-Invest held 4,817.86 Class A units of Impero Waste, representing a 6.0% ownership interest
on a fully diluted basis.
During fiscal 2019, the management determined that the fair value of Impero Waste should be adjusted downward
by $3.0 million. As at March 31, 2019, the fair value of $0.5 million compares a fair value of $4.1 million as at March 31,
2018 and a cost of $3.0 million. The fair value is adjusted for foreign exchange fluctuations.
Subsequent to year end, CEP IV Co-Invest realized its interest in Impero Waste for US$2.3 million.
MAG Aerospace / Momentum Solutions
MAG Aerospace is a U.S.-based specialty aviation and intelligence, surveillance and reconnaissance service provider. As at
March 31, 2018, CEP IV Co-Invest held 33,736 Class A stock of MAG Aerospace, representing a 10.3% ownership interest on
13
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2019
June 26, 2019
a fully diluted basis. In addition, CEP IV Co-Invest had invested $0.1 million in a subsidiary of MAG Aerospace (“MAG Sub”)
and advanced $1.1 million to MAG Sub in the form of promissory notes bearing interest at 10% per annum with a maturity
date of January 31, 2021.
During fiscal 2019, CEP IV Co-Invest realized on its investment in MAG Aerospace and received cash proceeds
totalling US$29.5 million (C$37.9 million) compared an equity investment of C$4.0 million. In conjunction with the sale of
MAG Aerospace, the equity investment in MAG Sub was redeemed for $0.1 million and the $1.1 million promissory notes
from MAG Sub were repaid in full. Upon completion of the transaction, CEP IV Co-Invest retained a 4.4% ownership interest
in Momentum Solutions, which was another wholly-owned subsidiary of MAG Aerospace prior to the investment
realization. During fiscal 2019, the realization of MAG Aerospace, together with the fair value of Momentum Solutions and
net of foreign exchange gains (losses) inclusive of foreign exchange hedging activities, resulted in a $19.4 million net
investment gain for the Company.
The Meadowlands
As at March 31, 2019 and 2018, CEP IV Co-Invest had invested US$5.4 million (C$5.6 million) in the Meadowlands in the
form of secured convertible debentures (“Meadowlands Debentures”), which accrue interest at a rate of 15% per annum,
all of which is payable in-kind. CEP IV Co-Invest also holds warrants which entitle it to invest in equity securities of the
Meadowlands subject to certain conditions. 5% of the 15% interest on the Meadowlands Debentures would be forfeited in
the event Clairvest exercises the warrants.
As at March 31, 2018, the gross accrued value of the Meadowlands Debentures was US$8.7 million
(C$11.2 million), and the carrying value of the Meadowlands Debentures was US$7.3 million (C$9.4 million). During fiscal
2019, US$1.3 million (C$1.7 million) (2018 – US$1.1 million (C$1.4 million)) in interest was accrued on the Meadowlands
Debentures. During fiscal 2019, CEP IV Co-Invest received interest payments totalling US$0.8 million (C$1.0 million) from
the Meadowlands. As at March 31, 2019, the gross accrued value of the Meadowlands Debentures was US$9.2 million
(C$12.3 million) and the carrying value of the Meadowlands Debentures was US$7.3 million (C$9.8 million) (2018 –
US$7.3 million; C$9.4 million), which reflected US$1.9 million (C$2.5 million) (2018 – US$1.4 million; C$1.8 million) in
accrued interest being provided for on the Meadowlands Debentures.
CEP IV Co-Invest had also invested US$0.7 million (C$0.9 million) in the Meadowlands in the form of preferred
debt, which is junior to the Meadowlands Debentures. The preferred debt has a stated interest rate of 3% per annum and
interest is payable in-kind. During fiscal 2019, CEP IV Co-Invest earned $26 thousand (2018 – $26 thousand) in interest on
the preferred debt, which was fully provided for and presented on a net basis.
The fair value of $10.7 million as at March 31, 2019 compares to a fair value of $10.2 million as at March 31, 2018
and a cost of $6.4 million. The fair value is adjusted for foreign exchange fluctuations.
Northco / Top Aces
Northco, formerly Discovery Air Inc. ("Discovery Air"), is a specialty aviation services company operating across Canada and
in selected locations internationally. Top Aces was a wholly owned subsidiary of Discovery Air until December 2017 and is a
supplier of advanced adversary services across three continents.
As at March 31, 2018, CEP IV Co-Invest had invested $22.0 million in secured convertible debentures of Discovery
Air ("Discovery Air Debentures") which had a maturity date of May 5, 2018. The Discovery Air Debentures accrued interest
at a rate of 10% per annum and interest was paid in-kind and compounded on an annual basis. As at March 31, 2018, the
gross accrued value of the Discovery Air Debentures was $23.3 million and were carried at $1.3 million. In addition,
Clairvest and CEP IV Co-Invest also had invested $8.4 million for 24,332,907 common shares of Discovery Air, which
represented a 29.9% ownership interest on a fully diluted basis and were carried at nil. As at March 31, 2018, Discovery Air
had filed for creditor protection under the Companies’ Creditors Arrangement Act (“CCAA”). Under the CCAA process, CEP
IV Co-Invest had provided a debtor-in-possession (“DIP”) facility to Discovery Air of up to $12.6 million, $4.9 million of
which was drawn as at March 31, 2018.
14
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2019
June 26, 2019
As at March 31, 2018, CEP IV Co-Invest held 611.3633 common shares of Top Aces, which represented 26.3% ownership
interest on a fully diluted basis, at a cost of $20.2 million and were carried at $38.8 million. As at March 31, 2018, Discovery
Air had a 9.7% ownership interest in Top Aces.
During fiscal 2019, the DIP facility was increased to $15.0 million and was fully drawn by Discovery Air.
Subsequently, the Court approved the sale of Discovery Air’s remaining interest in Top Aces to CEP IV Co-Invest and the co-
investors of Discovery Air (Collectively, the “Discovery Air Investor Group”) for a purchase price of $20.8 million (the “Court
Approved Sale of Top Aces”), $17.0 million of which, representing 207.4331 of the 253.8360 shares held by Discovery Air
prior to the Court Approved Sale of Top Aces, was purchased by CEP IV Co-Invest which were paid for by applying
$15.3 million against the accrued value of the DIP facility as at the closing of this transaction and $1.7 million against
interest owing on the Discovery Air Debentures.
Also during fiscal 2019 and subsequent to the Court Approved Sale of Top Aces, the Discovery Air Investor Group,
through 10671541 Canada Inc. (“Northco”), purchased all remaining assets of Discovery Air under a Court supervised sale
process (the “Court Approved Sale of Discovery Air Assets”). The consideration of the purchase included the assumption of
the Discovery Air Debentures, which had an accrued value of $71.0 million as at the date of this transaction. In exchange of
the Discovery Air Debentures, the Discovery Air Investor Group received $70.0 million in convertible debentures of Northco
(“Northco Debentures”) and $1.0 million in common shares of Northco. As Discovery Air and Northco are owned
proportionately by the Discovery Air Investor Group, the transaction was recorded with no gain or loss. The Northco
Debentures have a stated interest of 10% per annum and an annual fee of 2% payable quarterly and an initial maturity date
of January 31, 2019, which was later extended to May 31, 2020. At the conclusion of this transaction, CEP IV Co-Invest held
$22.0 million in Northco Debentures and 3,149 common shares of Northco with a carrying value of nil. Subsequently, CEP IV
Co-Invest purchased an additional $4.3 million of the Northco Debentures and 718 common shares of Northco at a nominal
value. During fiscal 2019, CEP IV Co-Invest earned interest and fees of $1.5 million on the Northco Debentures and received
payments totalling $4.6 million during fiscal 2019. As at March 31, 2019, CEP IV Co-Invest held $22.9 million in Northco
Debentures with a gross accrued value of $23.2 million and 3,867 common shares of Northco which represented 38.7%
ownership interest on a fully diluted basis. The Northco Debentures were carried at $1.1 million and the Northco common
shares were carried at nil as at March 31, 2019. Subsequent to year-end, CEP IV Co-Invest received repayments totalling
$1.5 million on the Northco Debentures.
Upon the completion of the Court Approved Sale of Discovery Air Assets, Clairvest and CEP IV Co-Invest realized
their investments in the common shares of Discovery Air, which had been previously written down to nil, and which had an
original cost of $8.4 million.
Subsequent to the Court Approved Sale of Top Aces, CEP IV Co-Invest purchased 47.2889 common shares of Top
Aces for $3.9 million in support of Top Ace’s equity raise and sold 192.5852 common shares of Top Aces for $15.8 million to
third-party institutional investors.
As at March 31, 2019, CEP IV Co-Invest held 667.9553 common shares of Top Aces, representing a 23.9%
ownership interest on a fully diluted basis.
Rivers Casino
Rivers Casino is a gaming entertainment complex located in Des Plaines, Illinois. As at March 31, 2018, CEP IV Co-Invest held
9,021,917 units of Rivers Casino, which represented a 5.0% ownership interest on a fully diluted basis.
During fiscal 2019, CEP IV Co-Invest earned quarterly distributions totalling $0.9 million (2018 – $1.3 million) and
quarterly fees totalling $0.6 million (2018 – $0.6 million) from Rivers Casino. As a result of CEP IV Co-Invest's investment in
Rivers Casino requiring certain acquisition entities in the United States, $0.4 million (2018 – $0.8 million) in U.S. income tax
obligations were incurred during fiscal 2019.
Also during fiscal 2019, CEP IV Co-Invest realized on its investment in Rivers Casino and received cash proceeds
totalling US$36.2 million (C$46.7 million) compared to an original investment of $9.1 million and a carrying value of
$23.8 million as at March 31, 2018. During fiscal 2019, the realization of Rivers Casino net of foreign exchange gains (losses)
15
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2019
June 26, 2019
inclusive of foreign exchange hedging activities, resulted in a $23.1 million net investment gain for the Company.
Subsequent to year-end, CEP IV Co-Invest received an additional US$0.2 million in cash proceeds resulting from customary
working capital adjustments as stipulated in the purchase agreement.
INVESTMENTS MADE BY CEP V CO-INVEST ALONGSIDE CEP V
Accel Entertainment
As at March 31, 2019 and 2018, CEP V Co-Invest held 283,478 Class D preferred shares of Accel Entertainment, representing
a 7.6% ownership interest on a fully diluted basis (2018 – 7.5%). The Class D preferred shares are entitled to certain
preference over all other equity of Accel Entertainment.
During fiscal 2019, management determined that the fair value of Accel Entertainment should be adjusted upward
by $7.7 million. The fair value of $36.0 million as at March 31, 2019 compares to a fair value of $27.3 million as at March 31,
2018 and a cost of $16.0 million. The increase in fair value was due to growth in operating performance. The fair value is
adjusted for foreign exchange fluctuations.
Subsequent to year-end, Accel Entertainment announced it has entered into a business combination transaction,
the outcome of which is currently unknown.
Also Energy
As at March 31, 2018, CEP V Co-Invest had invested US$4.8 million (C$6.0 million) for 1,013,062 Series A preferred stock of
Also Energy. The Series A preferred stock which accrue dividends at a rate of 8% compounded annually, are convertible into
common stock at CEP IV Co-Invest's discretion. As at March 31, 2018, CEP V Co-Invest's ownership interest in Also Energy
was 14.3% on a fully diluted basis.
During fiscal 2019, CEP V Co-Invest advanced US$4.1 million (C$5.2 million) to Also Energy in the form of a
promissory note which accrues interest at 10% per annum and had an initial maturity date of March 20, 2019 and was later
extended to April 20, 2020. During fiscal 2019, CEP V Co-Invest earned interest totalling $0.3 million on the promissory
note.
Also during fiscal 2019, Also Energy made various acquisitions, and CEP V Co-Invest invested US$0.2 million
(C$0.3 million) in the form of 20,080 Series A common shares of Also Energy in support of these acquisitions. As at March
31, 2019, the common shares together with 1,013,062 Series A preferred stock represent 10.0% ownership on a fully
diluted basis. The fair value is adjusted for foreign exchange fluctuations.
Digital Media Solutions
As at March 31, 2019 and 2018, CEP V Co-Invest held 6,150,000 Class B units of Digital Media Solutions, representing a
13.8% ownership interest on a fully diluted basis. The Class B units are entitled to certain preference over all other equity
units in Digital Media Solutions.
During fiscal 2019, Digital Media Solutions completed a dividend recapitalization and made a distribution to its
owners. CEP V Co-Invest received US$9.4 million (C$12.4 million), US$5.4 million (C$7.1 million) of which was recorded as a
return of capital and US$4.0 million (C$5.3 million) as a distribution.
Also during fiscal 2019, CEP V Co-Invest earned quarterly distributions totalling $1.2 million (2018 – $0.6 million)
from Digital Media Solutions, bringing total cash proceeds received to March 31, 2019 to $15.0 million (2018 – $1.4 million).
During fiscal 2019, management determined that the fair value of Digital Media solutions should be adjusted
upward by $13.2 million due to growth in operating performance. The fair value is adjusted for foreign exchange
fluctuations.
GTA Gaming
As at March 31, 2018, CEP V Co-Invest held 1,254,000 units of Ontario Gaming GTA Limited Partnership (“OGTALP”) at a
cost of $0.2 million representing a 0.6% ownership interest and 405,151.2 units of OWGTALP at a cost of $0.4 million
16
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2019
June 26, 2019
representing a 13.5% ownership interest.
During fiscal 2019 and in conjunction with the final closing of the purchase of West GTA gaming assets by
OWGTALP, an additional $8.4 million was funded by CEP V Co-Invest for an additional 8,370,000 units of OWGTALP. During
fiscal 2018, Clairvest had pledged $15.8 million in cash to a Canadian bank in support of this investment, the amount of
which was released during fiscal 2019 upon the final closing.
During fiscal 2019, CEP V Co-Invest received distributions totalling $0.3 million from OGTALP and $1.1 million from
OWGTALP.
Head Digital Works (formerly Ace2Three)
As at March 31, 2018, CEP V Co-Invest had invested $56.0 million in Head Digital Works. The investment comprised
INR₹1.1 billion (C$22.9 million) in the form of compulsory convertible debentures (“CCD”) which are denominated in INR
and bear interest at a rate of 16.0% per annum, and INR₹1.6 billion (C$33.1 million) in 202,230 common shares
representing a 32.7% (2018 – 33.6%) ownership interest on a fully diluted basis.
During fiscal 2019, CEP V Co-Invest accrued interest totalling INR₹159.9 million (C$$3.0 million) (2018 –
INR₹164.4 million (C$3.2 million)) on the CCD. Also during fiscal 2019, CEP V Co-Invest received payments on the CCD
totalling INR₹721.6 million (C$13.6 million) (2018 – INR₹17.0 million (C$0.3 million)), INR₹283.0 million (C$5.2 million)
(2018 – INR₹17.0 million (C$0.3 million)) of which was allocated to interest and the remaining INR₹438.6 million
(C$8.4 million) (2018 – nil) was allocated to principal. As at March 31, 2019, the CCD had an accrued value of
INR₹681.3 million (C$13.2 million). The carrying value of the CCD was adjusted for foreign exchange.
During fiscal 2019, management determined that the fair value of the equity investment in Head Digital Works
should be adjusted upward by C$15.8 million due to growth in operating performance. The fair value is adjusted for foreign
exchange fluctuations.
Meriplex Communications
During fiscal 2019, CEP V Co-Invest invested US$5.3 million (C$6.7 million) in Meriplex Communications, a company based
in Houston, Texas that designs, installs and manages complex networking solutions for businesses. The investment was
made in the form of 5,250 common shares for a 18.1% ownership interest in Meriplex Communications on a fully diluted
basis. The fair value is adjusted for foreign exchange fluctuations.
Right Time HVAC
During fiscal 2019, CEP V Co-Invest invested $6.4 million in Right Time HVAC, a Canadian independent heating, ventilation
and air-conditioning contractor operating out of seven locations in Ontario and Manitoba and focused on the residential
replacement market. The investment was made in the form of 6,375,000 Class A preferred shares which are convertible
into a 15.0% ownership interest in Right Time HVAC on a fully diluted basis.
Winters Bros. of LI
As at March 31, 2019 and 2018, CEP V Co-Invest held 1,487,773 Class C units of Winters Bros. of LI and 256,037 units of
WBLI II, representing a 14.0% ownership on a fully diluted basis in the respective entities.
During fiscal 2019, management determined that the fair value of Winters Bros. of LI should be adjusted upward
by $1.4 million. The fair value of $11.6 million as at March 31, 2019 compares to a fair value of $9.8 million at March 31,
2018 and a cost of $10.6 million. The fair value is adjusted for foreign exchange fluctuations.
OTHER INVESTMENTS
Grey Eagle Casino
As at March 31, 2019 and 2018, Clairvest held units of a limited partnership which operates Grey Eagle Casino, entitling
Clairvest to between 2.8% and 9.6% of the earnings of the casino until December 18, 2022. Additionally, CEP is entitled to
17
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2019
June 26, 2019
between 8.5% and 28.7% of the earnings of the Grey Eagle Casino until December 18, 2022. 2486303 Ontario and Clairvest
collectively hold a 100% interest in CEP.
During fiscal 2019, Clairvest earned $0.5 million (2018 – $0.5 million) and CEP earned $1.6 million (2018 –
$1.6 million) in equity distributions from Grey Eagle Casino.
The fair value of $8.4 million as at March 31, 2019 compares to a fair value of $11.3 million as at March 31, 2018
and a cost of $11.0 million.
Wellington Financial
During fiscal 2018, Clairvest received a full return of capital on its investment of $17.3 million in Wellington and 194,876
CIBC common shares as a result of CIBC acquiring the loan portfolio of Wellington Fund V and certain assets of the general
partner of Wellington Fund V. The CIBC common shares are restricted for sale subject to certain conditions until January 7,
2021. The Company has elected to receive additional CIBC common shares on the quarterly dividend paid on these shares.
During fiscal 2019, the Company received $1.1 million (2018 – $0.3 million) in dividends in the form of 7,139 (2018 – 2,336)
CIBC common shares. As at March 31, 2019, the 204,351 CIBC common shares were valued at a discount to the closing price
of $105.60 (2018 – $113.72) per share to reflect the sale restriction and had been included as other investments.
Clairvest continues to participate in its pro rata share of any profits realized from warrants previously granted to
the various Wellington Funds and is eligible for additional payments on the sale of the general partner assets subject to
certain conditions. During fiscal 2019, Clairvest received distributions totalling $0.1 million (2018 – $24.5 million) from
Wellington Financial. As at March 31, 2019, Clairvest had received distributions totalling $55.8 million (2018 – $55.7 million)
from Wellington Financial.
The fair value of $3.0 million as at March 31, 2019 reflects management's estimated realizable value of Clairvest's
entitlement of the warrants.
LIABILITIES
As at March 31, 2019, Clairvest had $132.6 million in total liabilities, which included $13.0 million in accrued management
and director compensation, $40.3 million in share-based compensation, $42.6 million in management participation and
$26.1 million in current and deferred tax liability. $49.4 million of these liabilities were payable only upon the cash
realization of certain investments of Clairvest or the CEP Funds.
FINANCIAL RESULTS
Clairvest's operating results reflect revenue earned from its corporate investments and treasury funds and realized gains
and net change in unrealized gains and losses on its corporate investments. These results are net of all costs incurred to
manage these assets.
Net income for the year ended March 31, 2019 was $119.2 million compared with net income of $123.8 million for
the year ended March 31, 2018. The following table summarizes the composition of net income for the years ended
March 31:
18
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2019
Financial Results
Year ended March 31, ($000's, except per share amounts)
Net investment gain (loss)
June 26, 2019
2019
2018
- Investee companies inclusive of foreign exchange hedging activities
$
119,114
$
102,489
- Acquisition entities including distributions, interest,
dividends and fees received from investee companies and
net of taxes paid or payable by these acquisition entities
Distributions, interest income, dividends and fees
- CEP Funds
- Investee companies
- Treasury funds
- Acquisition entities and other
Net carried interest income – realized and unrealized changes
Total expenses
Income before income taxes
Income taxes
Net income and comprehensive income
Net income and comprehensive income per share - basic and fully diluted
(242,266)
5,251
(123,152)
107,740
9,974
3,460
8,029
258,205
279,668
47,691
66,329
137,878
18,636
119,242
7.87
11,071
26,810
1,928
14,171
53,980
46,469
71,495
136,694
12,916
123,778
8.15
The Company fair values its acquisition entities which hold Clairvest's investee companies as well as other assets and
liabilities. Distributions, interest, dividends and fees earned from and realized gains and net change in unrealized gains on
the investee companies held by acquisition entities, including foreign exchange fluctuations and the hedging activities
related to managing the foreign currency exposure of these investments, and income taxes incurred by these acquisition
entities, are reflected in net investment gain until the proceeds are distributed out of these acquisition entities, at which
point the Company would record a distribution or a dividend from acquisition entities and reverse the net investment gain
or loss which had previously been recorded.
During fiscal 2019, CEP IV Co-Invest realized on its investment in MAG Aerospace, Centaur Gaming, and Rivers
Casino and received interest payments and other partial sale proceeds from other investee companies. In aggregate, CEP IV
Co-Invest received total cash proceeds of $317.5 million during fiscal 2019. CEP IV Co-Invest repaid loans from Clairvest
totalling $19.5 million and made distributions totalling $298.6 million, $271.5 million of which were paid to Clairvest,
$4.1 million were paid to an acquisition entity of Clairvest and $23.0 million were paid as carried interest entitlements.
The following tables summarize the net investment gain or loss of investee companies for the years ended
March 31, 2019 and 2018. The net investment gain or loss is inclusive of the impact on the foreign exchange hedging
activities related to these investments:
19
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2019
Net investment gain (loss) on investee companies
Year ended March 31, 2019 ($000's)
Accel Entertainment
Also Energy
Centaur Gaming(1)
Chilean Gaming Holdings
County Waste
Davenport Land Investments
Digital Media Solutions
Grey Eagle Casino
Head Digital Works
Impero Waste
MAG Aerospace / Momentum Solutions(1)
The Meadowlands
Meriplex Communications
Northco / Top Aces
Rivers Casino(1)
Wellington Financial
Winters Bros. of LI
Other investments
Net investment gain (loss) on investee companies
(1)
Realized during fiscal 2019.
$
$
Net realized
gains (losses)
—
—
28,659
Net unrealized
gains (losses)
7,739
—
$
—
—
—
—
—
3
434
18,408
—
—
2,689
21,197
—
—
—
71,390
$
1,819
7,197
6,809
—
7,914
(2,980)
15,827
(2,994)
820
—
—
10,905
—
(824)
1,467
(1,594)
52,105
June 26, 2019
Foreign
Exchange gains
(losses)
inclusive of
foreign
exchange
hedging
activities
$
(200) $
(64)
(466)
(2,428)
(159)
(40)
71
—
(2,652)
(572)
154
(14)
(19)
—
1,949
—
59
—
(4,381) $
$
Total
7,539
(64)
30,012
4,769
6,650
(40)
7,985
(2,980)
13,178
(3,132)
19,382
(14)
(19)
13,594
23,146
(824)
1,526
(1,594)
119,114
20
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2019
June 26, 2019
Year ended March 31, 2018 ($000's)
Accel Entertainment
Also Energy
Centaur Gaming
Cieslok Media
Chilean Gaming Holdings
County Waste
CRS Contractors Rental Supply Limited Partnership
("CRS")(1)
Digital Media Solutions
Grey Eagle Casino
Head Digital Works (formerly "Ace2Three")
Impero Waste(2)
Lyophilization Services of New England, Inc.
MAG Aerospace / Momentum Solutions
The Meadowlands
Northco / Top Aces (formerly "Discovery Air / Top Aces")
Rivers Casino
Wellington Financial
Winters Bros. of LI
Other investments
Net investment gain on investee companies
(1)
(2)
Realized during fiscal 2018.
Partially realized during fiscal 2018.
Net realized
gains (losses)
Net unrealized
gains (losses)
$
—
—
—
69
—
—
2,950
—
—
—
3,311
146
—
—
(1,165)
—
—
—
—
5,311
$
7,137
—
82,691
—
7,928
(1,730)
—
1,196
(2,305)
(15,826)
21
—
9,831
—
5,214
9,711
(2,847)
(1,064)
(1,646)
98,311
$
$
Foreign
exchange gains
(losses)
inclusive of
foreign
exchange
hedging
activities
$
(68) $
(4)
207
—
1,560
(98)
—
(40)
—
(2,807)
(115)
88
143
(34)
—
135
—
(100)
—
(1,133) $
$
Total
7,069
(4)
82,898
69
9,488
(1,828)
2,950
1,156
(2,305)
(18,633)
3,217
234
9,974
(34)
4,049
9,846
(2,847)
(1,164)
(1,646)
102,489
The Company and its acquisition entities also receive distributions, interest, dividends or fees from various investee
companies. The following table summarizes the income earned by the Company and its acquisition entities for the years
ended March 31:
21
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2019
June 26, 2019
Distributions, Interest, Dividends, and Fees from Investee Companies
Year ended March 31, ($000's)
Distributions and interest income
Also Energy
Centaur Gaming
County Waste
CRS Contractors Rental Supply
Davenport Land Investments
Digital Media Solutions
Grey Eagle Casino
GTA Gaming
Head Digital Works
MAG Aerospace / Momentum
Solutions
The Meadowlands
Northco / Top Aces
Rivers Casino
Wellington Financial
Dividend income
Chilean Gaming Holdings
Other investments
2019
Earned
through
acquisition
entities
Earned
directly by
Clairvest
2018
Earned
through
acquisition
entities
Earned
directly by
Clairvest
—
—
—
—
—
—
522
—
—
—
192
43
245
99
589
1,568
—
3,225
Total
288
63
369
—
126
6,209
2,088
1,433
2,987
Total
—
192
43
245
99
589
2,090
—
3,225
288
63
369
—
126
6,209
1,566
1,433
2,987
23
1,127
3,811
872
—
18,874
414
1,127
3,811
872
113
19,900
152
—
130
—
24,575
25,379
115
959
14,316
1,322
—
22,673
267
959
14,446
1,322
24,575
48,052
1,421
—
1,421
1,421
1,094
2,515
—
259
259
849
—
849
849
259
1,108
—
—
—
—
—
—
522
—
—
391
—
—
—
113
1,026
—
1,094
1,094
Advisory and other fees
1,340
603
1,943
1,172
611
1,783
Distributions, interest, dividends and
fees from investee companies
$
3,460 $ 20,898 $ 24,358 $ 26,810 $ 24,133 $ 50,943
The Company and its acquisition entities also receive distributions, fees and interest from the CEP Funds as described in the
Transaction with Related Parties section of the MD&A. The following table summarizes the distributions, fees and interest
earned from the CEP Funds for the years ended March 31:
22
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2019
Distributions, Fees and Interest from the CEP Funds
June 26, 2019
Year ended March 31, ($000's)
Priority distributions
Management fees
Interest on loans advanced
Distributions, fees and interest from the
CEP Funds
2019
Earned
through
acquisition
entities
Earned
directly by
Clairvest
Earned
directly by
Clairvest
Total
2018
Earned
through
acquisition
entities
Total
$
8,164 $
— $
8,164 $
9,267 $
— $
9,267
1,259
551
—
33
1,259
584
1,304
500
—
81
1,304
581
$
9,974 $
33 $ 10,007 $ 11,071 $
81 $ 11,152
Also included in distributions and interest income for the year ended March 31, 2019 and 2018 was income on treasury
funds of $8.0 million and $1.9 million respectively. Acquisition entities of Clairvest earned interest from its treasury funds
totalling $0.9 million and $0.5 million respectively during fiscal 2019 and 2018.
The Company also receives carried interest from the CEP Funds, as described in the Transaction with Related
Parties section of the MD&A. The following table summarizes the recognition of realized and unrealized carried interest for
the Company for the years ended March 31:
Net carried interest income
Year ended March 31, ($000's)
Realized carried interest from CEP
Realized carried interest from the CEP Funds
Realized carried interest from other co-investors
Net change in unrealized carried interest from CEP and the CEP Funds
Net carried interest income(1)
(1)
2018
300
16,590
—
29,579
46,469
Includes carried interest which is ultimately received by non-Clairvest participants if and when they are receivable, which are recorded as
management participation as described below.
2019
350
111,824
6,933
(71,416)
47,691
$
$
$
$
Total expenses for the year were $66.3 million, compared with $71.5 million for the year ended March 31, 2018. The
following table summarizes expenses incurred by the Company for the years ended March 31:
Total Expenses, excluding Income Taxes
Year ended March 31, ($000's)
Employee compensation and benefits
Share-based compensation expenses
Administration and other expenses
Finance and foreign exchange expenses
Management participation
Total expenses, excluding income taxes
2019
$
12,200
$
11,332
8,515
809
33,473
$
66,329
$
2018
13,108
17,105
5,533
901
34,848
71,495
Included in share-based compensation expenses for the year ended March 31, 2019 was $3.4 million for the Non-Voting
Option Plan, $6.8 million for book value appreciation rights ("BVARs"), and $1.5 million for Deferred Share Units ("DSUs"),
Appreciation Deferred Share Units ("ADSUs"), and Employee Deferred Share Units (“EDSUs”), compared to $4.5 million for
the Non-Voting Option Plan, $7.8 million for BVARs and $5.3 million for DSUs, ADSUs and EDSUs for the year ended
23
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2019
June 26, 2019
March 31, 2018. Refer to notes 2(h), 2(i), 2(j) and 12 to the consolidated financial statements for details of these
compensation plans.
Management participation is further described in the Transaction with Related Parties section of the MD&A.
SUMMARY OF QUARTERLY RESULTS
($000's except per share information)
Gross
revenue
$
Net income (loss)
Net income (loss)
per common share*
Net income (loss)
per common share
fully diluted*
$
$
$
1.80
53,684
March 31, 2019
1.59
34,532
December 31, 2018
0.88
26,753
September 30, 2018
3.61
89,238
June 30, 2018
1.23
26,845
March 31, 2018
4.88
121,671
December 31, 2017
2.80
63,504
September 30, 2017
(0.76)
(3,831)
June 30, 2017
* The sum of quarterly net income (loss) per common share may not equal to the full year net income per common share due to rounding and the
27,182
24,032
13,373
54,655
18,626
74,103
42,609
(11,560)
1.80
1.59
0.88
3.61
1.23
4.88
2.80
(0.76)
dilutive effect on any quarters which may not be applicable for the full year.
Significant variations arise in the quarterly results due to net investment gains, net carried interest income and
management participation which are revalued on a quarterly basis when conditions warrant an adjustment to the fair value
of the corporate investments and due to realizations, and share-based compensation due to the movement in the trading
price and book value of Clairvest's common shares.
FOURTH QUARTER RESULTS
Net income for the fourth quarter of fiscal 2019 was $27.2 million compared with a net income of $18.6 million for the
fourth quarter of fiscal 2018.
Revenue for the fourth quarter of fiscal 2019 comprised $14.5 million in net investment loss, $50.5 million in
distributions, interest, dividends and fees, and $17.7 million in net carried interest income. This compares with $7.1 million
in net investment loss, $26.8 million in distributions, interest, dividends and fees and $7.2 million in net carried interest
income for the fourth quarter of fiscal 2018.
The net investment loss of $14.5 million for the fourth quarter of fiscal 2019 resulted from $28.2 million in net
unrealized gain from Clairvest's investee companies inclusive of foreign exchange hedging activities and $42.7 million in net
unrealized loss from Clairvest's acquisition entities. This compared with $6.8 million in net unrealized loss from Clairvest's
investee companies and $0.3 million in net unrealized loss from Clairvest's acquisition entities for the fourth quarter of
fiscal 2018. Distributions from acquisition entities are typically declared during the fourth quarter of each fiscal year
resulting in net unrealized loss from these acquisition entities. During the fourth quarter of fiscal 2019, Clairvest received
distributions totalling $43.7 million from CEP IV Co-Invest primarily as a result of the realization of Rivers Casino.
Accordingly, Clairvest’s fair value in CEP IV Co-Invest decreased as a result of these distributions.
Distributions, interest, dividends and fees for the quarter included income on treasury funds of $2.7 million,
general partner distributions and interest earned from the CEP Funds of $46.5 million, distributions and interest earned
from investee companies of $0.1 million and $0.2 million from acquisition entities. This compared with income on treasury
funds of $0.9 million, general partner distributions and interest earned from the CEP Funds of $1.9 million, distributions and
interest earned from investee companies of $22.8 million and $0.2 million from acquisition entities for the same quarter
last year.
24
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2019
June 26, 2019
Net carried interest income of $17.7 million for the fourth quarter of fiscal 2019 comprised $25.3 million in realized carried
interest from CEP Funds, $6.9 million in realized carried interest from other co-investors and a reduction of $14.5 million in
unrealized carried interest receivable from the CEP Funds. Net carried interest of $7.2 million for the fourth quarter of fiscal
2018 comprised $0.1 million in realized carried interest from CEP and an increase of $7.1 million in carried interest from the
CEP Funds. Net carried interest income from the CEP Funds is further described in the Transaction with Related Parties
section of the MD&A.
Expenses for the fourth quarter of fiscal 2019 included $7.2 million in management and director compensation
expenses, $11.7 million in management participation, $4.0 million in administrative and other expenses, $0.2 million in
finance and foreign exchange expenses and $3.4 million in income tax expenses. This compares with $4.8 million in
management and director compensation expenses, $4.8 million in management participation, $1.6 million in administrative
and other expenses, $0.1 million in finance and foreign exchange expenses recoveries, and $3.0 million in income tax
expense recovery for the fourth quarter of fiscal 2018. Management participation is further described in the Transaction
with Related Parties section of the MD&A.
EQUITY AND SHARE INFORMATION
As at March 31, 2019, Clairvest had 15,136,495 common shares issued and outstanding.
During fiscal 2019, Clairvest purchased and cancelled 26,500 common shares under the Company's normal course
issuer bids. No common shares were purchased and cancelled between April 1, 2019 and June 26, 2019. As at June 26,
2019, Clairvest had 15,136,495 common shares issued and outstanding.
No Series 1 or Series 2 Shares had been issued as at March 31, 2019 and June 26, 2019.
Options granted under the stock option plan (the "Non-Voting Option Plan") are exercisable for Series 2 Shares,
which are non-voting and have a two times preference over the common shares. The Non-Voting Option Plan has a cash
settlement feature. Options granted under this plan vest at a rate of one-fifth of the grant at the end of each year over a
five-year period. As at March 31, 2019, 412,091 options were outstanding and 111,269 had vested.
The EDSU Plan provides, among other things, that participants may elect annually to receive all or a portion of
their annual bonus amounts that would otherwise be payable in cash in the form of EDSUs. EDSUs may be redeemed for
cash or for common shares of the Company in accordance with the terms of the plan. Clairvest is required to reserve one
common share for each EDSU issued under the EDSU Plan. The maximum number of Clairvest common shares reserved for
the EDSU Plan is 200,000 which represented approximately 1.3% of the outstanding number of common shares as at
March 31, 2019 and June 26, 2019. As at March 31, 2019 and June 26, 2019, 78,449 EDSUs had been issued based on the
terms and conditions of the EDSU Plan, and none of which had been redeemed.
Clairvest paid an ordinary dividend of $0.10 per share on the common shares in each of fiscal 2019, fiscal 2018 and
fiscal 2017. During fiscal 2019, and 2018 and 2017, Clairvest also paid a special dividend of $0.3401 and, $0.2621 and
$0.2191 per share respectively.
Subsequent to year-end, Clairvest declared an annual ordinary dividend of $0.10 per share, and a special dividend
of $0.4144 per share. The dividends will be payable to common shareholders of record as of July 5, 2019. The dividend will
be paid on July 25, 2019. Both dividends are eligible dividends for Canadian income tax purposes.
CRITICAL ACCOUNTING ESTIMATES
For a discussion of all significant accounting policies, refer to note 2 to the consolidated financial statements.
Fair value of financial instruments
When a financial asset or liability is initially recognized, its fair value is generally the value of consideration paid or received.
Acquisition costs relating to corporate investments are not included as part of the cost of the investment. Subsequent to
initial recognition, the fair value of an investment quoted on an active market, the fair value is generally the bid price on the
principal exchange on which the investment is traded. Investments that are escrowed or otherwise restricted on sale or
25
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2019
June 26, 2019
transfer are recorded at amounts at fair values which take into account the escrow terms or other restrictions. In
determining the fair value for such investments, the Company considers the nature and length of the restriction, business
risk of the investee company, its stage of development, market potential, relative trading volume and price volatility and
any other factors that may be relevant to the ongoing and realizable value of the investments. The amounts at which
Clairvest's publicly-traded investments could be disposed of may differ from this fair value and the differences could be
material. Differences could arise as the value at which significant ownership positions are sold is often different than the
quoted market price due to a variety of factors such as premiums paid for large blocks or discounts due to illiquidity.
Estimated costs of disposition are not included in the fair value determination.
In the absence of an active market, the fair values are determined by management using the appropriate valuation
methodologies after considering the history and nature of the business, operating results and financial conditions, the
general economic, industry and market conditions, capital market and transaction market conditions, contractual rights
relating to the investment, public market comparables, private market transaction multiples and, where applicable, other
pertinent considerations. The process of valuing investments for which no active market exists is inevitably based on
inherent uncertainties and the resulting values may differ from values that would have been used had an active market
existed. The amounts at which Clairvest's privately-held investments could be disposed of may differ from the fair value
assigned and the differences could be material. Estimated costs of disposition are not included in the fair value
determination.
A change to an estimate with respect to Clairvest's privately-held corporate investments or publicly-traded
corporate investments would impact corporate investments and net investment gain.
Recognition of carried interest and corresponding expenses
The Company records carried interest on its consolidated statements of financial position which are based on the fair values
of the financial instruments held by the CEP Funds. In accordance with IFRS 15, the calculated carried interest can only be
recognised to the extent to which it is highly probable that there will not be a significant reversal when the relevant
uncertainty is resolved. This judgement is made on a fund-by-fund basis, based on its specific circumstances, including
consideration of: remaining duration of the fund, position in relation to the cash hurdle, the number of assets remaining in
the fund and the potential for clawback. The actual amounts of carried interest received and paid will depend on the cash
realisations of the CEP Funds’ portfolio investments and valuations may change significantly in the next financial year. As
discussed previously, fair values of certain financial instruments are determined using valuation techniques and by their
nature, the use of estimates and assumptions. Changes in the underlying estimates and assumptions could materially
impact the determination of the fair value of these financial instruments. Imprecision in determining fair value using
valuation techniques may affect the calculation of carried interest and the resulting accrued liabilities for future payouts
relating to these carried interest contract asset at the statement of financial position date.
Deferred income taxes
The process of determining deferred income tax assets and liabilities requires management to exercise judgment while
considering the anticipated timing of disposal of corporate investments, and proceeds thereon, tax planning strategies,
changes in tax laws and rates, and loss carryforwards. Deferred income tax assets are only recognized to the extent that in
the opinion of management, it is probable that the deferred income tax asset will be realized. A change to an accounting
estimate with respect to deferred income taxes would impact deferred income tax liability and income tax expense.
TRANSACTIONS WITH RELATED PARTIES
Clairvest, though its consolidated subsidiaries, is entitled to priority distributions, management fees and carried interest
from the CEP Funds. Clairvest is also entitled to other entitlements from its acquisition entities as described in note 9 to the
consolidated financial statements.
26
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2019
June 26, 2019
As at March 31, 2019, Clairvest had accounts receivable from its investee companies totalling $1.2 million, from CEP III
totalling $0.4 million, from CEP IV totalling $0.1 million, from CEP IV-A totalling $39 thousand, from CEP V totalling
$6.3 million, from CEP V India totalling $0.8 million and from CEP V-A totalling $4.6 million. Additionally, acquisition entities
of Clairvest which were not consolidated in accordance with IFRS held receivables from Clairvest’s investee companies
totalling $0.4 million, from CEP IV totalling $31 thousand, from CEP V totalling $25 thousand and from CEP V-A totalling
$5 thousand.
In addition, the Company advances loans to its acquisition entities, the CEP Funds and short-term loan to investee
companies. During fiscal 2019, the Company received net repayments of $3.9 million from these loans, such that
$9.7 million in loans remained outstanding as at March 31, 2019. Further details are described in note 9(l) to the
consolidated financial statements.
As at March 31, 2019, Clairvest had share purchase loans receivable from certain officers of Clairvest (the
"Officers") totalling $3.3 million. The loans are interest bearing, have full recourse to the individual and are collateralized by
the common shares of Clairvest owned by the Officers with a market value of $6.4 million. None of these loans were made
to key management. Interest of $0.1 million was earned on these loans during the year.
Key management at Clairvest includes the Chief Executive Officer ("CEO"), the Vice Chairman, the President and its
directors. The CEO and the President are entitled to annual discretionary cash bonuses of up to 175% of their individual
annual salary based on individual performance. The Vice Chairman is entitled to annual discretionary cash bonuses of up to
100% of annual salary based on individual performance. There is also an annual objective cash bonus which is based on
Clairvest's Incentive Bonus Program, the stock option plans, the BVAR Plan and the EDSU Plan. Total aggregate cash
compensation paid under these plans to the CEO, the Vice Chairman, and the President during fiscal 2019 were $4.1 million.
As at March 31, 2019, the total amounts payable to the CEO, the Vice Chairman, and the President under the
aforementioned plans was $15.4 million. During fiscal 2019, no cash compensation was paid to directors under the BVAR,
DSU or ADSU plans. As at March 31, 2019, the total amounts payable to the directors of Clairvest under the DSU, ADSU and
Non-Voting Option plans was $17.2 million.
During fiscal 2019, Clairvest earned $1.0 million in distributions and interest income, $1.1 million in dividend
income and $1.3 million in advisory and other fees from its investee companies. Additionally, acquisition entities of
Clairvest which were not consolidated in accordance with IFRS earned $18.9 million in distributions and interest income,
$1.4 million in dividend income and $0.6 million in advisory and other fees from its investee companies.
Clairvest and a related party of Clairvest, through a limited partnership, owns an aircraft that is available for use by
both parties. Clairvest and the related party each hold a 50% limited partnership interest. As Clairvest, through a wholly-
owned subsidiary, is the general partner of the limited partnership, Clairvest has recognized 100% of the net book value of
the aircraft and a liability for the 50% ownership held by the related party. The cost of the aircraft had been included in
fixed assets and the liability in accounts payable and accrued liabilities.
OFF-STATEMENT OF FINANCIAL POSITION ARRANGEMENTS
CEP III Co-Invest has committed to co-invest alongside CEP III in all investments undertaken by CEP III. CEP III Co-Invest's co-
investment commitment is $75.0 million, $15.2 million of which remains unfunded as at March 31, 2019. In accordance
with the co-investment agreement, the proportion of the commitment amongst Clairvest, 2141788 Ontario and MIP III is at
their own discretion. CEP III Co-Invest may only sell all or a portion of a corporate investment that is a joint investment with
CEP III if it concurrently sells a proportionate number of securities of that corporate investment held by CEP III.
CEP IV Co-Invest has committed to co-invest alongside CEP IV and CEP IV-A in all investments undertaken by CEP IV
and CEP IV-A. CEP IV's total co-investment commitment is $125.0 million, $21.2 million of which remains unfunded as at
March 31, 2019. In accordance with the co-investment agreement, the proportion of the commitment between Clairvest
and MIP IV is at their own discretion. CEP IV Co-Invest may only sell all or a portion of a corporate investment that is a joint
investment with CEP IV and CEP IV-A if it concurrently sells a proportionate number of securities of that corporate
investment held by CEP IV and CEP IV-A.
27
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2019
June 26, 2019
CEP V Co-Invest has committed to co-invest alongside CEP V and CEP V-A in all investments undertaken by CEP V and CEP V-
A. CEP V Co-Invest's co-investment commitment is $180.0 million, $85.7 million of which remains unfunded as at March 31,
2019. In accordance with the co-investment agreement, the proportion of the commitment between Clairvest, 2141788
Ontario and MIP V is at their own discretion. CEP V Co-Invest may only sell all or a portion of a corporate investment that is
a joint investment with CEP V and CEP V-A if it concurrently sells a proportionate number of securities of that corporate
investment held by CEP V and CEP V-A.
Clairvest has committed a total of $55.5 million in various Wellington Funds, all of which was unfunded at March
31, 2019. As a result of the sale of Wellington Financial to CIBC during fiscal 2018, these Wellington Funds are in the process
of being wound up and may no longer invest in new investments.
Under Clairvest's Bonus Program, a bonus of 10% of after-tax cash income and realizations on certain Clairvest's
corporate investments would be paid to management annually as applicable (the "Realized Amount"). As at March 31,
2019, the Realized Amount under the Bonus Program was $7.0 million and had been accrued under accrued compensation
expense liability. In accordance with IFRS, Clairvest is also required to record a liability equal to a bonus of 10% of the after-
tax cash income and realizations which are applicable, but which have yet to be realized. Accordingly, Clairvest also
recorded a $2.8 million accrued compensation expense liability that would only be payable to management when the
corresponding realization events have occurred. The Bonus Program does not apply to the income generated from
investments made by Clairvest through CEP III Co-Invest, CEP IV Co-Invest and CEP V Co-Invest.
In conjunction with the sale of Casino New Brunswick, Clairvest had agreed to a net guarantee of $1.8 million to
fund any valid claims made by the purchaser under the indemnity provisions of the sale for a specified period of time. Any
funding pursuant to the guarantee will be allocated 25% to CEP III Co-Invest and 75% to CEP III. As at March 31, 2019, no
amounts with respect to this guarantee had been funded.
As part of the holding structure of Chilean Gaming Holdings, acquisition entities of CEP III Co-Invest had loans
totalling $39.5 million as at March 31, 2019 from an unrelated financial institution, while another acquisition entity of CEP
III Co-Invest held term deposits totalling $39.5 million as at March 31, 2019 with the same financial institution as security
for these loans. CEP III Co-Invest's ownership of both acquisition entities was 36.8% as at March 31, 2019.
As at March 31, 2019, the Company had future minimum annual lease payments under non-cancellable operating
leases for the use of office space of $0.6 million due within one year, $2.5 million due after one year, but not more than five
years and $2.0 million due after five years.
In connection with its normal business operations, Clairvest is from time to time named as a defendant in actions
for damages and costs allegedly sustained by plaintiffs. While it is not possible to estimate the outcome of the various
proceedings at this time, Clairvest does not believe that it will incur any material loss in connection with such actions.
RISK MANAGEMENT
The private equity investment business involves accepting risk for potential return, and is therefore affected by a number of
risk factors. These factors, categorized as market risk, investing process risk and other risks, are described below. Additional
risks not currently known to us or that we currently believe to be immaterial may also have a material adverse effect on
future business of the Company.
Market risk
Fair Value risk
Fair value risk includes exposure to fluctuations in the fair market value of the Company's investments. Included in
corporate investments are investee companies for which the fair values have been estimated based on assumptions that
may not be supported by observable market prices. The most significant unobservable input is the multiple of earnings
before interest, taxes, depreciation and amortization ("EBITDA") used for each individual investee company. In determining
the appropriate multiple, Clairvest considers i) public company multiples for companies in the same or similar businesses; ii)
28
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2019
June 26, 2019
where information is known and believed to be reliable, multiples at which recent transactions in the industry occurred;
and iii) multiples at which Clairvest invested directly or indirectly in the company, or for follow-on investments or
financings. The resulting multiple is adjusted, if necessary, to take into account differences between the investee company
and those the Company selected for comparisons and factors include public versus private company, company size, same
versus similar business, as well as with respect to the sustainability of the company's earnings and current economic
environment. At March 31, 2019, 7 investee companies were valued using the earnings multiple approach. If the Company
had used an earnings multiple for each investee company that was higher or lower by 0.5 times, the potential effect would
have been an increase of $16.8 million or a decrease of $16.8 million to the carrying value of corporate investments and net
investment gain, on a pre-tax basis, for the year ended March 31, 2019. Earnings multiples used are based on public
company valuations as well as private market multiples for comparable companies.
Clairvest may also use information about recent transactions carried out in the market for valuations of private
equity investments. When fair value is determined based on recent transaction information, this value is the most
representative indication of fair value for a period of up to 12 months. The fair value of corporate bonds, debentures or
loans is primarily determined using the discounted cash flow technique. This technique uses observable and unobservable
inputs such as discount rates that take into account the risk associated with the investment as well as future cash flows. For
those investments valued based on recent transactions, Clairvest has determined that there are no reasonable alternative
assumptions that would change the fair value materially as at March 31, 2019.
The Company's corporate investment portfolio was diversified across 16 investee companies in 8 industries and 4
countries as at March 31, 2019. The Company has considered current economic events and indicators in the valuation of its
investee companies.
Interest rate risk
Fluctuations in interest rates affect the Company's income derived from its treasury funds. For financial instruments which
yield a floating interest rate, the income received is directly impacted by the prevailing interest rate. The fair value of
financial instruments which yield a fixed interest rate would change when there is a change in the prevailing market interest
rate. The Company manages interest rate risk on its treasury funds by conducting activities in accordance with the fixed
income securities policy that is approved by the Audit Committee. Management's application of these policies is regularly
monitored by the Audit Committee.
If interest rates were higher or lower by 1%, the potential effect would have been an increase of $4.4 million or a
decrease of $4.3 million to distributions and interest income on a pre-tax basis for the year ended March 31, 2019.
Certain of the Company's corporate investments are also held in the form of debentures and loans. Significant
fluctuations in market interest rates can have a material impact on the carrying value of these investments.
Currency risk
The Company has implemented a hedging strategy because it has, directly and indirectly, several investments outside of
Canada, currently in the United States, Chile, and India. The Company has also advanced loans to investee companies which
are denominated in foreign currency. In order to limit its exposure to changes in the value of foreign-denominated
currencies relative to the Canadian dollar, Clairvest and its acquisition entities, subject to certain exceptions, entered into
foreign exchange hedging positions against these foreign-denominated currencies. As at March 31, 2019, the Company had
net foreign exchange exposure to the CLP totalling $20.9 million and the INR totalling $31.0 million.
A number of investee companies are subject to foreign exchange risk. A significant change in foreign exchange
rates can have a significant impact on the profitability of these entities and in turn the Company's carrying value of these
corporate investments. The Company manages this risk through oversight responsibilities with existing investee companies
and by reviewing the financial condition of investee companies regularly.
29
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2019
June 26, 2019
Commodity price risk
Certain of Clairvest's investee companies may be subject to price fluctuations in commodities. Clairvest understands the risk
of investing in cyclical industries which are largely tied to commodity prices and takes such risk into account in making these
investments. The Company manages this risk through oversight responsibilities with existing investee companies and by
reviewing the financial condition of investee companies regularly.
Investing process risk
Competition risk
Clairvest and the CEP Funds compete for acquisition of investments with many other investors, some of which may have
greater depth of investment experience in particular industries or segment or greater financial resources. There may be
intense competition for investments in which Clairvest intends to invest, and such competition may result in less favorable
investment terms than would otherwise be the case. There can, therefore, be no assurance that the investments ultimately
acquired by Clairvest will meet all the investment objectives of Clairvest, or that Clairvest will be able to invest all of the
capital it has committed to invest alongside the CEP Funds. The Company manages this risk through a disciplined approach
to investing its capital and that of the CEP Funds and has strict investment policies where investments above a certain
threshold require the approval of the Board of Directors.
Uncompleted and unspecified investment risk
The due diligence of each specific investment opportunity that Clairvest looks at and the negotiation, drafting and
execution of the relevant agreements require substantial management time and attention and may incur substantial
third-party costs. In the event that Clairvest elects not to complete a specific investment, the costs incurred up to that point
for the proposed transaction are often not recoverable by Clairvest and the CEP Funds. Furthermore, in the event that
Clairvest reaches an agreement relating to a specific investment, it may fail to complete such an investment for any number
of reasons, including those beyond Clairvest's control. Any such occurrence could similarly result in a financial loss to
Clairvest and the CEP Funds due to the inability to recoup any of the related costs incurred to complete a transaction. A
shareholder must rely upon the ability of Clairvest's management in making investment decisions consistent with its
investment objectives and policies. Shareholders will not have the opportunity to evaluate personally the relevant
economic, financial and other information which is utilized by Clairvest in its selection of investments.
Minority investment risk
Clairvest and the CEP Funds may make minority equity investments in entities in which they do not legally control all
aspects of the business or affairs of such entities. As at March 31, 2019, 12 of the 16 investments made by Clairvest were
minority equity investments. In all investments, Clairvest monitors the performance of each investment, maintains an
ongoing dialogue with each investee company's management team and seeks board representation and negative controls
as conditions of each investment.
Gaming investment risk
As at March 31, 2019, Clairvest's exposure to the gaming industry represented 23.0% of its net book value. These
investments are subject to the risks of any other investment but have heightened exposure to political and regulatory risk
whereby a change in the political or regulatory regime governing the gaming industry in a particular jurisdiction where
Clairvest's gaming assets are located could have an impact on the ultimate returns of that investment. In addition, these
investments may involve the construction of a gaming facility whereby not only is Clairvest underwriting the risk of
completing the facility on budget, but it is also relying on forecasted gaming revenue, versus historical results, which is only
a best estimate. While a project is in construction and for a specified period thereafter, the owners of a newly constructed
gaming facility may have to guarantee some or all of the bank facility or agree to fund any operating shortfall. The Company
30
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2019
June 26, 2019
manages this risk through oversight responsibilities with existing investee companies and by reviewing the financial
condition of investee companies regularly. Historically, Clairvest has been able to manage all of these risks but past
performance of Clairvest provides no assurance of future success.
Risks upon sale of investments
In connection with the disposition of an investee company, Clairvest and the CEP Funds may be required to make
representations about the business and financial affairs of the business. Clairvest and the CEP Funds may also be required
to indemnify the purchasers of such investee companies to the extent that any such representation turns out to be
incorrect, inaccurate or misleading.
Investment structure and taxation risks
Clairvest structures its investments in a manner that is intended to achieve its investment objectives. There can be no
assurance that the structure of any investment will be as tax efficient as designed or that any particular tax result will be
achieved, due to unanticipated tax law changes or unforeseen circumstances during the planning phase of the tax
structuring. Furthermore, Clairvest's returns in respect of its investments may be reduced by withholding or other taxes
imposed by jurisdictions in which Clairvest's investee companies are organized.
Other risks
Credit risk
Credit risk is the risk of a financial loss occurring as a result of default of a counterparty on its obligations to the Company.
For the year ended March 31, 2019, there were no material income effects on changes of credit risk on financial assets. The
Company manages credit risk on corporate investments through thoughtful planning, strict investment criteria, significant
due diligence of investment opportunities and oversight responsibilities with existing investee companies and by
conducting activities in accordance with investment policies that are approved by the Board of Directors. Management's
application of these policies is regularly monitored by the Board of Directors. Management and the Board of Directors
review the financial condition of its investee companies regularly.
The Company is also subject to credit risk on its accounts receivable and loans receivable, a significant portion of
which are with its investee companies and its CEP Funds. The Company manages this risk through its oversight
responsibilities with existing investee companies by reviewing their financial conditions regularly, and through its fiduciary
duty as manager of the CEP Funds and by maintaining sufficient uncalled capital for the CEP Funds to settle obligations as
they come due.
The Company manages counterparty credit risk on derivative instruments by only contracting with counterparties
which are Schedule 1 Canadian chartered banks.
The Company manages credit risk on its treasury funds by conducting activities in accordance with the fixed
income securities policy which is approved by the Audit Committee. The Company also manages credit risk by contracting
with counterparties which are Schedule 1 Canadian chartered banks or through investment firms where Clairvest's funds
are segregated and held in trust for Clairvest's benefit. With respect to the other fixed income securities under temporary
investments, the Company reviews the credit quality of the counterparties through underwriting information provided by
agents or brokers which are specialized in brokering these investments and in each case the Company’s investment in these
counterparties represents the most senior security in the counterparty’s capital structure. Management's application of
these policies is regularly monitored by the Audit Committee. Management and the Audit Committee review credit quality
of cash equivalents and temporary investments regularly.
31
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2019
June 26, 2019
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. Financial
obligations arising from off-statement of financial position arrangements have been previously discussed. Accounts
payable, loans payable, and derivative instruments have maturities of less than one year. Management participation
liability, share-based compensation liability, and amounts accrued under the Bonus Program are only due upon cash
realization or completion of the respective vesting periods. Total unfunded commitments to co-invest alongside the CEP
Funds, as described were $122.0 million as at March 31, 2019. The timing of any amounts to be funded under these
commitments is dependent upon the timing of investment acquisitions, which are made at the sole discretion of the
Company.
The Company manages liquidity risk by maintaining a conservative liquidity position that exceeds all liabilities
payable on demand. The Company invests treasury funds in liquid assets such that they are available to cover any potential
funding commitments and guarantees. In addition, the Company maintains a $100.0 million credit facility which was
undrawn as at March 31, 2019.
As at March 31, 2019, Clairvest had treasury funds of $452.3 million and access to $100.0 million in credit to
support its obligations and current and anticipated corporate investments. Clairvest also had access to $47.9 million in
treasury funds held by its acquisition entities and $286.2 million in uncalled committed third-party capital through the CEP
Funds as at March 31, 2019 to invest along with Clairvest's capital.
Conflicts of interest risk
Clairvest's primary business is that of a private equity investor investing its own capital but it also manages third-party
capital through the CEP Funds. In accordance with the various fund agreements for the CEP Funds, Clairvest is required to
invest alongside the CEP Funds unless the relevant CEP Fund investor committee approves such an investment to be
invested by Clairvest without the CEP Funds' participation. Accordingly, Clairvest shareholders may not realize the full
benefit of Clairvest investment opportunities as such opportunities are required to be shared with the CEP Funds.
Risk of CEP Fund Limited Partners' failure to meet capital calls
The general partner of the CEP Funds is responsible to manage the affairs of the CEP Funds, which includes calling capital
for investments made by the CEP Funds. If a limited partner of the CEP Funds fails to make the required capital contribution
when due, Clairvest could be required to increase its investment under certain conditions. The general partner of the CEP
Funds manages this risk through designing the terms of the CEP Funds appropriately and due diligence of potential limited
partners of the CEP Funds prior to admitting them to the partnership.
Minority shareholder risks
As at March 31, 2019, Clairvest's Board of Directors and employees owned approximatrely 90% of Clairvest's common
shares and the CEO owned or controlled over 50% of the total common shares of the Company. Accordingly, the CEO and
other insider shareholders have the ability to exercise substantial influence with respect to Clairvest's affairs and can
usually dictate the outcome of shareholder votes and may have the ability to prevent certain fundamental transactions.
Accordingly, Clairvest shares may be less liquid and trade at a relative discount compared to circumstances where
such large shareholders did not have the ability to significantly influence or determine matters affecting Clairvest.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company and its acquisition entities entered into foreign exchange forward contracts as economic hedges against the
fair value of its foreign-denominated investments and loans in accordance with its foreign exchange hedging policy. During
fiscal 2019, the Company paid $8 thousand on the settlement of realized foreign exchange forward contracts.
As at March 31, 2019, acquisition entities of Clairvest had entered into foreign exchange forward contracts to sell
US$83.7 million at an average rate of C$1.3005 per U.S. dollar through to March 2020. The fair value of the U.S. dollar
32
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2019
June 26, 2019
contracts as at March 31, 2019 was a loss of $2.6 million. In addition, acquisition entities of Clairvest had also entered into
foreign exchange forward contracts to sell CLP$15.5 billion at an average rate of C$0.002075 per CLP through to August
2019 and to sell INR₹652.3 million at an average rate of C$0.01803 per INR through to June 2019. The fair value of the CLP
contract as at March 31, 2019 was a gain of $1.6 million and the fair value of the INR contract as at March 31, 2019 was a
loss of $0.7 million. These contracts have been included in the fair value of Clairvest's investments in these acquisition
entities.
DISCLOSURE CONTROLS AND INTERNAL CONTROLS OVER FINANCIAL REPORTING
In accordance with National Instrument 52-109, "Certification of Disclosure in Issuers' Annual and Interim Filings", issued by
the Canadian Securities Administrators ("CSA"), Management has evaluated the effectiveness of Clairvest's disclosure
controls and procedures as of March 31, 2019 and concluded that the disclosure controls and procedures were effective in
ensuring that information required to be disclosed by the Company in its corporate filings is recorded, processed,
summarized and reported within the required time period for the year then ended.
National Instrument 52-109 also requires certification from the CEO and the Chief Financial Officer to certify their
responsibilities for establishing and maintaining internal controls with regards to the reliability of financial reporting and the
preparation of financial statements in accordance with IFRS. Management has evaluated Clairvest's design and operational
effectiveness of internal controls over financial reporting for the year ended March 31, 2019. Management has concluded
that the design of internal controls over financial reporting were effective and operated as designed as at March 31, 2019
based on this evaluation. There were no changes in internal controls during the most recent interim period that has
materially affected, or is reasonably likely to materially affect, internal controls over financial reporting. The Company has
not identified any weakness that has materially affected or is reasonably likely to materially affect the Company's internal
control over financial reporting.
FORWARD-LOOKING STATEMENTS
A number of the matters discussed in this MD&A deal with potential future circumstances and developments and may
constitute "forward-looking" statements. These forward-looking statements can generally be identified as such because of
the context of the statements and often include words such as the Company "believes", "anticipates", "expects", "plans",
"estimates" or words of a similar nature.
The forward-looking statements are based on current expectations and are subject to known and unknown risks,
uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements expressed or implied by such forward-looking
statements. Such factors include general and economic business conditions and regulatory risks. The impact of any one risk
factor on a particular forward-looking statement is not determinable with certainty as such factors are interdependent
upon other factors, and management's course of action would depend upon its assessment of the future, considering all
information then available.
All subsequent forward-looking statements, whether written or oral, attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by these cautionary statements. The Company assumes no
obligation to update forward-looking statements should circumstances, management's estimates, or opinions change.
REGULATORY FILINGS
The Company's continuous disclosure materials, including interim filings, annual MD&A and audited consolidated financial
statements, Annual Information Form, Notice of Annual Meeting of Shareholders and Proxy Circular are available on the
Canadian System for Electronic Document Analysis and Retrieval ("SEDAR") at www.sedar.com.
33
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2019
June 26, 2019
USE OF NON-IFRS MEASURES
This MD&A contains references to "book value" and "book value per share" which are non-IFRS financial measures. Book
value is calculated as the value of total assets less the value of total liabilities. Book value per share is calculated as book
value divided by the total number of common shares of the Company outstanding as at a specific date. The terms book
value and book value per share do not have any standardized meaning according to IFRS. There is no comparable IFRS
financial measure presented in the Company's consolidated financial statements and thus no applicable quantitative
reconciliation for such non-IFRS financial measure. The Company believes that the measure provides information useful to
its shareholders in understanding our performance, and may assist in the evaluation of the Company's business relative to
that of its peers.
34
MANAGEMENT’S REPORT
The accompanying consolidated financial statements of Clairvest Group Inc. were prepared by management, which is
responsible for the integrity and fairness of the financial information presented. These consolidated financial statements
are prepared in accordance with International Financial Reporting Standards. The financial information contained
elsewhere in the annual report has been reviewed to ensure consistency with the consolidated financial statements.
Management maintains a system of internal accounting controls designed to provide reasonable assurance that
assets are safeguarded, that transactions are properly authorized and that financial records are properly maintained to
facilitate the preparation of financial statements in a timely manner. Under the supervision of management, an evaluation
of the effectiveness of the Company’s internal control over financial reporting was carried out for the year ended March 31,
2019. Based on that evaluation, management concluded that the Company’s internal control over financing reporting was
effective for the year ended March 31, 2019.
The Board of Directors carries out its responsibility for the consolidated financial statements in this annual report
principally through its Audit Committee. The Audit Committee, which comprised three non-management Directors during
the year ended March 31, 2019, meets periodically with management and with external auditors to discuss the scope and
results with respect to financial reporting of the Company. The Audit Committee has reviewed the consolidated financial
statements with management and with the independent auditors. The consolidated financial statements have been
approved by the Board of Directors on the recommendation of the Audit Committee.
Ernst & Young LLP, appointed external auditors by the shareholders, have audited the consolidated financial
statements and their report is included herewith.
B. Jeffrey Parr
Vice Chairman
Daniel Cheng
Chief Financial Officer
35
INDEPENDENT AUDITOR’S REPORT
TO THE SHAREHOLDERS OF CLAIRVEST GROUP INC.
OPINION
We have audited the consolidated financial statements of Clairvest Group Inc. and its subsidiaries (the Company), which
comprise the consolidated statements of financial position as at March 31, 2019 and 2018, and the consolidated statements
of comprehensive income, consolidated statements of changes in shareholders’ equity and consolidated statements of cash
flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant
accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated
financial position of the Company as at March 31, 2019 and 2018, and its consolidated financial performance and its
consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards (IFRSs).
BASIS FOR OPINION
We conducted our audit in accordance Canadian generally accepted auditing standards. Our responsibilities under those
standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to
our audit of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in
accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
OTHER INFORMATION
Management is responsible for the other information. The other information comprises:
• Management’s Discussion and Analysis
•
The information, other than the consolidated financial statements and our auditor’s report thereon, in the Annual
Report
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form
of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial
statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work
we have performed, we conclude that there is a material misstatement of this other information, we are required to report
that fact. We have nothing to report in this regard.
RESPONSIBILITIES OF MANAGEMENT AND THOSE CHARGED WITH GOVERNANCE FOR THE CONSOLIDATED FINANCIAL
STATEMENTS
Management is responsible for the preparation and fair presentation of the consolidated financial statements in
accordance with IFRSs, and for such internal control as management determines is necessary to enable the preparation of
consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
36
INDEPENDENT AUDITOR’S REPORT
accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic
alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
AUDITORS' RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with
Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment
and maintain professional skepticism throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to
fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is
sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement
resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control.
•
•
•
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and
related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the
audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast
significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the
consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions
are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or
conditions may cause the Company to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the
disclosures, and whether the consolidated financial statements represent the underlying transactions and events
in a manner that achieves fair presentation.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of
the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our
audit.
37
INDEPENDENT AUDITOR’S REPORT
We also provide those charged with governance with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is Gary Chin.
Toronto, Canada
June 26, 2019
38
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at March 31
$000s
ASSETS
Cash and cash equivalents (notes 3, 13 and 16)
Temporary investments (notes 3 and 16)
Restricted cash (notes 6(p), 15(h) and 16)
Accounts receivable and other assets (notes 9(m) and 16)
Loans receivable (notes 9(l) and 16)
Income taxes recoverable
Carried interest (note 9(j))
Corporate investments (notes 6 and 16)
Fixed assets (notes 7 and 9(o))
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable and accrued liabilities (note 9(o))
Income taxes payable
Accrued compensation expense (notes 12 and 15(e))
Share-based compensation (note 12)
Management participation (note 9(k))
Deferred income tax liability (note 10)
Contingencies, commitments and guarantees (note 15)
Shareholders' equity
Share capital (note 11)
Retained earnings
See accompanying notes
On behalf of the Board:
MICHAEL BREGMAN
Director
JOSEPH J. HEFFERNAN
Director
2019
2018
$
$
$
$
$
$
$
288,922
163,403
—
19,869
9,727
—
56,484
366,279
6,569
911,253
$
$
$
$
10,586
22,331
13,001
40,265
42,599
3,779
132,561
81,245
697,447
778,692
911,253
$
95,592
36,582
15,750
28,402
13,601
394
127,900
515,172
1,496
834,889
3,708
5,680
11,643
31,326
91,267
23,944
167,568
81,388
585,933
667,321
834,889
39
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended March 31
$000s (except per share information)
REVENUE
Net investment gain (loss) (notes 4 and 6)
Distributions and interest income (notes 6 and 9)
Net carried interest income (note 5)
Dividend income
Management fees (notes 9(e) and 9(h))
Advisory and other fees (note 9(n))
EXPENSES
Employee compensation and benefits (notes 12 and 15(e))
Share-based compensation expenses (note 12)
Administration and other expenses
Finance and foreign exchange expenses (note 8)
Management participation (note 9)
Income before income taxes
Income tax expense (note 10)
Net income and comprehensive income for the year
Basic and fully diluted net income and comprehensive income per share
(note 11)
See accompanying notes
2019
2018
(123,152) $
275,975
47,691
1,094
1,259
1,340
204,207
12,200
11,332
8,515
809
33,473
66,329
137,878
18,636
119,242
$
107,740
51,245
46,469
259
1,304
1,172
208,189
13,108
17,105
5,533
901
34,848
71,495
136,694
12,916
123,778
7.87
$
8.15
$
$
$
40
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the years ended March 31
$000s
Share capital Retained earnings
shareholders’
Total
As at April 1, 2018
Changes in shareholders' equity
Net income and comprehensive income for the year
Dividends declared ($0.4401 per share)
Purchase and cancellation of shares (note 11)
As at March 31, 2019
As at April 1, 2017
Changes in shareholders' equity
Net income and comprehensive income for the year
Dividends declared ($0.3621 per share)
Purchase and cancellation of shares (note 11)
As at March 31, 2018
See accompanying notes
$
81,388
$
585,933
$
667,321
equity
119,242
(6,671)
(1,057)
(143)
81,245
$
697,447
$
119,242
(6,671)
(1,200)
778,692
81,554
$
468,650
$
550,204
$
$
123,778
(5,502)
(993)
(166)
$
81,388
$
585,933
$
123,778
(5,502)
(1,159)
667,321
41
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended March 31
$000s
OPERATING ACTIVITIES
Net income and comprehensive income for the year
Add (deduct) items not involving a current cash outlay:
Amortization and impairment of fixed assets
Share-based compensation
Deferred income tax expense (recovery)
Net investment (gain) loss
Carried interest and management participation
Non-cash items relating to foreign exchange forward contracts
Non-cash items relating to corporate investments
Adjustments for:
Net cost on acquisition of temporary investments (notes 6(i), 6(j) and 9)
Net loan repaid by acquisition entities or the CEP Funds
Proceeds from (cost of) settlement of realized foreign exchange forward contracts
(note 14)
Decrease (increase) in restricted cash (note 6(m))
Investments made in investee companies or acquisition entities
Distribution or return of capital from investee companies or acquisition entities
Settlement of share-based compensation liability
Net change in non-cash working capital balances related to operations (note 13)
Cash provided by (used in) operating activities
INVESTING ACTIVITIES
Purchase of fixed assets, net of disposals
Cash used in investing activities
FINANCING ACTIVITIES
Cash dividends paid
Purchase and cancellation of common shares (note 11)
Cash used in financing activities
Net increase (decrease) in cash during the year
Cash and cash equivalents, beginning of year (note 13)
Cash and cash equivalents, end of year
SUPPLEMENTAL CASH FLOW INFORMATION
Interest received
Distributions received (note 6)
Income taxes paid
Interest paid
See accompanying notes
2019
2018
$
119,242
$
123,778
867
13,105
(20,165)
123,152
22,748
8
(965)
257,992
(126,821)
3,874
(8)
15,750
(15,104)
41,810
(4,166)
(84,665)
33,814
207,141
(5,940)
(5,940)
(6,671)
(1,200)
(7,871)
193,330
95,592
288,922
10,260
356,625
20,569
698
$
$
$
$
$
$
$
$
$
$
1,409
18,663
3,274
(107,740)
(5,361)
(59)
(21,824)
12,140
(20,618)
2,053
83
(15,750)
(38,709)
63,203
(9,042)
(18,780)
3,493
(3,147)
(805)
(805)
(5,502)
(1,159)
(6,661)
(10,613)
106,205
95,592
4,355
24,392
5,468
704
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019 and 2018 (tabular dollar amounts in thousands, except per share information)
1. NATURE OF ACTIVITIES
Clairvest Group Inc. ("Clairvest" or the "Company") is a private equity management firm that specializes in partnering with
management teams and other stakeholders of both emerging and established companies. The Company's shares are traded
on the Toronto Stock Exchange ("TSX") under the symbol CVG. The Company, which operates in only one business segment,
actively seeks to form mutually beneficial investments with entrepreneurial corporations. As at March 31, 2019, Clairvest
invests its own capital, and that of third parties, through Clairvest Equity Partners III Limited Partnership ("CEP III"), Clairvest
Equity Partners IV Limited Partnership ("CEP IV"), Clairvest Equity Partners IV-A Limited Partnership ("CEP IV-A"), Clairvest
Equity Partners V Limited Partnership ("CEP V"), CEP V HI India Investment Limited Partnership ("CEP V India") and Clairvest
Equity Partners V-A Limited Partnership ("CEP V-A") (together, the "CEP Funds"). Clairvest contributes financing and
strategic expertise to support the growth and development of its investee companies in order to create realizable value for
all shareholders. Clairvest is incorporated under the laws of the Province of Ontario.
The Company's head office is located at 22 St. Clair Avenue East, Suite 1700, Toronto, Ontario, Canada, M4T 2S3.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation and adoption of new accounting standard
The consolidated financial statements of Clairvest are prepared in accordance with International Financial Reporting
Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB").
Effective April 1, 2018, the Company retrospectively adopted IFRS 9, Financial Instruments (“IFRS 9”) replacing IAS
39, Financial Instruments (“IAS 39”). IFRS 9 provides a new approach for the classification of financial assets, which shall be
based on the cash flow characteristics of the asset and the business model of the portfolio in which the asset is held.
Upon transition to IFRS 9, the Company’s financial assets were classified as fair value through profit or loss
(“FVTPL”). This classification differs from the classification under the previous IAS 39, Financial Instruments: Recognition
and Measurement, therefore there were changes in categorization of certain financial assets upon transition to IFRS 9.
Effective April 1, 2018, all financial assets that had previously been designated as FVTPL were classified as FVTPL. Derivative
assets and derivative liabilities that were previously considered as held-for-trading financial instruments and were classified
as FVTPL remain unchanged upon transition to IFRS 9. Loans and receivables and other liabilities under IAS 39 are now
classified as amortized cost under IFRS 9. There were no changes in the measurement attributes for any of the financial
assets and financial liabilities upon transition to IFRS 9, as a result, the Company has not restated comparative information.
Effective April 1, 2018, the Company adopted IFRS 15, Revenue from Contracts with Customers (“IFRS 15”) using
the modified retrospective method. IFRS 15 replaces prior guidance, including IAS 18, Revenue. IFRS 15 establishes a new
five‐step model that will apply to revenue arising from contracts with customers. Under IFRS 15, revenue is recognized at an
amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or
services to a customer. The principles in IFRS 15 provide a more structured approach to measuring and recognizing revenue.
IFRS 15 has presented a change to the accounting policy relating to carried interest in that the Company is required to
assess, prior to accrual, the extent to which it is highly probable that there will not be a significant reversal in future
periods. The Company concluded that the adoption of IFRS 15 had no significant impact on the carried interest recognised
by the Company. As a result, no adjustment to the opening balance of retained earnings was required. For the year-ended
March 31, 2019, the carried interest recognised under IAS 18 would not be significantly different from the carried interest
recognised under IFRS 15.
Other than noted above, the Company has consistently applied the same accounting policies throughout all
periods presented in these audited annual consolidated financial statements, as if these policies had always been in effect.
These audited annual consolidated financial statements and related notes of Clairvest for the years ended
March 31, 2019 and 2018 ("consolidated financial statements") were authorized for issuance by the Board of Directors on
June 26, 2019.
The consolidated financial statements have been presented on a historical cost basis, except for certain financial
instruments that have been measured at fair value. The consolidated financial statements have been prepared on a going
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019 and 2018 (tabular dollar amounts in thousands, except per share information)
concern basis and are presented in Canadian dollars, which is the functional currency of the Company. All values are
rounded to the nearest thousand dollars ($000s), except where otherwise indicated.
Basis of consolidation
The consolidated financial statements have been prepared in accordance with IFRS 10, Consolidated Financial Statements
("IFRS 10"), as issued by the IASB and include the accounts of the Company and its consolidated subsidiaries. As discussed
under critical accounting estimates and judgments, the Company has determined it meets the definition of an investment
entity.
Consolidated subsidiaries
In accordance with IFRS 10, subsidiaries are those entities that provide investment-related services and that the
Company controls by having the power to govern the financial and operating policies of these entities. Such entities
would include those which earn priority distributions or management fees and carried interest from the CEP Funds. All
intercompany amounts and transactions amongst these consolidated entities have been eliminated upon consolidation.
The existence and effect of potential voting rights that are currently exercisable and shareholder agreements are
considered when assessing whether the Company controls an entity. Subsidiaries are fully consolidated from the date
on which control is obtained by the Company and are subsequently deconsolidated from the consolidated financial
statements on the date that control ceases.
The following entities, which are significant in nature, do not meet the definition of an investment entity and
provide investment-related services on behalf of the Company.
Clairvest GP Manageco Inc.
Clairvest GP (GPLP) Inc.
CEP MIP GP Corporation
Clairvest USA Limited
Clairvest General Partner Limited Partnership
Clairvest General Partner III Limited Partnership (“Clairvest GP III”)
Clairvest General Partner IV Limited Partnership (“Clairvest GP IV”)
Clairvest General Partner V Limited Partnership (“Clairvest GP V”)
Interests in unconsolidated subsidiaries ("acquisition entities")
In accordance with IFRS 10, interests in subsidiaries other than those that provide investment-related services are
accounted for at FVTPL rather than consolidating them. As discussed under critical accounting estimates and judgments,
management exercised judgment when determining whether subsidiaries are investment entities.
The following entities, which are significant in nature, are controlled by Clairvest either directly or indirectly and
are used as acquisition entities of the Company. The entities' principal place of business is in Canada.
2141788 Ontario Corporation ("2141788 Ontario")
2486303 Ontario Inc. ("2486303 Ontario")
CEP III Co-Investment Limited Partnership ("CEP III Co-Invest")
MIP III Limited Partnership ("MIP III")
CEP IV Co-Investment Limited Partnership ("CEP IV Co-Invest")
MIP IV Limited Partnership ("MIP IV")
CEP V Co-Investment Limited Partnership ("CEP V Co-Invest")
MIP V Limited Partnership ("MIP V")
The Company may also use intermediate subsidiaries whose sole purpose is to hold investments for the Company, and
therefore, are not included in the list above.
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019 and 2018 (tabular dollar amounts in thousands, except per share information)
Interests in the CEP Funds
Clairvest manages and invests alongside the CEP Funds, which meet the definition of structured entities under IFRS.
Clairvest provides loans to and earns priority distributions or management fees and carried interest from the CEP Funds,
which are further described in note 9. The Company concluded that its ownership interests in the CEP Funds do not
meet the definition of control under IFRS. Accordingly, the financial positions and operating results of the CEP Funds and
other funds it manages for certain co-investors are not included in Clairvest's consolidated financial statements.
(a) Classification and recognition of financial instruments
In accordance with IFRS 9, financial instruments classified as FVTPL would include cash and cash equivalents, temporary
investments, loans receivable, derivative instruments and corporate investments. These financial instruments are
classified at initial recognition at FVTPL on the basis that they are part of a group of financial assets that are managed
and have their performance evaluated on a fair value basis, in accordance with risk management and investment
strategies of the Company. The Company does not apply hedge accounting to its derivative instruments. Accounts
receivable and other assets would include balances relating to its acquisition entities, indirect investee companies
(“investee companies”) and the CEP Funds as well as other short‐term receivables. These receivable balances are
recognized at amortized cost in accordance with IFRS 9. Accounts payable and accrued liabilities are considered to be
payable in respect of goods or services received up to the balance sheet date and are recognised at amortised cost in
accordance with IFRS 9.
(b) Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand and short-term deposits with an original maturity of three
months or less.
(c) Temporary investments and corporate investments
The Company carries its temporary investments and its corporate investments at fair value. When a financial instrument
is initially recognized, its fair value is generally the value of consideration paid or received. Acquisition costs relating to
corporate investments are not included as part of the cost of the investment. Subsequent to initial recognition, the fair
value of an investment quoted on an active market is generally the closing bid price on the principal exchange on which
the investment is traded. Investments that are escrowed or otherwise restricted as to sale or transfer are recorded at a
value which takes into account the escrow terms or other restrictions. In determining the fair value for such
investments, the Company considers the nature and length of the restriction, business risk of the investee company, its
stage of development, market potential, relative trading volume and price volatility and any other factors that may be
relevant to the ongoing and realizable value of the investments. The amounts at which Clairvest's publicly traded
investments could be disposed of may differ from this fair value and the differences could be material. Differences could
arise as the value at which significant ownership positions are sold is often different from the quoted market price due
to a variety of factors such as premiums paid for large blocks or discounts due to illiquidity. Estimated costs of
disposition are not included in the fair value determination.
In the absence of an active market, the fair values are determined by management using the appropriate valuation
methodologies after considering the history and nature of the business, operating results and financial conditions, the
general economic, industry and market conditions, capital market and transaction market conditions, contractual rights
relating to the investment, public market comparables, private company transaction multiples and, where applicable,
other pertinent considerations. The process of valuing investments for which no active market exists is inevitably based
on inherent uncertainties and the resulting values may differ from values that would have been used had an active
market existed. The amounts at which Clairvest's privately held investments could be disposed of may differ from the
fair value assigned and the differences could be material. Estimated costs of disposition are not included in the fair value
determination.
(d) Foreign currency translation
Income and expenses denominated in foreign currencies are translated into Canadian dollars at exchange rates
prevailing at the transaction date. Monetary assets and liabilities are translated into Canadian dollars using exchange
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019 and 2018 (tabular dollar amounts in thousands, except per share information)
rates in effect as at the consolidated statement of financial position dates. Non-monetary assets and liabilities that are
measured at historical cost are translated into Canadian dollars using the exchange rate at the date of transaction. Non-
monetary assets and liabilities that are carried at fair value are translated into Canadian dollars using exchange rates at
the date the fair value was determined. Exchange gains and losses are included in income in the period in which they
occur. Foreign currency transaction gains and losses on financial instruments classified as FVTPL are included in the
consolidated statements of comprehensive income as part of net investment gain (loss).
(e) Derivative instruments
The Company and its acquisition entities enter into foreign exchange forward contracts to hedge their exposure to
exchange rate fluctuations on their foreign currency-denominated investments and loans. These foreign exchange
forward contracts and their underlying investments and loans are valued at exchange rates in effect as at the
consolidated statement of financial position dates.
Foreign exchange forward contracts entered into by the Company are included in the consolidated statements of
financial position as derivative instruments and are valued at fair value representing the estimated amount that the
Company would have been required to pay, or received, had the Company settled the outstanding contracts as at the
consolidated statement of financial position dates. Any unrealized gains or losses are included in finance and foreign
exchange expense in the consolidated statements of comprehensive income.
Foreign exchange forward contracts entered into by the Company's acquisition entities are included in the fair
value determination of these acquisition entities.
(f) Income recognition
Realized gains or losses on disposition of corporate investments and change in unrealized gains or losses in the value of
corporate investments are calculated based on weighted average cost and are included in net investment gain (loss) in
the consolidated statements of comprehensive income. Management fees and advisory and other fees are recorded as
income on an accrual basis when earned. Distributions and interest income are recognized on an accrual basis and
dividend income is recognized on the ex-dividend date. Carried interest includes amounts receivable from the CEP
Funds. Each CEP Fund is separately reviewed as at the consolidated statement of financial position date and an accrual
for carried interest is made when the performance conditions are achieved in accordance with IFRS 15 based on the
assumption that the remaining underlying investments are realized at their estimated fair values. The fair value of the
underlying investments is determined consistently with the Company’s valuation methodology and is measured as at
the consolidated statement of financial position date. Carried interest is accrued only in the event that it is highly
probable that there will not be a significant reversal in future financial periods.
(g) Income taxes
Current income tax
Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered
from or paid to taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted
or substantively enacted, at the reporting date in the countries where the Company and its acquisition entities operate
and generate taxable income. Management periodically evaluates positions taken in the tax returns with respect to
situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.
Deferred income tax
The Company records deferred income tax expense or recovery using the asset and liability method. Under this method,
deferred income taxes reflect the expected deferred tax consequences of temporary differences between the carrying
amounts of assets and liabilities and their respective income tax bases, as well as certain carryforward items. Deferred
income tax assets and liabilities are determined for each temporary difference based on the income tax rates that are
expected to be in effect when the asset or liability is settled. Deferred income tax assets are only recognized to the
extent that, in the opinion of management, it is probable that the deferred income tax asset will be realized.
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019 and 2018 (tabular dollar amounts in thousands, except per share information)
(h) Stock-based compensation plans
The Company's stock option plans allow for a cash settlement of stock options. As the economics to choose cash or
shares as settlement is the same for all holders, compensation expense is recognized over the applicable vesting period
and a corresponding liability is recorded based on the fair value of the outstanding stock options as at the consolidated
statement of financial position dates. Fair value is measured by use of an appropriate option-pricing model. On the
exercise of stock options for shares, the liability recorded with respect to the options and consideration paid by the
employees is credited to share capital. On the exercise of stock options for cash, the liability recorded is reduced and
any difference between the liability accrued and the amount paid is charged to share-based compensation expense.
(i) Deferred share unit plans
Directors of the Company may elect annually to receive all or a portion of their compensation in deferred share units
("DSUs") based on the closing price of a Clairvest common share on the date directors’ fees are payable. Upon
redemption of DSUs, the Company pays to the participant a lump sum cash payment equal to the number of DSUs to be
redeemed multiplied by the closing price of a Clairvest common share on the redemption date. A participant may
redeem his or her DSUs only following termination of board service. Under the Company's DSU plan, a change to the
fair value of the DSUs is charged to share-based compensation expense and recorded as a liability.
Certain directors were also granted appreciation deferred share units ("ADSUs"). Upon redemption of the ADSUs,
the Company pays to the participant a lump sum cash payment equal to the number of ADSUs to be redeemed
multiplied by the difference between the closing price of a Clairvest common share on the redemption date and the
closing price of a Clairvest common share on the grant date. A participant may redeem his or her ADSUs only following
termination of board service. Under the Company's ADSU plan, a change to the fair value of the ADSUs is charged to
share-based compensation expense and recorded as a liability.
Certain employees of the Company may elect annually to receive all or a portion of their annual bonuses in
employee deferred share units ("EDSUs"). The number of EDSUs granted to a participant is determined by dividing the
amount of the elected bonuses to be received by way of EDSUs by the five-day volume-weighted average closing price
of the Clairvest common shares. EDSUs may be redeemed for cash or for common shares of the Company. A participant
may redeem his or her EDSUs only following termination of employment. Under the Company's EDSU plan, a change to
the fair value of the EDSUs is charged to share-based compensation expense and recorded as a liability.
(j) Book value appreciation rights plan
The Company may elect to issue all or a portion of a participant's stock option grant by way of book value appreciation
rights units ("BVARs"). Upon redemption of BVARs, the Company pays to the participant a lump sum cash payment
equal to the number of BVARs to be redeemed multiplied by the increase in book value per share between the grant
date and the redemption date, and grossed up such that the participant's after-tax proceeds equate to an amount as if
the proceeds were taxed at the capital gains rate. The BVARs vest over a five-year period and the participant may only
redeem his or her BVARs at the earlier of (i) five years from the grant date or (ii) cessation of employment with the
Company.
Fair value of the BVARs is calculated based on the latest book value per share published at the time the value is
being determined. As the Company's BVAR plan is a cash-settled plan, a change to the fair value of the BVARs is charged
to share-based compensation expense and recorded as a liability.
(k) Entitlements of partners of a limited partnership
The Company consolidates subsidiaries which include various limited partnerships as described in Consolidated
subsidiaries in note 2 and the entitlements of partners of these limited partnerships that are external to the
consolidated group of the Company are recorded as a liability and an expense of the Company. Accordingly, that portion
of the carried interest from the CEP Funds which is ultimately paid to the limited partners of MIP III, MIP IV or MIP V,
which are external to the consolidated group, is recorded as a management participation liability and a management
participation expense on the consolidated financial statements.
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019 and 2018 (tabular dollar amounts in thousands, except per share information)
(l) Fixed assets
Fixed assets are accounted for at cost less accumulated amortization. Leasehold improvements are amortized on a
straight-line basis over the lease term including reasonably assured renewal options. All other fixed assets are amortized
on a straight-line basis at the following rates per year:
Aircraft
Computer equipment
Computer software
Furniture, fixtures and equipment
Leasehold improvements
10%
30%
50%
20%
Term of lease
The Company assesses, at each reporting date, whether there is an indication that a fixed asset may be impaired. If any
indication exists, the Company estimates the fixed asset's recoverable amount. The recoverable amount is the higher of
its fair value less costs of disposal and its value in use. When the carrying amount exceeds its recoverable amount, the
fixed asset is considered impaired and is written down to its recoverable amount.
(m) Net income and comprehensive income per share
Basic net income and comprehensive income per share is determined by dividing net income and comprehensive
income attributable to common shareholders by the weighted average number of common shares outstanding during
the year. Fully diluted net income and comprehensive income per share are determined in accordance with the treasury
stock method and is based on the weighted average number of common shares and dilutive common share equivalents
outstanding during the year.
(n) Critical accounting estimates, assumptions and judgments
The preparation of consolidated financial statements in conformity with IFRS requires management to make estimates,
assumptions and judgments that affect the reported amounts. Estimates and judgments are continually evaluated and
are based on historical experience and other factors, including expectations of future events that are believed to be
reasonable under the circumstances. The Company makes estimates and assumptions concerning the future. The
resulting accounting estimates could materially differ from the related actual results. The following estimates,
assumptions and judgments have a significant risk of causing a material adjustment to the carrying amounts of assets
and liabilities within the next fiscal year:
Determination of investment entity
Judgment is required when making the determination that the Company or its various subsidiaries meet the definition
of an investment entity under IFRS. In accordance with IFRS 10, an investment entity is an entity that: "obtains funds
from one or more investors for the purpose of providing them with investment management services, commits to its
investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or
both, and measures and evaluates the performance of substantially all of its investments on a fair value basis." In
addition, IFRS 10 clarifies that an investment entity may earn fee income from the provision of investment-related
services to external parties. The Company has historically invested alongside third-party capital in the CEP Funds that it
manages. In determining its status as an investment entity, the Company has determined that fair value is the primary
measurement attribute used to monitor and evaluate its investments.
Fair value of financial instruments
Certain financial instruments are recorded in the Company's consolidated statements of financial position at values that
are representative of or approximate fair value. The fair value of a financial instrument that is traded in active markets
at each reporting date is determined by reference to its quoted market price or dealer price quotations. The fair values
of certain other financial instruments are determined using valuation techniques. By their nature, these valuation
techniques require the use of estimates and assumptions. Changes in the underlying estimates and assumptions could
materially impact the determination of the fair value of a financial instrument. Imprecision in determining fair value
using valuation techniques may affect net investment gain (loss) reported in a particular period.
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019 and 2018 (tabular dollar amounts in thousands, except per share information)
The Company assesses, at each reporting date, whether there is any objective evidence to revise the fair values of
its financial instruments. The assessment of the fair value of a financial instrument requires significant judgment, where
management evaluates, among other factors, the financial health and business outlook of their investees. Fair value
information is presented in note 17.
Recognition of carried interest and corresponding expenses
The determination of the Company's carried interest is recorded on the consolidated statements of financial position is
based on the fair values of the financial instruments held by the CEP Funds. In accordance with IFRS 15, the calculated
carried interest can only be recognised to the extent to which it is highly probable that there will not be a significant
reversal when the relevant uncertainty is resolved. This judgement is made on a fund-by-fund basis, based on its specific
circumstances, including consideration of: remaining duration of the fund, position in relation to the cash hurdle, the
number of assets remaining in the fund and the potential for clawback. The actual amounts of carried interest received
and paid will depend on the cash realisations of the CEP Funds’ portfolio investments and valuations may change
significantly in future financial periods. As discussed previously, fair values of certain financial instruments are
determined using valuation techniques and by their nature, the use of estimates and assumptions. Changes in the
underlying estimates and assumptions could materially impact the determination of the fair value of these financial
instruments. Imprecision in determining fair value using valuation techniques may affect the calculation of carried
interest and the resulting accrued liabilities for future payouts relating to the carried interest as at the consolidated
statement of financial position dates.
Income taxes
The determination of the Company's income and other tax liabilities requires interpretation of complex laws and
regulations often involving multiple jurisdictions. Judgment is required in determining whether deferred income tax
assets should be recognized on the consolidated statements of financial position. Deferred income tax assets are
recognized to the extent that the Company believes it is probable that the deferred income tax asset will be realized.
Furthermore, deferred income tax balances are recorded using enacted or substantively enacted future income tax
rates. Changes in enacted income tax rates are not within the control of management. However, any such changes in
income tax rates may result in actual income tax amounts that may differ significantly from estimates recorded in
deferred tax balances.
3. CASH EQUIVALENTS AND TEMPORARY INVESTMENTS
Cash equivalents consist of deposits in investment and money market savings accounts which have maturities of less than
90 days from the date of acquisition. As at March 31, 2019, the pre-tax weighted average yield was 2.2% (2018 – 1.6%) per
annum.
As at March 31, 2019, temporary investments comprised guaranteed investment certificates, corporate bonds and
other fixed income securities as permitted by the Company's treasury policy which in aggregate may not exceed 10% of
book value and with no single issue greater than 1.5% of book value. Temporary investments have maturities greater than
90 days from the date of acquisition and through to December 2020. The pre-tax weighted average yield was 3.5% (2018 –
4.3%) per annum. The composition of Clairvest's temporary investments as at March 31 was as follows:
March 31, 2019
March 31, 2018
Guaranteed investment certificates
Corporate bonds
Other fixed income securities(1)
Due in 1 year
or less
$
$
105,274
3,006
7,032
115,312
$
Due after 1 year
$
20,957
2,997
24,137
48,091
(1)
The pre-tax weighted average yield on other fixed income securities was 6.8% (2018 – 7.0%).
Total
Total
$
$
126,231
6,003
31,169
163,403
$
$
19,277
—
17,305
36,582
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019 and 2018 (tabular dollar amounts in thousands, except per share information)
4. NET INVESTMENT GAIN (LOSS)
Net investment gain (loss) for the year ended March 31, 2019 and 2018 comprised of net change in unrealized gains.
Net investment gain (loss) for the year ended March 31, 2019 comprised $119.1 million (2018 – $102.5 million) of
net investment gain on the Company’s investee companies and $242.3 million of net investment loss (2018 – $5.3 million of
net investment gain) on the Company’s fair value revaluation of its acquisition entities.
5. NET CARRIED INTEREST INCOME
Net carried interest income for the years ended March 31, 2019 and 2018 comprised the following:
Realized carried interest income (note 9)
Net change in unrealized carried interest (note 9(j))
$
$
2019
119,107
(71,416)
47,691
$
$
2018
16,891
29,578
46,469
6. CORPORATE INVESTMENTS
In accordance with IFRS 10, the fair value of the Company's corporate investments includes the fair value of the net assets
of its acquisition entities that are controlled by the Company. Accordingly, Clairvest's direct corporate investments
comprise these acquisition entities, which invest directly or indirectly in various investee companies and other investee
companies where Clairvest made an investment directly.
The following table details the fair value of Clairvest's direct investments and acquisition entities, which are
controlled by Clairvest, but which are not part of the consolidated group:
March 31, 2019
Acquisition
entities net
assets
(liabilities)
Investee
companies
Total
Investee
companies
March 31, 2018
Acquisition
entities net
assets
(liabilities)
Total
Held directly by Clairvest Group Inc.
$
25,077
$
—
$
25,077
$
27,325
$
—
$
27,325
Held through the following acquisition
entities:
2141788 Ontario
2486303 Ontario
CEP III Co-Invest
MIP III
CEP IV Co-Invest
MIP IV
CEP V Co-Invest
MIP V
Total
59,664
6,263
22,929
918
108,563
1,645
111,031
3,458
29,519
(8,357)
2,960
(17)
(1,013)
(7)
3,721
(75)
89,183
(2,094)
25,889
901
107,550
1,638
114,752
3,383
51,473
8,499
22,308
893
314,634
4,768
75,709
2,896
25,886
(9,253)
(1,313)
(12)
(7,120)
(53)
(1,398)
(70)
77,359
(754)
20,995
881
307,514
4,715
74,311
2,826
$
339,548
$
26,731
$
366,279
$
508,505
$
6,667
$
515,172
2141788 Ontario, a limited partner of CEP III Co-Invest and CEP V Co-Invest, is a wholly-owned acquisition entity of
Clairvest. 2486303 Ontario is a wholly-owned acquisition entity of Clairvest, which together with Clairvest holds a 100%
interest in Clairvest Equity Partners Limited Partnership ("CEP"). CEP was an investment fund held by third-party investors
until December 2015. Clairvest's relationship with CEP III Co-Invest and MIP III, CEP IV Co-Invest and MIP IV, and CEP V Co-
Invest and MIP V are described in notes 9(c), 9(f) and 9(i), respectively. During the year ended March 31, 2019, Clairvest
made net investment of $14.9 million in CEP V Co-Invest. 2141788 Ontario and MIP IV also made net investment of
$2.9 million in CEP V Co-Invest during fiscal 2019.
During fiscal 2019, CEP IV Co-Invest received total cash proceeds of $317.5 million primarily as a result of the
realizations of Centaur Gaming, MAG Aerospace and Rivers Casino as described in notes 6(b), 6(f), and 6(i). Accordingly,
during fiscal 2019, CEP IV Co-Invest declared distributions totalling $298.6 million, $271.5 million of which were paid to
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019 and 2018 (tabular dollar amounts in thousands, except per share information)
Clairvest, $4.1 million of which were paid to an acquisition entity of Clairvest and $23.0 million of which were paid as
carried interest entitlement, and repaid loans totalling $18.5 million to Clairvest.
Also during fiscal 2019, MIP IV declared distributions totalling $4.5 million to Clairvest as described in note 9(f).
The following table details the assets and liabilities included in the determination of the fair value of the net assets
of acquisition entities excluding the investee companies held by these acquisition entities:
March 31, 2019
March 31, 2018
Assets
Cash and cash equivalents
Temporary investments
Accounts receivable and other assets
Income taxes recoverable
Derivative instruments
Deferred income tax asset
Liabilities
Accounts payable and accrued liabilities
Loans payable
Income taxes payable
Derivative instruments
Deferred income tax liability
Net assets
$
$
$
$
$
$
28,275
19,662
435
128
1,619
640
50,759
$
$
1,805
8,759
648
3,240
9,576
24,028
26,731
$
$
25,945
10,942
1,657
63
168
142
38,917
2,293
12,656
967
8,241
8,093
32,250
6,667
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019 and 2018 (tabular dollar amounts in thousands, except per share information)
Excluding the net assets from acquisition entities summarized in the table above, the difference between the cost and the
fair value of the Company's investee companies, are summarized below.
March 31, 2019
March 31, 2018
Fair value
Cost
Difference
Fair value
Cost
Difference
Investments made by CEP III Co-Invest
alongside CEP III
Chilean Gaming Holdings(1)
$
61,785 $
27,748 $
34,037 $
60,113 $
28,754 $
31,359
Investments made by CEP IV Co-Invest
alongside CEP IV
Centaur Gaming
County Waste of Virginia, LLC
Davenport Land Investments(2)
Impero Waste Services, LLC (formerly
Winters Bros. Waste Systems of CT, LLC)
MAG Aerospace / Momentum Solutions
New Meadowlands Racetrack, LLC
Northco / Top Aces
Rivers Casino
Investments made by CEP V Co-Invest
alongside CEP V
Accel Entertainment Inc.
Also Energy, Inc.
Digital Media Solutions, LLC
GTA Gaming
Head Digital Works Pvt. Ltd.
Meriplex Communications Ltd.
Right Time Heating and Air Conditioning
Canada Inc.
Winters Bros. Waste Systems of Long
Island Holdings, LLC
Grey Eagle Casino(3)
Wellington Financial(4)
Other investments(5)
7,843
31,199
3,254
544
819
10,681
55,868
—
36,067
12,463
10,055
8,972
43,620
7,016
6,375
11,647
8,351
2,955
319,514
20,034
—
14,831
2,196
3,019
—
6,444
59,100
—
15,978
11,621
995
8,972
46,804
6,732
6,375
10,636
11,017
154
232,622
455
7,843
16,368
1,058
(2,475)
819
4,237
(3,232)
—
20,089
842
9,060
—
(3,184)
284
—
1,011
(2,666)
2,801
86,892
19,579
192,394
19,776
3,018
4,100
21,164
10,237
44,926
23,787
27,258
6,189
9,126
602
40,228
—
—
9,764
11,331
3,626
487,639
20,866
34,657
11,314
2,196
3,019
5,068
6,444
55,522
9,058
15,978
6,038
8,254
602
55,968
—
—
10,636
11,017
—
264,525
788
157,737
8,462
822
1,081
16,096
3,793
(10,596)
14,729
11,280
151
872
—
(15,740)
—
—
(872)
314
3,626
223,114
20,078
$
339,548 $
233,077 $
106,471 $
508,505 $
265,313 $
243,192
(1)
(2)
(3)
(4)
(5)
Comprised CEP III Co-Invest's investment in various gaming properties in Chile.
Comprised two entities which hold real estate surrounding a casino in Davenport, Iowa ("Davenport North" and "Davenport South").
Fair value included the portion owned directly by Clairvest and the portion owned indirectly through 2486303 Ontario. Fair value as at March 31,
2019 excluded the amount of $1.3 million (2018 − $1.8 million) which represented the carried interest of CEP to be received by 2486303 Ontario as
described in note 9(a).
Comprised interest in various Wellington Financial limited partnership funds and their respective general partners.
Includes Clairvest's investment in common shares of Canadian Imperial Bank of Commerce ("CIBC") as discussed in note 6(s).
The fair value of each investee company reflected valuation methodologies as described in note 17, except for notes 6(d)
and 6(s) as described below. The cost and fair value of investee companies do not reflect foreign exchange gains or losses
on the foreign exchange forward contracts entered into as economic hedges against these investments (note 14). For those
investments which are hedged by acquisition entities, the fair value of these foreign exchange forward contracts was
included in the net assets (liabilities) of these acquisition entities. Details of each investee company are described below.
(a) Chilean Gaming Holdings
Chilean Gaming Holdings is a limited partnership, which has a 50% ownership interest in Casino Marina del Sol in
Concepcion, Chile, a 50% ownership interest in Casino Chillan in Chillán, Chile, which is currently under construction, and a
73.8% ownership interest in each of Casino Osorno in Osorno, Chile, and Casino Sol Calama in Calama, Chile. As at
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019 and 2018 (tabular dollar amounts in thousands, except per share information)
March 31, 2019 and 2018, CEP III Co-Invest held 30,446,299 limited partnership units of Chilean Gaming Holdings,
representing a 36.8% equity interest.
During fiscal 2019, CEP III Co-Invest earned dividends totalling $1.4 million (2018 – $0.8 million) through its
investment in Chilean Gaming Holdings, bringing dividends earned to March 31, 2019 to $15.4 million (2018 –
$14.0 million). Also during fiscal 2019, Chilean Gaming Holdings received a $2.7 million return of capital from Casino
Osorno, CEP III Co-Invest’s portion of which was $1.0 million and has been recorded as a reduction to the cost of the
investment.
(b) Centaur Gaming
Centaur Gaming was the owner and operator of Hoosier Park Racing & Casino in Anderson, Indiana, and Indiana Grand
Casino and Indiana Downs Racetrack in Shelbyville, Indiana. As at March 31, 2018, CEP IV Co-Invest held US$17.4 million in
term loans with stapled warrants which, subject to regulatory approval, were convertible upon exercise to 12.7% of Class A
and Class B units of Centaur Gaming.
During fiscal 2019, CEP IV Co-Invest realized on its investment in Centaur Gaming and received cash proceeds
totalling US$166.8 million (C$219.4 million), against the carrying value of $192.4 million value as at March 31, 2018. CEP IV
Co-Invest is also entitled to deferred consideration of up to US$8.4 million through to July 2021. The carrying value of
Centaur Gaming as at March 31, 2019 represented the risk adjusted present value of the deferred consideration. During
fiscal 2019, the realization of Centaur Gaming, together with the fair value of the deferred consideration and net of foreign
exchange gains (losses) inclusive of foreign exchange hedging activities, resulted in a $30.0 million net investment gain for
the Company.
(c) County Waste of Virginia, LLC
County Waste of Virginia, LLC ("County Waste") is a private regional solid waste collection company servicing customers in
the states of Virginia and Pennsylvania. As at March 31, 2018, CEP IV Co-Invest held 7,374.67 Class B units of County Waste
and 174.3 units of Spare Lots, LLC ("Spare Lots"), a company affiliated with County Waste, collectively representing a 13.0%
ownership interest on a fully diluted basis. In addition, CEP IV Co-Invest also held a US$1.7 million 12% per annum
promissory note from County Waste which had an accrued value of US$1.8 million (C$2.3 million) as at March 31, 2018.
During fiscal 2019, CEP IV Co-Invest invested an additional US$2.7 million (C$3.5 million) in the form of a
convertible promissory note with a stated interest rate of 15% per annum. Under the terms of the agreement, the
convertible promissory note will be converted into equity units of County Waste if not repaid by December 31, 2020.
Also during fiscal 2019, interest of $0.4 million (2018 – $44 thousand) was earned on the promissory notes. As at
March 31, 2019, the accrued value of the promissory note and the convertible promissory note were $2.7 million and
$3.6 million, respectively.
(d) Davenport Land Investments
Davenport Land Developments comprises two entities holding real estate surrounding a casino development in Davenport,
Iowa ("Davenport North" and "Davenport South").
As at March 31, 2019 and 2018, CEP IV Co-Invest had a net investment of $1.6 million in Davenport Land
Investments. Additionally, CEP IV Co-Invest had advanced US$0.6 million in the form of a promissory note from a partner to
help fund its 50% ownership in Davenport North, which bears interest at a rate of 12% per annum. During fiscal 2019,
interest of $0.1 million (2018 – $0.1 million) was earned on the promissory note.
(e) Impero Waste Services, LLC
Impero Waste Services, LLC (“Impero Waste”) is the holding company of Oak Ridge Waste & Recycling, LLC (“formerly
“Winters Bros. Waste Systems of CT, LLC”), a regional solid waste collection, recycling and disposal company based in
Danbury, Connecticut. As at March 31, 2019 and 2018, CEP IV Co-Invest held 4,817.86 Class A units of Impero Waste,
representing a 6.0% ownership interest on a fully diluted basis.
During fiscal 2019, CEP IV Co-Invest received additional proceeds of $0.4 million resulting from the partial
realization of Winters Bros. Waste Systems of CT, LLC, which occurred during fiscal 2018.
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019 and 2018 (tabular dollar amounts in thousands, except per share information)
(f) MAG Aerospace / Momentum Solutions
MAG Aerospace is a U.S.-based specialty aviation and intelligence, surveillance and reconnaissance service provider. As at
March 31, 2018, CEP IV Co-Invest held 33,736 Class A stock of MAG Aerospace, representing a 10.3% ownership interest on
a fully diluted basis. In addition, CEP IV Co-Invest had invested $0.1 million in a subsidiary of MAG (“MAG Sub”) and
advanced $1.1 million to MAG Sub in the form of promissory notes bearing interest at 10% per annum with a maturity date
of January 31, 2021.
During fiscal 2019, CEP IV Co-Invest realized on its investment in MAG Aerospace and received cash proceeds
totalling US$29.5 million (C$37.9 million), against an equity investment of $4.0 million, for a $33.9 million realized gain on
the investment. In conjunction with the sale of MAG Aerospace, the equity investment in MAG Sub was redeemed at cost
and the $1.1 million promissory notes from MAG Sub were repaid in full. Following the sale of MAG Aerospace, CEP IV Co-
Invest retained a 4.4% ownership interest in Momentum Solutions, which was another wholly-owned subsidiary of MAG
Aerospace prior to the investment realization and was carried at $0.9 million as at March 31, 2019. During fiscal 2019, the
realization of MAG Aerospace and MAG Sub, together with the fair value of Momentum Solutions and net of foreign
exchange gains (losses) inclusive of foreign exchange hedging activities, resulted in a $19.4 million net investment gain for
the Company.
(g) New Meadowlands Racetrack, LLC
New Meadowlands Racetrack, LLC (the "Meadowlands") operates a standardbred horse racing track located in East
Rutherford, New Jersey.
As at March 31, 2019 and 2018, CEP IV Co-Invest had invested US$5.4 million (C$5.6 million) in the Meadowlands
in the form of secured convertible debentures (“Meadowlands Debentures”), which accrue interest at a rate of 15% per
annum, all of which is payable in kind. CEP IV Co-Invest also holds warrants which entitle it to invest in equity securities of
the Meadowlands subject to certain conditions. 5% of the 15% interest on the Meadowlands Debentures would be
forfeited in the event Clairvest exercises the warrants.
As at March 31, 2018, the gross accrued value of the secured debentures was US$8.7 million (C$11.2 million), and
the carrying value of the Meadowlands Debentures was US$7.3 million (C$9.4 million). During fiscal 2019, US$1.3 million
(C$1.7 million) (2018 – US$1.1 million (C$1.4 million)) in interest was accrued on the Meadowlands Debentures. During
fiscal 2019, CEP IV Co-Invest received interest payments totalling US$0.8 million (C$1.0 million) on the Meadowlands
Debentures. As at March 31, 2019, the gross accrued value of the Meadowlands Debentures was US$9.2 million
(C$12.3 million) and the carrying value of the Meadowlands Debentures was US$7.3 million (C$9.8 million) (2018 –
US$7.3 million; C$9.4 million), which reflected US$1.9 million (C$2.5 million) (2018 – US$1.4 million; C$1.8 million) in
accrued interest being provided for on the Meadowlands Debentures.
CEP IV Co-Invest also invested US$0.7 million (C$0.9 million) in the Meadowlands in the form of preferred debt,
which is junior to the Meadowlands Debentures. The preferred debt has a stated interest rate of 3% per annum and
interest is payable in-kind. During fiscal 2019, CEP IV Co-Invest earned $26 thousand (2018 – $26 thousand) in interest on
the preferred debt, which was fully provided for and presented on a net basis.
(h) Northco / Top Aces
Northco, formerly Discovery Air Inc. ("Discovery Air"), is a specialty aviation services company operating across Canada and
in selected locations internationally. Top Aces was a wholly owned subsidiary of Discovery Air until December 2017 and is a
supplier of advanced adversary services across three continents.
As at March 31, 2018, CEP IV Co-Invest had invested $22.0 million in secured convertible debentures of Discovery
Air ("Discovery Air Debentures") which had a maturity date of May 5, 2018. The Discovery Air Debentures accrued interest
at a rate of 10% per annum and interest was paid in-kind and compounded on an annual basis. As at March 31, 2018, the
gross accrued value of the Discovery Air Debentures was $23.3 million and were carried at $1.3 million. In addition,
Clairvest and CEP IV Co-Invest also had invested $8.4 million for 24,332,907 common shares of Discovery Air, which
represented a 29.9% ownership interest on a fully diluted basis and were carried at nil. As at March 31, 2018, Discovery Air
had filed for creditor protection under the Companies’ Creditors Arrangement Act (“CCAA”). Under the CCAA process, CEP
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019 and 2018 (tabular dollar amounts in thousands, except per share information)
IV Co-Invest had provided a debtor-in-possession (“DIP”) facility to Discovery Air of up to $12.6 million, $4.9 million of
which was drawn as at March 31, 2018.
As at March 31, 2018, CEP IV Co-Invest held 611.3633 common shares of Top Aces, which represented 26.3%
ownership interest on a fully diluted basis, at a cost of $20.2 million and were carried at $38.8 million. As at March 31,
2018, Discovery Air had a 9.7% ownership interest in Top Aces.
During fiscal 2019, the DIP facility was increased to $15.0 million and was fully drawn by Discovery Air.
Subsequently, the Court approved the sale of Discovery Air’s remaining interest in Top Aces to CEP IV Co-Invest and the co-
investors of Discovery Air (Collectively, the “Discovery Air Investor Group”) for a purchase price of $20.8 million (the “Court
Approved Sale of Top Aces”), $17.0 million of which, representing 207.4331 of the 253.8360 shares held by Discovery Air
prior to the Court Approved Sale of Top Aces, was purchased by CEP IV Co-Invest which were paid for by applying
$15.3 million against the accrued value of the DIP facility as at the closing of this transaction and $1.7 million against
interest owing on the Discovery Air Debentures.
Also during fiscal 2019 and subsequent to the Court Approved Sale of Top Aces, the Discovery Air Investor Group,
through 10671541 Canada Inc. (“Northco”), purchased all remaining assets of Discovery Air under a Court supervised sale
process (the “Court Approved Sale of Discovery Air Assets”). The consideration of the purchase included the assumption of
the Discovery Air Debentures, which had an accrued value of $71.0 million as at the date of this transaction. In exchange of
the Discovery Air Debentures, the Discovery Air Investor Group received $70.0 million in convertible debentures of Northco
(“Northco Debentures”) and $1.0 million in common shares of Northco. As Discovery Air and Northco are owned
proportionately by the Discovery Air Investor Group, the transaction was recorded with no gain or loss. The Northco
Debentures have a stated interest of 10% per annum and an annual fee of 2% payable quarterly and an initial maturity date
of January 31, 2019, which was later extended to May 31, 2020. At the conclusion of this transaction, CEP IV Co-Invest held
$22.0 million in Northco Debentures and 3,149 common shares of Northco with a carrying value of nil. Subsequently, CEP
IV Co-Invest purchased an additional $4.3 million of the Northco Debentures and 718 common shares of Northco at a
nominal value. During fiscal 2019, CEP IV Co-Invest earned interest and fees of $1.5 million on the Northco Debentures and
received payments totalling $4.6 million during fiscal 2019. As at March 31, 2019, CEP IV Co-Invest held $22.9 million in
Northco Debentures with a gross accrued value of $23.2 million and 3,867 common shares of Northco which represented
38.7% ownership interest on a fully diluted basis. The Northco Debentures were carried at $1.1 million and the Northco
common shares were carried at nil as at March 31, 2019. Subsequent to year-end, CEP IV Co-Invest received repayments
totalling $1.5 million on the Northco Debentures.
Upon the completion of the Court Approved Sale of Discovery Air Assets, Clairvest and CEP IV Co-Invest realized
their investments in the common shares of Discovery Air, which had been previously written down to nil, and which had an
original cost of $8.4 million.
Subsequent to the Court Approved Sale of Top Aces, CEP IV Co-Invest purchased 47.2889 common shares of Top
Aces for $3.9 million in support of Top Ace’s equity raise and sold 192.5852 common shares of Top Aces for $15.8 million to
third-party institutional investors.
As at March 31, 2019, CEP IV Co-Invest held 667.9553 common shares of Top Aces, representing a 23.9%
ownership interest on a fully diluted basis.
(i) Rivers Casino
Rivers Casino is a gaming entertainment complex located in Des Plaines, Illinois. As at March 31, 2018, CEP IV Co-Invest held
9,021,917 units of Rivers Casino, which represented a 5.0% ownership interest on a fully diluted basis.
During fiscal 2019, CEP IV Co-Invest earned quarterly distributions totalling $0.9 million (2018 – $1.3 million) and
quarterly fees totalling $0.6 million (2018 – $0.6 million) from Rivers Casino. As a result of CEP IV Co-Invest's investment in
Rivers Casino requiring certain acquisition entities in the United States, $0.4 million (2018 – $0.8 million) in U.S. income tax
obligations were incurred during fiscal 2019.
Also during fiscal 2019, CEP IV Co-Invest realized on its investment in Rivers Casino and received cash proceeds
totalling US$36.2 million (C$46.7 million), against a cost of $9.1 million, for a $38.1 million realized gain on the investment,
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019 and 2018 (tabular dollar amounts in thousands, except per share information)
and a further US$0.2 million (C$0.3 million) in cash proceeds subsequent to year-end resulting from customary working
capital adjustments as stipulated in the purchase agreement. During fiscal 2019, the realization of Rivers Casino net of
foreign exchange gains (losses) inclusive of foreign exchange hedging activities, resulted in a $23.1 million net investment
gain for the Company.
(j) Accel Entertainment Inc.
Accel Entertainment Inc. ("Accel Entertainment") is a licensed video gaming terminal operator in Illinois.
As at March 31, 2019 and 2018, CEP V Co-Invest held 283,478 Class D preferred shares of Accel Entertainment,
representing a 7.6% ownership interest on a fully diluted basis (2018 – 7.5%). The Class D preferred shares are entitled to
certain preference over all other equity of Accel Entertainment.
(k) Also Energy, Inc.
Also Energy, Inc. ("Also Energy") is a provider of software and hardware solutions that enable the monitoring and control of
power production and plant operations for commercial, industrial, and utility-scale plants in the United States and around
the world.
As at March 31, 2018, CEP V Co-Invest had invested US$4.8 million (C$6.0 million) for 1,013,062 Series A preferred
stock of Also Energy. The Series A preferred stock which accrue dividends at a rate of 8% compounded annually, are
convertible into common stock at CEP V Co-Invest's discretion. As at March 31, 2018, CEP V Co-Invest's ownership interest
in Also Energy was 14.3% on a fully diluted basis.
During fiscal 2019, CEP V Co-Invest advanced US$4.1 million (C$5.2 million) to Also Energy in the form of a
promissory note which accrues interest at 10% per annum and had an initial maturity date of March 20, 2019 and was later
extended to April 20, 2020. During fiscal 2019, CEP V Co-Invest earned interest totalling $0.3 million on the promissory
note.
Also during fiscal 2019, Also Energy made various acquisitions, and CEP V Co-Invest invested US$0.2 million
(C$0.3 million) in the form of 20,080 Series A common shares of Also Energy in support of these acquisitions. As at March
31, 2019, the common shares together with 1,013,062 Series A preferred stock represent 10.0% ownership on a fully
diluted basis.
(l) Digital Media Solutions, LLC
Digital Media Solutions, LLC ("Digital Media Solutions") operates as a lead generation engine for companies in a variety of
different industries.
As at March 31, 2019 and 2018, CEP V Co-Invest held 6,150,000 Class B units of Digital Media Solutions,
representing a 13.8% ownership interest on a fully diluted basis. The Class B units are entitled to certain preference over all
other equity units in Digital Media Solutions.
During fiscal 2019, Digital Media Solutions completed a financing and made a distribution to its owners. CEP V Co-
Invest received US$9.4 million (C$12.4 million), US$5.4 million (C$7.1 million) of which was recorded as a return of capital
and US$4.0 million (C$5.3 million) as a distribution.
Also during fiscal 2019, CEP V Co-Invest earned quarterly distributions totalling $1.2 million (2018 – $0.6 million)
from Digital Media Solutions, bringing total cash proceeds to March 31, 2019 to $15.0 million (2018 – $1.4 million).
(m) GTA Gaming
GTA Gaming comprised investments in two limited partnerships which operates various gaming assets in the Province of
Ontario: Ontario Gaming GTA Limited Partnership ("OGTALP") and Ontario Gaming West GTA Limited Partnership
("OWGTALP").
As at March 31, 2018, CEP V Co-Invest held 1,254,000 units of OGTALP at a cost of $0.2 million representing a 0.6%
ownership interest and 405,151.2 units of OWGTALP at a cost of $0.4 million representing a 13.5% ownership interest.
During fiscal 2019 and in conjunction with the final closing of the purchase of West GTA gaming assets by
OWGTALP, an additional $8.4 million was funded by CEP V Co-Invest for an additional 8,370,000 units of OWGTALP. During
fiscal 2018, Clairvest had pledged $15.8 million in cash to a Canadian bank in support of this investment, the amount of
which was released during fiscal 2019 upon the final closing.
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019 and 2018 (tabular dollar amounts in thousands, except per share information)
During fiscal 2019, CEP V Co-Invest received distributions totalling $0.3 million from OGTALP and $1.1 million from
OWGTALP.
(n) Head Digital Works Pvt. Ltd.
Head Digital Works Pvt. Ltd. (“Head Digital Works”) is an internet-based technology and gaming company with ownership
interests in Ace2Three, a leading platform for online rummy, FanFight, a growing platform for Daily Fantasy Sports, and
Cricket.com, a leading site for cricket analytics, and WittyGames, delivering a mobile social gaming experience.
As at March 31, 2018, CEP V Co-Invest had invested $56.0 million in Head Digital Works. The investment comprised
INR₹1.1 billion (C$22.9 million) in the form of compulsory convertible debentures (“CCD”) which are denominated in INR
and bear interest at a rate of 16.0% per annum, and INR₹1.6 billion (C$33.1 million) in 202,230 common shares
representing a 32.7% (2018 – 33.6%) ownership interest on a fully diluted basis.
As at March 31, 2018, the CCD had an accrued value of INR₹1.2 billion (C$24.6 million). During fiscal 2019, CEP V
Co-Invest accrued interest totalling INR₹159.9 million (C$$3.0 million) (2018 – INR₹164.4 million (C$3.2 million)). Also
during fiscal 2019, CEP V Co-Invest received payments on the CCD totalling INR₹721.6 million (C$13.6 million) (2018 –
INR₹17.0 million (C$0.3 million)), INR₹283.0 million (C$5.2 million) (2018 – INR₹17.0 million (C$0.3 million)) of which was
allocated to interest and the remaining INR₹438.6 million (C$8.4 million) (2018 – nil) was allocated to principal. As at March
31, 2019, the CCD had an accrued value of INR₹681.3 million (C$13.2 million). The carrying value of the CCD was adjusted
for foreign exchange as it is denominated in INR.
(o) Meriplex Communications Ltd.
During fiscal 2019, CEP V Co-Invest invested US$5.3 million (C$6.7 million) in Meriplex Communications Ltd. (“Meriplex
Communications”), a company based in Houston, Texas that designs, installs and manages complex networking solutions
for businesses. The investment was made in the form of 5,250 common shares for a 18.1% ownership interest in Meriplex
Communications on a fully diluted basis.
(p) Right Time Heating and Air Conditioning Canada Inc.
During fiscal 2019, CEP V Co-Invest invested $6.4 million in Right Time Heating and Air Conditioning Canada Inc. (“Right
Time HVAC”), a Canadian independent heating, ventilation and air-conditioning contractor operating out of seven locations
in Ontario and Manitoba and focused on the residential replacement market. The investment was made in the form of
6,375,000 Class A preferred shares which are convertible into a 15.0% ownership interest in Right Time HVAC on a fully
diluted basis.
(q) Winters Bros. Waste Systems of Long Island Holdings, LLC
Winters Bros. Waste Systems of Long Island Holdings, LLC ("Winters Bros. of LI") is a regional solid waste collection,
recycling and disposal company servicing customers in Long Island, New York. WBLI II, LLC ("WBLI II"), is a company
affiliated with Winters Bros. of LI and owned proportionately by the same unitholders of Winters Bros. of LI.
As at March 31, 2019 and 2018, CEP V Co-Invest held 1,487,773 Class C units of Winters Bros. of LI and 256,037
units of WBLI II, representing a 14.0% ownership on a fully diluted basis in the respective entities.
(r) Grey Eagle Casino
Grey Eagle Casino is a casino on Tsuu T'ina First Nation reserve lands, located southwest of the City of Calgary, Alberta. As at
March 31, 2019 and 2018, Clairvest held units of a limited partnership which operates Grey Eagle Casino, entitling Clairvest
to between 2.8% and 9.6% of the earnings of the casino until December 18, 2022. Additionally, CEP is entitled to between
8.5% and 28.7% of the earnings of the Grey Eagle Casino until December 18, 2022. As described previously in note 9(a),
2486303 Ontario and Clairvest collectively hold a 100% interest in CEP.
During fiscal 2019, Clairvest earned $0.5 million (2018 – $0.5 million) and CEP earned $1.6 million (2018 –
$1.6 million) in equity distributions from Grey Eagle Casino.
(s) Wellington Financial
Wellington Financial, through various Wellington Funds, provided debt capital and operating lines to technology,
biotechnology, communications and industrial product companies across Canada and the United States. Clairvest had made
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019 and 2018 (tabular dollar amounts in thousands, except per share information)
commitments to various Wellington Funds as described in note 15(d), as well as entitlements to participate in the profits
received by the general partners of these Wellington Funds.
During fiscal 2018, Clairvest received a full return of capital on its investment of $17.3 million in Wellington
Financial and 194,876 CIBC common shares as a result of CIBC acquiring the loan portfolio of Wellington Fund V and certain
assets of the general partner of Wellington Fund V. The CIBC common shares are restricted for sale subject to certain
conditions until January 7, 2021. The Company has elected to receive additional CIBC common shares on the quarterly
dividend paid on these shares. During fiscal 2019, the Company received $1.1 million (2018 – $0.3 million) in dividends in
the form of 7,139 (2018 – 2,336) CIBC common shares. As at March 31, 2019, the 204,351 CIBC common shares were
valued at a discount to the closing price of $105.60 (2018 – $113.72) per share to reflect the sale restriction and had been
included as other investments.
Clairvest continues to participate in its pro rata share of any profits realized from warrants previously granted to
the various Wellington Funds and is eligible for additional payments on the sale of the general partner assets subject to
certain conditions.
During fiscal 2019, Clairvest received distributions totalling $0.1 million (2018 – $24.5 million) from Wellington
Financial. As at March 31, 2019, Clairvest had received distributions totalling $55.8 million (2018 – $55.7 million) from
Wellington Financial.
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019 and 2018 (tabular dollar amounts in thousands, except per share information)
7. FIXED ASSETS
The composition of Clairvest's fixed assets was as follows:
At cost
Balance as at April 1, 2018
Additions
Balance as at March 31, 2019
Accumulated amortization
Balance as at April 1, 2018
Amortization expense
Balance as at March 31, 2019
Carrying amount as at March 31, 2019
At cost
Balance as at April 1, 2017
Additions
Disposals
Balance as at March 31, 2018
Accumulated amortization
Balance as at April 1, 2017
Amortization expense
Disposals
Balance as at March 31, 2018
Carrying amount as at March 31, 2018
(1) Comprised computer equipment and computer software.
Aircrafts IT equipment (1)
Furniture,
fixtures and
equipment
Leasehold
improvements
3,603
5,925
9,528
2,715
652
3,367
$
$
$
$
16
—
16
11
4
15
$
$
$
$
280
15
295
203
27
230
$
$
$
$
708
—
708
182
184
366
$
$
$
$
Total
4,607
5,940
10,547
3,111
867
3,978
6,161
$
1
$
65
$
342
$
6,569
3,603
—
—
3,603
$
$
72
—
(56)
16
$
$
248
32
—
280
$
$
816
773
(881)
708
$
$
4,739
805
(937)
4,607
$
$
$
$
$
$
$
$
2,359
$
62
$
186
$
32
$
2,639
356
—
5
(56)
17
—
150
—
528
(56)
2,715
$
11
$
203
$
182
$
3,111
888
$
5
$
77
$
526
$
1,496
$
$
8. CREDIT FACILITIES
As at March 31, 2019 and 2018, Clairvest maintained a $100.0 million revolving credit facility which is participated in by
several Schedule 1 Canadian chartered banks. The credit facility, which had an expiry of December 2022 and is eligible for a
one-year extension on each anniversary date, bears interest at the prime rate plus 1.25% per annum on drawn amounts
and a standby fee of 0.70% per annum on undrawn amounts. During fiscal 2019, the credit facility was extended to
December 2023 under the same terms and conditions. The prime rate as at March 31, 2019 was 3.95% (2018 – 3.45%) per
annum. The amount available under the credit facility as at March 31, 2019 and 2018 was $100.0 million. No amounts had
been drawn on the facility during fiscal 2019 and 2018 and as at March 31, 2019 and 2018.
9. RELATED PARTY DISCLOSURES
Investments in acquisition entities and investment-related transactions with acquisition entities are further described in
note 6.
(a) The general partner of CEP ("CEP GP"), an entity which is controlled by Clairvest, is entitled to participate in
distributions equal to 20% of all net gains (a "20% carried interest") of CEP as governed by its Limited Partnership
Agreement. 10% of the carried interest was allocated to Clairvest and the other 10% was allocated to principals and
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019 and 2018 (tabular dollar amounts in thousands, except per share information)
employees of Clairvest until December 21, 2015, when 2486303 Ontario purchased the 10% carried interest
entitlement from principals and employees of Clairvest for $1.2 million. On January 1, 2018, 2486303 Ontario
purchased substantially all of the remaining 10% carried interest entitlement from Clairvest for $0.9 million. During
fiscal 2019, 2486303 Ontario received $0.3 million (2018 − $0.3 million) in carried interest from CEP. As at March 31,
2019, CEP had declared carried interest to CEP GP totalling $24.8 million (2018 – $24.5 million), $12.2 million (2018 –
$12.2 million) of which was ultimately received by Clairvest, $11.8 million (2018 – $11.8 million) of which was
ultimately received by the principals and employees of Clairvest and $0.8 million (2018 – $0.5 million) was ultimately
received by 2486303 Ontario.
(b) As general partner of CEP III, Clairvest is entitled to a priority distribution from CEP III. From January 13, 2011 to
February 20, 2019, the priority distribution was calculated monthly as 0.1667% of invested capital net of write-downs
of capital then invested. During fiscal 2019, the Limited Partnership Agreement of CEP III was amended and restated
such that the priority distribution is to be calculated monthly as 0.125% of invested capital net of write-downs of
capital then invested for the period from February 21, 2019 to February 20, 2020. As per the Limited Partnership
Agreement, the priority distribution is reduced to the extent of 75% of fees earned by Clairvest from corporate
investments of CEP III and other accounts as provided in the Limited Partnership Agreement. During fiscal 2019,
Clairvest earned net priority distributions of $0.5 million (2018 – $0.6 million) from CEP III.
Clairvest GP III is entitled to a 20% carried interest in respect of CEP III as governed by its Limited Partnership
Agreement. 10% of the carried interest is allocated to Clairvest and the remaining 10% is allocated to MIP III, the
general partner of which is Clairvest and the limited partners of which are principals and employees of Clairvest. The
limited partners of MIP III have purchased, at fair market value, units of MIP III. From time to time, additional units in
MIP III may be purchased by the limited partners of MIP III. As at March 31, 2019, CEP III had declared carried interest
to the Clairvest GP III totalling $56.1 million (2018 – $56.1 million), 50% of which was ultimately received by Clairvest
and 50% was ultimately received by the limited partners of MIP III.
(c) As described in note 15(a), Clairvest is required to co-invest alongside CEP III in all investments undertaken by CEP III.
CEP III Co-Invest was established in fiscal 2007 as the investment vehicle for this purpose. CEP III Co-Invest has three
limited partners, Clairvest, 2141788 Ontario and MIP III. MIP III has invested $1.1 million in CEP III Co-Invest and in
addition is entitled to an 8.25% carried interest in respect of CEP III Co-Invest via the general partner of CEP III Co-
Invest, an entity controlled by Clairvest. Clairvest is entitled to the first $0.2 million in carried interest received by MIP
III, and the remaining carried interest is the entitlement of the limited partners of MIP III.
As at March 31, 2019, CEP III Co-Invest had declared carried interest totalling $7.4 million (2018 – $7.4 million),
$0.2 million (2018 – $0.2 million) of which was received by Clairvest and $7.2 million (2018 – $7.2 million) was received
by the limited partners of MIP III.
Clairvest, as the general partner of MIP III, is entitled to participate in distributions equal to the realizable value on
the $1.1 million invested by MIP III in CEP III Co-Invest. As at March 31, 2019, $2.3 million (2018 – $2.3 million) has
been received by Clairvest through this entitlement.
(d) As general partner of CEP IV, Clairvest is entitled to a priority distribution from CEP IV. Effective January 14, 2016, the
priority distribution is calculated monthly as 0.1667% of invested capital net of write-downs of capital then invested.
The priority distribution is reduced to the extent of 63.2% of any fees earned by Clairvest from corporate investments
of CEP IV and other accounts as provided in the Limited Partnership Agreement. During fiscal 2019, Clairvest earned
net priority distributions of $1.8 million (2018 – $2.4 million) from CEP IV.
Clairvest GP IV is entitled to a 20% carried interest in respect of CEP IV as governed by its Limited Partnership
Agreement. 10% of the carried interest is allocated to Clairvest and the remaining 10% is allocated to MIP IV, the
general partner of which is Clairvest and the limited partners of which are principals and employees of Clairvest. The
limited partners of MIP IV have purchased, at fair market value, units of MIP IV. From time to time, additional units in
MIP IV may be purchased by the limited partners of MIP IV. During fiscal 2019, Clairvest GP IV received $94.7 million
(2018 – nil) in carried interest from CEP IV, 50% of which, or $47.4 million (2018 – nil), was ultimately received by
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019 and 2018 (tabular dollar amounts in thousands, except per share information)
Clairvest, and 50% or $47.4 million (2018 – nil) was ultimately received by the limited partners of MIP IV, which
reduced the management participation liability. During fiscal 2019, $26.6 million (2018 − nil) of the carried interest
declared by CEP IV was ultimately received by key management. As at March 31, 2019, CEP IV had declared carried
interest to Clairvest GP IV totalling $94.7 million (2018 – nil), 50% of which was ultimately received by Clairvest and
50% was ultimately received by the limited partners of MIP IV.
(e) As manager of CEP IV-A, Clairvest is entitled to a management fee from CEP IV-A. Effective January 14, 2016, the
management fee is calculated monthly as 0.1667% of invested capital net of write-downs of capital then invested. The
management fee is reduced to the extent of 10.1% of fees earned by Clairvest from corporate investments of CEP IV-A
and other amounts as provided in the Limited Partnership Agreement. During fiscal 2019, Clairvest earned net
management fees of $0.3 million (2018 – $0.4 million) from CEP IV-A.
Clairvest GP IV is entitled to a 20% carried interest in respect of CEP IV-A as governed by its Limited Partnership
Agreement. 10% of the carried interest is allocated to Clairvest and the remaining 10% is allocated to MIP IV. During
fiscal 2019, Clairvest GP IV received $17.1 million (2018 – nil) in carried interest from CEP IV-A, 50% of which, or $8.5
million (2018 – nil), was ultimately received by Clairvest, and 50% or $8.5 million (2018 – nil) was ultimately received by
the limited partners of MIP IV, which reduced the management participation liability. During fiscal 2019, $5.0 million
(2018 − nil) of the carried interest declared by CEP IV-A was ultimately received by key management. As at March 31,
2019, CEP IV-A had declared carried interest to Clairvest GP IV totalling $17.1 million (2018 – nil), 50% of which was
ultimately received by Clairvest and 50% was ultimately received by the limited partners of MIP IV.
(f) As described in note 15(b), Clairvest is required to co-invest alongside CEP IV and CEP IV-A in all investments
undertaken by CEP IV and CEP IV-A. CEP IV Co-Invest was established in fiscal 2010 as the investment vehicle for this
purpose. CEP IV Co-Invest has two limited partners, Clairvest and MIP IV. MIP IV has invested $1.6 million in CEP IV Co-
Invest and in addition is entitled to an 8.25% carried interest in respect of CEP IV Co-Invest via the general partner of
CEP IV Co-Invest, an entity controlled by Clairvest. Clairvest is entitled to the first $0.4 million in carried interest
received by MIP IV, and the remaining carried interest is the entitlement of the limited partners of MIP IV. During fiscal
2019, CEP IV Co-Invest declared $23.0 million (2018 – nil) to MIP IV with respect to this carried interest entitlement,
$22.6 million (2018 – nil) of which were received by the limited partners of MIP IV and the remaining $0.4 million were
received by Clairvest. During fiscal 2019, $13.5 million (2018 − nil) of the carried interest declared by CEP IV Co-Invest
was ultimately received by key management. As at March 31, 2019, CEP IV Co-Invest had declared carried interest
totalling $23.0 million (2018 – nil), $0.4 million (2018 – nil) of which was received by Clairvest and $22.6 million (2018 –
nil) was ultimately received by the limited partners of MIP IV.
Clairvest, as the general partner of MIP IV, is entitled to participate in distributions equal to the realizable value on
the $1.6 million invested by MIP IV in CEP IV Co-Invest. During fiscal 2019, MIP IV distributed $4.5 million (2018 –
$0.7 million) to Clairvest. As at March 31, 2019, $5.8 million (2018 – $1.3 million) has been received by Clairvest
through this entitlement.
(g) As general partner of CEP V, Clairvest is entitled to a priority distribution from CEP V. The priority distribution is
calculated monthly as follows: from January 14, 2016 to January 13, 2021, 0.1667% of committed capital, and
thereafter, 0.1667% of invested capital net of write-downs of capital then invested. The priority distribution is reduced
to the extent of 58.8% of any fees earned by Clairvest from corporate investments of CEP V and other accounts as
provided in the Limited Partnership Agreement. During fiscal 2019, Clairvest earned net priority distributions of
$5.2 million (2018 – $5.7 million) from CEP V.
In April 2017, CEP V India was formed to facilitate investment in Ace2Three by certain limited partners of CEP V as
governed by the CEP V limited partnership agreement. As general partner of CEP V India, Clairvest is entitled to a
priority distribution from CEP V India. The priority distribution is calculated monthly as follows: from May 1, 2017 to
January 13, 2021, 0.1667% of committed capital, and thereafter, 0.1667% of invested capital net of write-downs of
capital then invested. The priority distribution is reduced to the extent of any fees earned by Clairvest from corporate
61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019 and 2018 (tabular dollar amounts in thousands, except per share information)
investments of CEP V India and other accounts as provided in the Limited Partnership Agreement. During fiscal 2019,
Clairvest earned net priority distributions of $0.6 million (2018 – $0.6 million) from CEP V India.
Clairvest GP V is entitled to a 20% carried interest in respect of CEP V and CEP V India as governed by their
respective Limited Partnership Agreements. 10% of the carried interest is allocated to Clairvest and the remaining 10%
is allocated to MIP V, the general partner of which is Clairvest and the limited partners of which are principals and
employees of Clairvest. The limited partners of MIP V have purchased, at fair market value, units of MIP V. From time
to time, additional units in MIP V may be purchased by the limited partners of MIP V. No carried interest had been
declared by CEP V and CEP V India to Clairvest GP V as at March 31, 2019 and 2018.
(h) As manager of CEP V-A, Clairvest is entitled to a management fee from CEP V-A. The management fee is calculated
monthly as follows: from January 14, 2016 to January 13, 2021, 0.1667% of committed capital, and thereafter, 0.1667%
of invested capital net of write-downs of capital then invested. The management fee is reduced to the extent of 11.2%
of fees earned by Clairvest from corporate investments of CEP V-A and other amounts as provided in the Limited
Partnership Agreement. During fiscal 2019, Clairvest earned management fees of $1.0 million (2018 – $1.0 million)
from CEP V-A.
Clairvest GP V is entitled to a 20% carried interest in respect of CEP V-A as governed by its Limited Partnership
Agreement. 10% of the carried interest is allocated to Clairvest and the remaining 10% is allocated to MIP V. No carried
interest had been declared by CEP V-A to Clairvest GP V as at March 31, 2019 and 2018.
(i) As described in note 15(c), Clairvest is required to co-invest alongside CEP V, CEP V India and CEP V-A in all investments
undertaken by CEP V, CEP V India and CEP V-A. CEP V Co-Invest was established in fiscal 2015 as an investment vehicle
for this purpose. CEP V Co-Invest has three limited partners, Clairvest, 2141788 Ontario and MIP V. MIP V has invested
$2.4 million in CEP V Co-Invest and in addition is entitled to an 8.25% carried interest in respect of CEP V Co-Invest via
the general partner of CEP V Co-Invest, an entity controlled by Clairvest. Clairvest is entitled to the first $1.4 million in
carried interest received by MIP V, and the remaining carried interest is the entitlement of the limited partners of MIP
V. No carried interest had been declared by CEP V Co-Invest as at March 31, 2019 and 2018.
Clairvest, as the general partner of MIP V, is also entitled to participate in distributions equal to the realizable value
on the $2.4 million invested by MIP V in CEP V Co-Invest. During fiscal 2019, CEP V Co-Invest distributed $9 thousand
(2018 – nil) to Clairvest. As at March 31, 2019, $9 thousand (2018 – nil) had been received by Clairvest through this
entitlement.
(j) The entitlement of carried interest from the CEP Funds as described in notes 9(b), 9(d), 9(e), 9(g) and 9(h) follows a
distribution allocation which is governed by the Limited Partnership Agreement of the respective CEP Funds, and which
requires the limited partners of the respective CEP Funds to first receive back the aggregate amount of their capital
contribution and a specified preferred rate of return prior to a payment of carried interest to the general partner. As at
March 31, if CEP and the CEP Funds were to sell all of their corporate investments at their current fair values and
distribute all proceeds in accordance with the respective limited partnership agreements, the respective general
partners would receive the following in carried interest from CEP and the CEP Funds. As described in note 2(f), Clairvest
has recorded these as carried interest contract asset on the consolidated statements of financial position.
March 31, 2019
March 31, 2018
CEP(1)
CEP III
CEP IV
CEP IV-A
CEP V
CEP V-A
(1)
1,812
11,044
97,796
17,248
—
—
127,900
A corresponding $1.3 million (2018 ― $1.8 million) in payable to 2486303 Ontario had been recorded to reflect the carried interest entitled to
by 2486303 Ontario as at March 31, 2019. Also see note 6(r).
1,333
11,969
37,112
6,070
—
—
56,484
$
$
$
$
62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019 and 2018 (tabular dollar amounts in thousands, except per share information)
(k) If the CEP Funds were to sell all of their corporate investments, CEP III Co-Invest, CEP IV Co-Invest and CEP V Co-Invest
(the "CEP Co-Invest Partnerships") would be required to sell all of their corporate investments at their current fair values
and as such, MIP III, MIP IV and MIP V would receive carried interest based on the terms previously described. The
following details the carried interest entitlements from the CEP Funds and the CEP Co-Invest Partnerships that will be
ultimately received by non-Clairvest participants, which were recorded as a management participation liability on the
consolidated statements of financial position.
CEP III
CEP IV
CEP IV-A
CEP V
CEP V-A
CEP III Co-Invest(1)
CEP IV Co-Invest(1)
CEP V Co-Invest(1)
March 31, 2019
March 31, 2018
$
$
5,985
18,556
3,035
—
—
27,576
4,889
9,008
1,126
42,599
$
$
5,522
48,898
8,624
—
—
63,044
4,464
23,759
—
91,267
(1)
Represents the entitlements of the limited partners of MIP III, MIP IV and MIP V, respectively, as described in notes 9(c), 9(f) and 9(i).
(l) Changes in loans receivable for the years ended March 31, 2019 and 2018 were as follows:
CEP V(1)
CEP V-A(1)
CEP IV Co-Invest(2)
CEP V Co-Invest(2)
2486303 Ontario(3)
Other
April 1, 2018 Net loan advanced (repaid)
March 31, 2019
$
794
$
(136) $
151
2,700
405
9,551
13,601
—
(26)
(2,700)
(405)
(792)
(4,059)
185
$
13,601
$
(3,874) $
658
125
—
—
8,759
9,542
185
9,727
$
$
April 1, 2017 Net loan advanced (repaid)
CEP III(4)
CEP V(1)
CEP V-A(1)
CEP III Co-Invest(2)
CEP IV Co-Invest(2)
CEP V Co-Invest(2)
2486303 Ontario(3)
March 31, 2018
—
794
151
—
2,700
405
9,551
13,601
—
—
13,601
(1) Loans advanced to CEP IV, CEP IV-A, CEP V, CEP V India and CEP V-A bear interest at the reference rate in accordance with the respective
Limited Partnership Agreements. Interest of $0.5 million (2018 – $0.5 million) was earned from loans advanced to these partnerships during
fiscal 2019.
(140) $
794
151
(25)
2,700
79
(381)
3,178
(5,206)
(25)
(2,053) $
140
—
—
25
—
326
9,932
10,423
5,206
25
15,654
Clairvest investee companies
Other
$
$
(2) Loans advanced to these acquisition entities are non-interest bearing loans.
(3) Loans advanced to 2486303 Ontario bear interest at 10.0% per annum. Interest of $0.9 million (2018 – $1.0 million) was earned from these
loans during fiscal 2019.
(4) Loans advanced to CEP III bear interest at the prime rate in accordance with CEP III’s Limited Partnership Agreement.
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019 and 2018 (tabular dollar amounts in thousands, except per share information)
(m) Accounts receivable and other assets comprised the following:
March 31, 2019
March 31, 2018
Clairvest’s investee companies
$
1,213
$
CEP III
CEP IV
CEP IV-A
CEP V
CEP V India
CEP V-A
Other accounts receivable and prepaid expenses
Share purchase loans
430
86
39
6,315
839
4,591
13,513
3,052
3,304
$
19,869
$
1,436
—
736
55
17,074
118
3,250
22,669
2,465
3,268
28,402
Included in accounts receivable and other assets as at March 31, 2019 were share purchase loans made to certain
officers of the Company totalling $3.3 million (2018 − $3.3 million). The share purchase loans bear interest which is
paid annually, have full recourse and are collateralized by the common shares of the Company purchased by the
officers with a market value of $6.4 million (2018 – $6.5 million) as at March 31, 2019. None of these loans were made
to key management. Interest of $66 thousand (2018 – $68 thousand) was earned on these loans during the year.
Additionally, acquisition entities of the Company which were not consolidated by the Company as described in
note 6 held receivables from CEP IV totalling $31 thousand (2018 – $0.1 million), from CEP V totalling $25 thousand
(2018 – $17 thousand), from CEP V-A totalling $5 thousand (2018 – $3 thousand) and from Clairvest's investee
companies totalling $0.4 million (2018 – $2.5 million).
(n) During fiscal 2019, Clairvest earned $1.0 million (2018 – $25.2 million) in distributions and interest income, $1.1 million
(2018 – $0.3 million) in dividend income and $1.3 million (2018 – $1.2 million) in advisory and other fees from its
investee companies. Additionally, acquisition entities of the Company which were not consolidated by the Company as
described in note 6 earned $18.9 million (2018 – $22.7 million) in distributions and interest income, $1.4 million (2018
– $0.8 million) in dividend income and $0.6 million (2018 – $0.6 million) in advisory and other fees from its investee
companies.
(o) Clairvest and a related party of Clairvest, through a limited partnership, owns an aircraft that is available for use by
both parties. Clairvest and the related party each hold a 50% limited partnership interest. As Clairvest, through a
wholly-owned subsidiary, is the general partner of the limited partnership, Clairvest had recognized 100% of the net
book value of the aircraft and a liability for the 50% ownership held by the related party. The cost of the aircraft had
been included in fixed assets and the liability in accounts payable and accrued liabilities.
10. INCOME TAXES
Income tax expense for the years ended March 31, 2019 and 2018 comprised the following:
Current income tax expense
Deferred income tax expense (recovery)
$
$
2019
38,801
(20,165)
18,636
$
$
2018
9,642
3,274
12,916
64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019 and 2018 (tabular dollar amounts in thousands, except per share information)
A reconciliation of the income tax expense for the years ended March 31, 2019 and 2018 based on the Federal and Ontario
statutory rate and the effective rate was as follows:
Income before income taxes
Statutory Federal and Ontario income tax rate
Statutory Federal and Ontario income taxes
Non-taxable portion of net investment gain and distributions
Non-taxable portion of carried interest net of management participation
Non-deductible portion of other expenses
Foreign income tax rate differences
Tax recoveries regarding prior year
Other
2019
2018
$
%
$
%
137,878
136,694
36,538
(13,214)
(7,098)
898
220
126
1,166
18,636
26.50
26.50
(9.58)
(5.15)
0.65
0.16
0.09
0.85
13.52
36,224
26.50
26.50
(20,251)
(14.81)
(1,932)
1,115
(14)
(1,142)
(1,084)
12,916
(1.41)
0.82
(0.01)
(0.84)
(0.79)
9.46
In addition to the income tax expense recorded by Clairvest, acquisition entities of Clairvest recorded $3.6 million (2018 –
$4.6 million) in income tax expense during fiscal 2019, which had been included in the fair value determination of these
acquisition entities.
Deferred income tax liabilities relate to temporary differences on corporate and temporary investments, derivative
instruments, accounts payable and accrued liabilities, income, and unrealized carried interest income. The composition was as
follows:
Temporary differences on corporate and temporary investments
Temporary differences on accrued compensation and share-based compensation
Temporary differences on income
Temporary differences on unrealized carried interest net of management participation
Other
March 31, 2019 March 31, 2018
$
$
5,990
(7,905)
1,189
2,085
2,420
3,779
$
$
24,023
(8,360)
2,136
4,995
1,150
23,944
All deferred income tax expenses (recoveries) were recognized in net income during fiscal 2019 and 2018.
11. SHARE CAPITAL
Authorized
Unlimited number of preference shares issuable in series, with the designation, rights, privileges, restrictions, and
conditions to be determined by the Board of Directors prior to the issue of the first shares of a series.
Unlimited number of common shares
10,000,000 non-voting shares (Series 1)
1,000,000 non-voting shares (Series 2)
65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019 and 2018 (tabular dollar amounts in thousands, except per share information)
Issued and outstanding
March 31, 2019
March 31, 2018
Common shares, beginning of year
15,162,995
$
81,388
15,194,095
$
81,554
Purchased and cancelled under normal course issuer bid
(26,500)
(143)
(31,100)
(166)
Common shares, end of year
15,136,495
$
81,245
15,162,995
$
81,388
Shares
Amount
Shares
Amount
In March 2019, the Company filed a normal course issuer bid enabling it to make market purchases of up to 760,747
(2018 – 760,677) of its common shares in the 12-month period ending March 6, 2020. During fiscal 2019, the Company
made no purchases under the current normal course issuer bid and purchased and cancelled 26,500 common shares under
a previous normal course issuer bid for an aggregate cost of $1.2 million.
Common shares of 15,136,495 (2018 − 15,162,995) were outstanding as at March 31, 2019. The weighted average
number of common shares outstanding during fiscal 2019 was 15,151,018 (2018 – 15,182,212).
The basic and fully diluted net income per share computations for 2019 and 2018 were as follows:
Net income and
comprehensive
income
(000s)
Weighted
average
number of
shares
2019
Per share
amount
Net income and
comprehensive
income
(000s)
Weighted
average
number of
shares
2018
Per share
amount
Basic and fully diluted
$
119,242
15,151,018
7.87
$
123,778
15,182,212
8.15
No Series 1 or Series 2 Shares had been issued as at March 31, 2019 and 2018.
12. SHARE-BASED COMPENSATION
The Company has a stock option plan (the "Legacy Option Plan") in place which had no options outstanding as at March 31,
2019 and 2018. As at March 31, 2019 and 2018, 558,856 options under the Legacy Option Plan are available for future
grants and 558,856 common shares of the Company have been made available for issuance to eligible participants.
Options granted under the stock option plan (the "Non-Voting Option Plan") are exercisable for Series 2 Shares,
which are non-voting and have a two times preference over the common shares. The Non-Voting Option Plan has a cash
settlement feature. Options granted under this plan vest at a rate of one-fifth of the grant at the end of each year over a
five-year period. During fiscal 2019, Clairvest granted 49,487 (2018 – 168,829) options under the Non-Voting Option Plan.
None of the options were exercised (2018 – 1,916) or forfeited (2018 – 7,662) during fiscal 2019. As at March 31, 2019,
412,091 (2018 – 362,604) options were outstanding, 111,269 (2018 – 38,752) of which had vested.
Clairvest recognized stock-based compensation expense based upon the fair value of the outstanding stock options
as at March 31, 2019 using the Black-Scholes option pricing model with the following assumptions:
66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019 and 2018 (tabular dollar amounts in thousands, except per share information)
June 30, 2018
June 30, 2017
June 30, 2016
49,487
93.34
168,829
71.22
193,775
55.80
As at March 31, 2019
Grant Date
Number of options granted
Price ($)(1)
Black-Scholes assumptions used
Expected volatility
Expected forfeiture rate
Expected dividend yield
Risk-free interest rate
Expected life (years)
Value using Black-Scholes (000s)(2)
(1)
10%
5%
1.00%
1.94%
2.25
6,062
Based on two times the five-day weighted average closing price of Clairvest common shares at date of grant and is adjusted for any special
dividends paid by the Company.
Share price for a Clairvest common share as at March 31, 2019 was $47.75 (TSX: CVG).
10%
5%
1.00%
1.92%
3.25
2,651
10%
5%
1.00%
1.93%
4.25
165
$
$
$
(2)
During fiscal 2019, Clairvest recognized a share-based compensation expense of $3.4 million (2018 – $4.5 million) with
respect to the Non-Voting Option Plan.
The Company has an EDSU plan which provides, among other things, that participants may elect annually to
receive all or a portion of their annual bonus amounts that would otherwise be payable in cash in the form of EDSUs. EDSUs
may be redeemed for cash or for common shares of the Company in accordance with the terms of the plan. Clairvest is
required to reserve one common share for each EDSU issued under the EDSU Plan. The maximum number of Clairvest
common shares reserved for the EDSU Plan is 200,000, which represented approximately 1.3% of the outstanding number
of common shares as at March 31, 2019. During fiscal 2019, 27,893 (2018 – 32,111) EDSUs were issued based on the terms
and conditions of the EDSU Plan. As at March 31, 2019, a total of 78,449 (2018 – 50,556) EDSUs were outstanding, the
accrual in respect of which was $3.7 million (2018 – $2.3 million) had been included in share-based compensation liability.
During fiscal 2019, Clairvest recognized an expense of $0.1 million (2018 – $0.6 million) with respect to EDSUs.
As at March 31, 2019, a total of 595,948 (2018 – 684,920) BVARs were outstanding, the accrual in respect of which
was $11.4 million (2018 – $8.7 million) and had been included in share-based compensation liability, and an additional
$7.2 million (2018 – $6.3 million) not accrued as those BVARs had not vested. During fiscal 2019, 32,012 (2018 – 95,965)
BVARs were granted and 120,984 (2018 – 502,126) BVARs were exercised. For the year ended March 31, 2019, Clairvest
recognized an expense of $6.8 million (2018 – $7.8 million) with respect to BVARs.
Compensation paid and payable to key management
In addition to the directors, key management at Clairvest are the Chief Executive Officer ("CEO"), the Vice Chairman and the
President. The CEO and the President are entitled to annual discretionary cash bonuses of up to 175% of their individual
annual salary based on individual performance. The Vice Chairman is entitled to annual discretionary cash bonuses of up to
100% of annual salary based on individual performance. There is also an annual objective cash bonus which is based on
Clairvest's Incentive Bonus Program as described in note 15(e), the stock option plans, the BVAR Plan and the EDSU Plan.
Aggregate compensation paid for the years ended March 31 to the CEO, the Vice Chairman, and the President was as
follows:
2019
2018
Paid
Salaries
Annual incentive plans
Book value appreciation rights
$
$
836
1,417
1,821
4,074
$
$
698
1,158
3,687
5,543
67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019 and 2018 (tabular dollar amounts in thousands, except per share information)
Compensation payable to the CEO, the Vice Chairman and the President as at the consolidated statement of financial
position dates was as follows:
Payable
Annual incentive plans
Stock options
Book value appreciation rights
Employee deferred share units
March 31, 2019
March 31, 2018
$
$
$
5,095
3,028
6,193
1,069
15,385
$
4,849
1,803
4,350
755
11,757
As at March 31, 2019, 257,573 (2018 – 247,807) DSUs were held by directors of the Company, the accrual in respect of
which was $12.7 million (2018 – $11.6 million) and had been included in share-based compensation liability. During fiscal
2019, 9,766 (2018 – 12,291) DSUs were granted. For the year ended March 31, 2019, Clairvest recognized an expense of
$1.1 million (2018 – $3.4 million) with respect to DSUs.
During fiscal 2019, 15,000 ADSUs were granted to a director of the Company. As at March 31, 2019, 120,000 (2018
– 105,000) ADSUs were held by directors of the Company, the accrual in respect of which is $3.6 million (2018 –
$3.3 million) and had been included in share-based compensation liability. For the year ended March 31, 2019, Clairvest
recognized an expense of $0.3 million (2018 – $1.3 million) with respect to ADSUs.
During fiscal 2019, no compensation was paid to directors under the BVAR, DSU or ADSU plans (2018 – nil). In
addition to the DSU and ADSU plans previously discussed, compensation payable to the directors of Clairvest included
$0.9 million (2018 – $0.6 million) under the Non-Voting Option Plan.
13. CONSOLIDATED STATEMENTS OF CASH FLOWS
The net change in non-cash working capital balances related to operations was as follows:
Accounts receivable and other assets
Income taxes recoverable
Accounts payable and accrued liabilities
Income taxes payable
Accrued compensation expense
$
$
2019
8,533
394
6,878
16,651
1,358
33,814
$
$
2018
(6,851)
1,635
(206)
5,584
3,331
3,493
Cash and cash equivalents as at March 31, 2019 and 2018 comprised the following:
Cash
Cash equivalents
March 31, 2019
March 31, 2018
$
$
262,286
26,636
288,922
$
$
93,893
1,699
95,592
14. DERIVATIVE INSTRUMENTS
The Company and its acquisition entities entered into foreign exchange forward contracts as economic hedges against the
fair value of its foreign currency-denominated investments and loans in accordance with its foreign exchange hedging policy
as approved by the Board of Directors. During fiscal 2019, the Company paid $8 thousand (2018 – received $83 thousand)
on the settlement of realized foreign exchange forward contracts.
As at March 31, 2019 and 2018, the Company had no unexpired foreign exchange forward contracts.
As at March 31, 2019, acquisition entities of Clairvest had unexpired foreign exchange forward contracts as
follows:
68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019 and 2018 (tabular dollar amounts in thousands, except per share information)
Foreign exchange forward contracts to sell US$83.7 million (2018 – US$246.8 million) at an average rate of C$1.3005 per
U.S. dollar (2018 – $1.2622) through to March 2020. The fair value of the forward contracts as at March 31, 2019 was a loss
of $2.6 million (2018 – $6.3 million).
Foreign exchange forward contracts to sell CLP$15.5 billion (2018 – CLP$15.5 billion) at an average rate of
C$0.002075 per CLP (2018 – $0.002098) through to August 2019. The fair value of these contracts as at March 31, 2019 is a
gain of $1.6 million (2018 – loss of $1.8 million).
Foreign exchange forward contracts to sell INR₹652.3 million at an average rate of C$0.01803 per INR through to
June 2019. The fair value of the forward contracts as at March 31, 2019 was a loss of $0.7 million.
The fair value of these foreign exchange forward contracts entered into by the Company’s acquisition entities had
been included in the fair value of Clairvest's investment in these acquisition entities on the consolidated statements of
financial position. No collateral was funded to the counterparties for Clairvest's foreign exchange forward contracts and
those of its acquisition entities as at March 31, 2019 and 2018.
15. CONTINGENCIES, COMMITMENTS AND GUARANTEES
(a) CEP III Co-Invest has committed to co-invest alongside CEP III in all investments undertaken by CEP III. CEP III Co-Invest's
co-investment commitment is $75.0 million, $15.2 million (2018 – $15.2 million) of which remained unfunded as at
March 31, 2019. In accordance with the co-investment agreement, the proportion of the commitment amongst
Clairvest, 2141788 Ontario and MIP III is at their own discretion. CEP III Co-Invest may only sell all or a portion of a
corporate investment that is a joint investment with CEP III if it concurrently sells a proportionate number of securities
of that corporate investment held by CEP III.
(b) CEP IV Co-Invest has committed to co-invest alongside CEP IV and CEP IV-A in all investments undertaken by CEP IV and
CEP IV-A. CEP IV Co-Invest's co-investment commitment is $125.0 million, $21.2 million (2018 – $21.2 million) of which
remained unfunded as at March 31, 2019. In accordance with the co-investment agreement, the proportion of the
commitment between Clairvest and MIP IV is at their own discretion. CEP IV Co-Invest may only sell all or a portion of a
corporate investment that is a joint investment with CEP IV and CEP IV-A if it concurrently sells a proportionate number
of securities of that corporate investment held by CEP IV and CEP IV-A.
(c) CEP V Co-Invest has committed to co-invest alongside CEP V and CEP V-A in all investments undertaken by CEP V and
CEP V-A. CEP V Co-Invest's co-investment commitment is $180.0 million, $85.7 million (2018 – $103.6 million) of which
remained unfunded as at March 31, 2019. In accordance with the co-investment agreement, the proportion of the
commitment between Clairvest, 2141788 Ontario and MIP V is at their own discretion. CEP V Co-Invest may only sell all
or a portion of a corporate investment that is a joint investment with CEP V and CEP V-A if it concurrently sells a
proportionate number of securities of that corporate investment held by CEP V and CEP V-A.
(d) Clairvest has committed a total of $55.5 million (2018 – $55.5 million) in the Wellington Funds, all of which was
unfunded as at March 31, 2019 and 2018. As a result of the sale of Wellington Financial to CIBC in January 2018, the
Wellington Funds are in the process of being wound up and may no longer invest in new investments.
(e) Under Clairvest's Bonus Program, a bonus of 10% of after-tax cash income and realizations on certain of Clairvest's
corporate investments would be paid to management annually as applicable (the "Realized Amount"). As at March 31,
2019, the Realized Amount under the Bonus Program was $7.0 million (2018 − $0.7 million) and had been accrued under
accrued compensation expense liability.
In accordance with IFRS, Clairvest is also required to record a liability equal to a bonus of 10% of the after-tax cash
income and realizations which are applicable, but which have yet to be realized. Accordingly, Clairvest recorded a
$2.8 million (2018 − $7.8 million) accrued compensation expense liability that would only be payable to management
when the corresponding realization events have occurred. The Bonus Program does not apply to the income generated
from investments made by Clairvest through CEP III Co-Invest, CEP IV Co-Invest and CEP V Co-Invest.
(f) In conjunction with the sale of Casino New Brunswick, Clairvest had agreed to a net guarantee of $1.8 million (2018 –
$2.0 million) to fund any valid claims made by the purchaser under the indemnity provisions of the sale for a specified
69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019 and 2018 (tabular dollar amounts in thousands, except per share information)
period of time. Any funding pursuant to the guarantee will be allocated 25% to CEP III Co-Invest and 75% to CEP III. As at
March 31, 2019 and 2018, no amounts with respect to this guarantee have been funded.
(g) As part of the holding structure of Chilean Gaming Holdings, acquisition entities of CEP III Co-Invest had loans totalling
$39.5 million as at March 31, 2019 (2018 − $41.9 million) from an unrelated financial institution, while another
acquisition entity of CEP III Co-Invest held term deposits totalling $39.5 million as at March 31, 2019 (2018 −
$41.9 million) with the same financial institution as security for these loans. CEP III Co-Invest's ownership of both
acquisition entities was 36.8% as at March 31, 2019 and 2018.
(h) As at March 31, 2019, the Company had future minimum annual lease payments under non-cancellable operating leases
for the use of office space of $0.6 million due within one year (2018 − $0.5 million), $2.5 million due after one year, but
not more than five years (2018 − $2.1 million) and $2.0 million due after five years (2018 − $1.8 million).
(i) In connection with its normal business operations, the Company is from time to time named as a defendant in actions
for damages and costs allegedly sustained by plaintiffs. While it is not possible to estimate the outcome of the various
proceedings at this time, the Company does not believe that it will incur any material loss in connection with such
actions.
16. RISK MANAGEMENT
The private equity investment business involves accepting risk for potential return, and is therefore affected by a number of
risk factors.
Fair value risk
Fair value risk includes exposure to fluctuations in the fair market value of the Company’s investments as described in
note 17.
The Company's corporate investment portfolio was diversified across 16 investee companies in 8 industries and 4 countries
as at March 31, 2019. Concentration risk by industry and by country as at March 31, 2019 and 2018 was as follows:
March 31, 2019
March 31, 2018
Canada
United
States
Chile
India
Total
Canada United States
Chile
India
Total
Financial services
$
21,948 $
— $
— $
— $
21,948 $
23,804 $
— $
— $
— $
23,804
Gaming
17,323
Information technology
Marketing services
Renewable energy
—
—
—
Residential services
6,375
Specialty aviation and
defence services
Waste management
Other investments
55,868
—
1,041
54,591
7,016
10,055
12,463
—
819
43,390
3,254
61,785
43,620
177,319
11,933
253,676
60,113
40,228
365,950
—
—
—
—
—
—
—
—
—
—
—
—
—
—
7,016
10,055
12,463
6,375
—
—
—
—
—
9,126
6,189
—
56,687
44,926
21,164
43,390
4,295
—
688
33,640
3,018
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
9,126
6,189
—
66,090
33,640
3,706
Total
$ 102,555 $ 131,588 $
61,785 $
43,620 $ 339,548 $
81,351 $ 326,813 $
60,113 $
40,228 $ 508,505
The Company has considered current economic events and indicators in the valuation of its investee companies.
Interest rate risk
Fluctuations in interest rates affect the Company's income derived from its cash, cash equivalents and temporary
investments ("treasury funds"). For financial instruments which yield a floating interest rate, the income received is directly
impacted by the prevailing interest rate. The fair value of financial instruments which yield a fixed interest rate would
change when there is a change in the prevailing market interest rate. The Company manages interest rate risk on its
70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019 and 2018 (tabular dollar amounts in thousands, except per share information)
treasury funds by conducting activities in accordance with the fixed income securities policy that is approved by the Audit
Committee. Management's application of these policies is regularly monitored by the Audit Committee.
If interest rates were higher or lower by 1% per annum, the potential effect would have been an increase of
$4.4 million (2018 – $1.2 million) or decrease of $4.3 million (2018 – $1.2 million) to distributions and interest income on a
pre-tax basis for the year ended March 31, 2019.
Certain of the Company's investments in the investee companies are also held in the form of debentures and
loans. Significant fluctuations in market interest rates can have a significant impact on the carrying value of these
investments as described in note 17.
Currency risk
The Company has implemented a hedging strategy because it has, directly and indirectly, several investments outside of
Canada, currently in the United States and in Chile. The Company may also advance loans to investee companies which are
denominated in foreign currency. In order to limit its exposure to changes in the value of foreign-denominated currencies
relative to the Canadian dollar, Clairvest and its acquisition entities, subject to certain exceptions, entered into hedging
positions against these foreign-denominated currencies. As at March 31, 2019, the Company had foreign exchange
exposure to the CLP totalling $20.9 million (2018 – $17.5 million) and the INR totalling $31.0 million (2018 – $40.2 million).
A number of investee companies are subject to foreign exchange risk. A significant change in foreign exchange
rates can have a significant impact on the profitability of these entities and in turn the Company's carrying value of these
investee companies. The Company manages this risk through oversight responsibilities with existing investee companies
and by reviewing the financial condition of investee companies regularly.
Credit risk
Credit risk is the risk of a financial loss occurring as a result of default of a counterparty on its obligations to the Company.
For the years ended March 31, 2019 and 2018, there were no material income effects on changes of credit risk on financial
assets. The carrying values of financial assets subject to credit exposure as at March 31, 2019 and 2018, net of any
allowances for losses, were as follows:
March 31, 2019
Acquisition
entities
Clairvest
Total
Clairvest
March 31, 2018
Acquisition
entities
$
$
Financial assets
Cash and cash equivalents
Temporary investments
Restricted cash
Accounts receivable(1)
Loans receivable(2)
Derivative instruments
Corporate investments(3)
288,922
163,403
–
18,264
968
–
–
471,557
(1) Account receivable from investee companies or the CEP Funds. Excludes prepaid expenses and other assets.
(2) Loans receivable from investee companies or the CEP Funds.
(3) Comprised debt investments made in investee companies.
317,197
183,065
–
18,699
968
1,619
38,380
28,275
19,662
–
435
–
1,619
38,380
88,371
95,592
36,582
15,750
26,223
945
–
–
175,092
559,928
$
$
25,945
10,942
–
1,657
–
168
62,323
101,035
Total
121,537
47,524
15,750
27,880
945
168
62,323
276,127
The Company manages credit risk on corporate investments through thoughtful planning, strict investment criteria,
significant due diligence of investment opportunities and oversight responsibilities with existing investee companies and by
conducting activities in accordance with investment policies that are approved by the Board of Directors. Management's
application of these policies is regularly monitored by the Board of Directors. Management and the Board of Directors
review the financial condition of its investee companies regularly.
71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019 and 2018 (tabular dollar amounts in thousands, except per share information)
The Company is also subject to credit risk on its accounts receivable and loans receivable, a significant portion of which are
with its investee companies and its CEP Funds. The Company manages this risk through its oversight responsibilities with
existing investee companies by reviewing their financial conditions regularly, and through its fiduciary duty as Manager of
the CEP Funds and by maintaining sufficient uncalled capital for the CEP Funds to settle obligations as they come due.
The Company manages counterparty credit risk on derivative instruments by only contracting with counterparties
which are Schedule 1 Canadian chartered banks. As at March 31, 2019 and 2018, the Company had not entered into any
derivative instruments. Additionally, the Company's acquisition entities held derivative instruments which had a net mark-
to-market loss of $1.6 million (2018 – $6.3 million). The Company believes the counterparty risk with respect to its
acquisition entities' derivative instruments is nominal.
The Company manages credit risk on its treasury funds by conducting activities in accordance with the fixed
income securities policy which is approved by the Audit Committee. The Company also manages credit risk by contracting
with counterparties which are Schedule 1 Canadian chartered banks or through investment firms where Clairvest's funds
are segregated and held in trust for Clairvest's benefit. With respect to the other fixed income securities under temporary
investments, the Company reviews the credit quality of the counterparties through underwriting information provided by
agents or brokers which are specialized in brokering these investments and in each case the Company’s investment in these
counterparties represents the most senior security in the counterparty’s capital structure. Management's application of
these policies is regularly monitored by the Audit Committee. Management and the Audit Committee review credit quality
of cash equivalents and temporary investments regularly.
The credit ratings, based on the Dominion Bond Rating Services rating scale, with the exception of corporate bonds
and loans which are based on Standard & Poor's rating scale, were as follows:
Cash and restricted cash
Money market savings accounts
R1-High
March 31, 2019
March 31, 2018
Clairvest
$ 287,610
Acquisition
entities
28,115
Total
Clairvest
315,725 $ 109,643
Acquisition
entities
20,928
Total
130,571
283
154
437
759
115
874
Guaranteed investment certificates and investment savings accounts
AA
A+
A
A-
BB+(1)
BB-(1)
BBB-(1)
Not rated(1)
Corporate bonds
A+
A
Other fixed income securities
Not rated(2)
Total cash, cash equivalents, temporary investments and
restricted cash
107,618
102
18,110
513
102
102
306
407
2,997
3,006
10,465
—
5,790
406
—
—
—
—
118,083
102
23,900
919
102
102
306
407
14,988
—
5,026
203
—
—
—
—
2,907
—
12,531
406
—
—
—
—
17,895
—
17,557
609
—
—
—
—
—
—
2,997
3,006
—
—
—
—
—
—
31,169
3,007
34,176
17,305
—
17,305
$ 452,325
47,937
500,262 $ 147,924
36,887
184,811
(1) Principal protected by the Canada Deposit Insurance Corporation.
(2) Comprised other fixed income securities as permitted by the Company’s treasury policy which in aggregate may not exceed 10% of book value and
with no single issue greater than 1.5% of book value.
72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019 and 2018 (tabular dollar amounts in thousands, except per share information)
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. Financial
obligations arising from off-statement of financial position arrangements have been previously discussed. Accounts
payable, loans payable, and derivative instruments have maturities of less than one year. Management participation
liability, share-based compensation liability, and amounts accrued under the Bonus Program are only due upon cash
realization or completion of the respective vesting periods. Total unfunded commitments to co-invest alongside the CEP
Funds, as described were $122.0 million (2018 – $140.0 million) as at March 31, 2019. The timing of any amounts to be
funded under these commitments is dependent upon the timing of investment acquisitions, which are made at the sole
discretion of the Company.
The Company manages liquidity risk by maintaining a conservative liquidity position that exceeds all liabilities
payable on demand. The Company invests treasury funds in liquid assets such that they are available to cover any potential
funding commitments and guarantees. In addition, the Company maintains a $100.0 million (2018 – $100.0 million) credit
facility which was undrawn as at March 31, 2019.
As at March 31, 2019, Clairvest had treasury funds of $452.3 million (2018 – $147.9 million) and access to
$100.0 million (2018 – $100.0 million) in credit to support its obligations and current and anticipated corporate
investments. Clairvest also had access to $47.9 million (2018 – $36.9 million) in treasury funds held by its acquisition
entities and $286.2 million (2018 – $355.9 million) in uncalled committed third-party capital through the CEP Funds as at
March 31, 2019 to invest along with Clairvest's capital.
17. FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, cash equivalents, temporary investments, loans receivable, corporate investments, and derivative instruments are
carried at fair value in accordance with the Company's accounting policy as described in note 2(c) to the consolidated
financial statements. All other financial instruments, including receivables and payables, are short-term in nature.
(a) Fair value hierarchy
The Company classifies financial instruments measured at FVTPL according to the following hierarchy, based on the
lowest level of significant input used in measuring fair value.
Level
Level 1
Level 2
Fair value input description
Financial instruments
Quoted prices (unadjusted) from active markets
Inputs other than quoted prices included in Level 1
that are observable either directly (i.e. as prices) or
indirectly (i.e. derived from prices)
Quoted equity instruments
Quoted corporate bonds
Money market and investment savings accounts
Quoted equity instruments which are not actively traded
(i.e. significant ownership positions)
Guaranteed investment certificates
Quoted corporate bonds or loans which are not actively
traded
Level 3
Inputs that are not based on observable market data Unquoted equity instruments or partnership units
Corporate bonds, debentures or loans not traded
73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019 and 2018 (tabular dollar amounts in thousands, except per share information)
The following table presents the financial instruments measured at fair value classified by the fair value hierarchy:
Financial assets
Cash equivalents
Money market savings accounts
Investment savings accounts
Temporary investments
Guaranteed investment certificates
Corporate bonds
Other fixed income securities
Corporate investments
Financial assets
Cash equivalents
Money market savings accounts
Investment savings accounts
Temporary investments
Guaranteed investment certificates
Other fixed income securities
Corporate investments
March 31, 2019
Fair value measurements using
Level 1
Level 2
Level 3
Assets/liabilities
at fair value
$
$
283
26,354
26,637
$
—
—
—
$
—
—
—
—
—
—
—
—
126,231
6,003
—
132,234
—
—
31,169
31,169
19,679
346,600
$
26,637
$
151,913
$
377,769
$
283
26,354
26,637
126,231
6,003
31,169
163,403
366,279
556,319
March 31, 2018
Fair value measurements using
Level 1
Level 2
Level 3
Assets/liabilities at
fair value
$
$
$
759
940
1,699
—
—
—
$
—
—
—
$
—
—
—
19,277
—
19,277
—
17,305
17,305
759
940
1,699
19,277
17,305
36,582
—
1,699
$
20,178
39,455
$
494,994
512,299
$
515,172
553,453
For financial instruments that are recognized at fair value on a recurring basis, the Company determines whether
transfers have occurred between levels in the hierarchy by reassessing categorization based on the lowest level input
that is significant to the fair value measurement as a whole at the end of each reporting period. Transfers between
levels of fair value hierarchy are deemed to have occurred at the date of event.
During the year ended March 31, 2019 and 2018, there were no transfers between the various levels of the fair
value hierarchy.
74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019 and 2018 (tabular dollar amounts in thousands, except per share information)
(b) Level 3: Reconciliation between opening and closing balances
The following table presents the changes in fair value measurements for instruments included in Level 3 of the fair value
hierarchy set out in IFRS 13, Fair Value Measurement:
Fair value
April 1, 2018
Amount
included in
earnings
Purchases of
assets / issuances
of liabilities
Sales of assets /
settlements of
liabilities
Fair value
March 31, 2019
Financial assets
Other fixed income securities
Corporate investments
Financial assets
Other fixed income securities
Corporate investments
$
$
$
$
17,305 $
494,994
512,299 $
86 $
(121,688)
(121,602) $
14,575 $
15,104
29,679 $
(797) $
(41,810)
(42,607) $
31,169
346,600
377,769
Fair value
April 1, 2017
Amount
included in
earnings
Purchases of
assets / issuances
of liabilities
Sales of assets /
settlements of
liabilities
Fair value
March 31, 2018
— $
410,102
410,102 $
94 $
109,386
109,480 $
17,211 $
38,709
55,920 $
— $
(63,203)
(63,203) $
17,305
494,994
512,299
(c) Level 3: Fair value measurement based on reasonably possible alternative assumptions
While Clairvest considers its fair value measurements to be appropriate, the use of reasonably possible alternative
assumptions could result in different fair values. On a given measurement date, it is possible that other market
participants could measure a same financial instrument at a different fair value, with the valuation techniques and
inputs used by these market participants still meeting the definition of fair value. The fact that different fair value
measurements exist reflects the judgment, estimates and assumptions applied as well as the uncertainty involved in
determining the fair value of these financial instruments.
Included in corporate investments are investee companies (refer to note 6) for which the fair values have been
estimated based on assumptions that are not supported by observable inputs. The following tables present quantitative
information on the primary valuation techniques and unobservable inputs based on the form of investment:
March 31, 2019
Unquoted equity
warrants) or partnership units
instruments (including
Corporate bonds, debentures or loans not
traded or other finite set of cash flows
March 31, 2018
Unquoted equity
warrants) or partnership units
instruments (including
Corporate bonds, debentures or loans not
traded or other finite set of cash flows
Valuation techniques
Significant
unobservable input
Public
company
comparables
Recent transactions
(a) EBITDA multiples
(b)
(a) n/a
Range
(c) 3.5x to 9.0x
(b) n/a
Discounted cash
flows
Discount rates
(c) 6.0% to 20.0%
Valuation techniques
Significant
unobservable input
Public
company
comparables
Recent transactions
(d) EBITDA multiples
(e)
(d) n/a
Range
(f) 3.5x to 8.5x
(e) n/a
Discounted cash flows
Discount rates
(f) 6.0% to 20.0%
The most significant unobservable input for fair value measurement is the multiple of earnings before interest, taxes,
depreciation and amortization ("EBITDA") used for each individual investee company. In determining the appropriate
multiple, Clairvest considers (i) public company multiples for companies in the same or similar businesses; (ii) where
information is known and believed to be reliable, multiples at which recent transactions in the industry occurred; and
75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019 and 2018 (tabular dollar amounts in thousands, except per share information)
(iii) multiples at which Clairvest invested directly or indirectly in the company, or for follow-on investments or financings.
The resulting multiple is adjusted, if necessary, to take into account differences between the investee company and
those the Company selected for comparisons and factors include public versus private company, company size, same
versus similar business, as well as with respect to the sustainability of the company's earnings and current economic
environment. As at March 31, 2019, 7 investee companies were valued using the earnings multiple approach. If the
Company had used an earnings multiple for each investee company that was higher or lower by 0.5 times, the potential
effect would be an increase of $16.8 million or decrease of $16.8 million to the carrying value of corporate investments
and net change in unrealized gains or losses on corporate investments, on a pre-tax basis for the year ended March 31,
2019 (2018 – increase of $18.8 million or decrease of $19.7 million). Earnings multiples used are based on public
company valuations as well as private market multiples for comparable companies.
Clairvest may also use information about recent transactions carried out in the market for valuations of private
equity investments. When fair value is determined based on recent transaction information, this value is the most
representative indication of fair value for a period of up to 12 months. The fair value of corporate bonds, debentures or
loans is primarily determined using a discounted cash flow technique. This technique uses observable and unobservable
inputs such as discount rates that take into account the risk associated with the investment as well as further cash flows.
For those investments valued based on recent transactions, Clairvest has determined that there are no reasonable
alternative assumptions that would change the fair value materially as at March 31, 2019 and 2018.
18. CAPITAL DISCLOSURES
Clairvest considers the capital it manages to be shareholders' equity. Clairvest also manages capital held in acquisition
entities, the third-party capital committed or invested in the CEP Funds and co-investments made by other investors.
Clairvest's objectives in managing capital are to:
-
-
-
-
Preserve a financially strong company with substantial liquidity to pursue new acquisitions and growth
opportunities as well as to support its operations and the growth of its existing investee companies;
Achieve an appropriate risk adjusted return on capital;
Build long-term value in its investee companies to generate superior returns; and
Have appropriate levels of committed third-party capital available to invest alongside Clairvest's capital. The
management of third-party capital also provides management fees and/or priority distributions to Clairvest
and the ability to enhance Clairvest's returns by offsetting a portion of its operating costs and by earning a
carried interest.
As at March 31, 2019 and 2018, Clairvest had no external capital requirements, other than as disclosed in note 15.
19. FUTURE CHANGES IN ACCOUNTING POLICIES
IFRS 16, Leases ("IFRS 16")
IFRS 16 was issued in January 2016 and will replace the previous lease standard, IAS 17, Leases, and related
interpretations. Under IFRS 16, lessees are required to recognize assets and liabilities for most leases. Either a full or
modified retrospective application is required for annual periods beginning on or after January 1, 2019, with early adoption
permitted. The Company has assessed the impact of IFRS 16 on its consolidated financial statements and has determined
there are no significant transition adjustments resulting from the adoption of this new standard on April 1, 2019.
20. SUBSEQUENT EVENTS
Subsequent to year-end, Clairvest completed the fundraising of Clairvest Equity Partners VI, a new private equity
investment pool which comprised a US$230.0 million co-investment commitment from Clairvest through CEP VI Co-
Investment Limited Partnership (“CEP VI Co-Invest”) and US$620.0 million of commitments from third-party investors
through Clairvest Equity Partners VI Limited Partnership (“CEP VI”), Clairvest Equity Partners VI-A Limited Partnership (“CEP
76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019 and 2018 (tabular dollar amounts in thousands, except per share information)
VI-A”) and Clairvest Equity Partners VI-B Limited Partnership (“CEP VI-B”). Clairvest Equity Partners VI will be the successor
fund to Clairvest Equity Partners V.
Also subsequent to year-end, CEP IV Co-Invest realized its investment in Impero Waste and received US$2.3 million
in cash proceeds.
Also subsequent to year-end, Accel Entertainment announced it has entered into a business combination
transaction, the outcome of which is currently unknown.
77
SHAREHOLDER INFORMATION
As at, and for the year ended, March 31, 2019
(unaudited)
SHAREHOLDER COMMUNICATION
Clairvest has both the obligation and desire to provide its shareholders with full and continuous disclosure, on a timely
basis, throughout the fiscal year. Annual and quarterly reports are provided as part of this process and the company
releases information on material events through the press, as required. Further disclosure can be found on the company’s
website, www.clairvest.com, and on the SEDAR website, www.sedar.com.
VALUATION MEASURES
Clairvest’s focus is on building long-term value of its corporate investments. Accordingly, the results reflected the fair value
of our investments. The fair value method, however, is not without its limitations. Clairvest’s investments are often carried
at values, which may vary from actual realizations.
OUTSTANDING SECURITIES
Share structure
Common shares outstanding
Less holders of 10% or more
Public float(1,2)
Market capitalization(1)
Market value of public float(1,2)
Stock market
Stock symbol
(1)
(2)
(3)
As at June 19, 2019.
Excludes holders of 10% or more of the outstanding common shares.
During the year, Clairvest filed a new Normal Course Issuer Bid.
Common Shares(3)
Toronto Stock Exchange
CVG
15,136,495
9,646,480
5,490,015
736,995,942
267,308,830
$
$
BOOK VALUE PER SHARE(1) AT MARCH 31
$52
$48
$44
$40
$36
$32
$28
$24
$20
$16
$12
$8
$4
$-
99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19
(1)
Book value per share presented under Part V "Pre-changeover accounting standards" of the Handbook for Chartered Professional Accountants
Canada ("Canadian GAAP") for all periods up to March 31, 2014.
78
SHAREHOLDER INFORMATION
As at, and for the year ended, March 31, 2019
(unaudited)
SHARE PRICE VS BOOK VALUE PER SHARE
$52.00
$50.00
$48.00
$46.00
$44.00
$42.00
$40.00
$38.00
$36.00
$34.00
$32.00
$30.00
$28.00
$26.00
5
1
-
r
a
M
5
1
-
n
u
J
5
1
-
p
e
S
5
1
-
c
e
D
6
1
-
r
a
M
6
1
-
n
u
J
6
1
-
p
e
S
6
1
-
c
e
D
7
1
-
r
a
M
7
1
-
n
u
J
7
1
-
p
e
S
7
1
-
c
e
D
8
1
-
r
a
M
8
1
-
n
u
J
8
1
-
p
e
S
8
1
-
c
e
D
9
1
-
r
a
M
Book Value
Share Price
SHARE TRADING VOLUME FISCAL 2019 and 2018
Common shares
Year to March 31, 2019
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year to March 31, 2018
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
SHAREHOLDER INQUIRIES
Maria Shkolnik, Director of Corporate Relations
tel:
416.925.9270
416.925.5753
fax:
email: marias@clairvest.com
High
Low
Close
Volume
48.00
51.75
48.50
50.48
37.71
35.61
48.53
47.00
42.50
47.50
44.15
45.45
33.25
34.29
35.38
39.36
47.25
48.99
45.00
47.75
34.24
35.49
47.00
45.49
43,200
4,900
78,500
26,600
30,300
104,200
86,300
25,100
79
TRANSFER AGENT AND REGISTRAR
Investors are encouraged to contact
AST Trust Company (Canada) for information
regarding their security holdings.
Information can be obtained at:
P.O. Box 700, Station B
Montreal, Québec H3B 3K3
Answerline: 1.800.387.0825
Web: www.astfinancial.com
Email: inquiries@astfinancial.com
CORPORATE INFORMATION
CORPORATE OFFICE
22 St. Clair Avenue East, Suite 1700
Toronto, Ontario M4T 2S3
Tel: 416.925.9270 Fax: 416.925.5753
Web: www.clairvest.com
AUDITORS
Ernst & Young LLP
THE ANNUAL MEETING OF SHAREHOLDERS
August 12, 2019
Vantage Venues,
150 King Street West, 27th Floor
Toronto, Ontario Canada
All Shareholders are encouraged to attend.