ANNUAL REPORT 2020
TABLE OF CONTENTS
Chief Executive Officer’s Message
Management's Discussion and Analysis
Management's Report
Independent Auditor’s Report
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Shareholder Information
Corporate Information
2
3
28
29
32
36
71
Back Cover
KNOWLEDGE BASED - PARTNER FOCUSED
CLAIRVEST IS ONE OF CANADA'S LEADING PROVIDERS OF
PRIVATE
TO MID-MARKET
FINANCING
COMPANIES AND CURRENTLY HAS C$2.4 BILLION OF
EQUITY CAPITAL UNDER MANAGEMENT.
EQUITY
CLAIRVEST’S MISSION
PARTNER WITH
IS
ENTREPRENEURS TO HELP THEM BUILD STRATEGICALLY
SIGNIFICANT BUSINESSES.
TO
CLAIRVEST INVESTS ITS OWN CAPITAL, AND THAT OF
THIRD PARTIES THROUGH THE CLAIRVEST EQUITY
PARTNERS LIMITED PARTNERSHIPS,
IN OWNER-LED
BUSINESSES.
CHIEF EXECUTIVE OFFICER'S MESSAGE
DEAR FELLOW SHAREHOLDERS,
At the time of writing this letter, North America continues to face an uncertain economic reality with many jurisdictions still
closed as a result of the COVID-19 pandemic. Entering a crisis is not the time to figure out what you want to be. No matter
the challenge, we have managed our company consistently with principles that have stood the test of time and this period
is no different. Our company’s mission is to partner with entrepreneurs to help build strategically significant businesses. In
so doing, we create value for all stakeholders, foster progress, create employment, contribute to economic growth, and
support the communities in which we live.
The last few months were especially busy for our team as we worked with our investee partners through new challenges
and prepared for the inevitable economic slowdown which will occur. We are fortunate that our portfolio, in aggregate, is
holding up during this time. Thanks to a prudent approach to leverage, our most impacted companies have been able to
manage through the liquidity crunch to date, and in some cases, identify and close on strategic acquisitions. Some of our
portfolio companies are still generating no revenue and their future is reliant on when things will re-open, and how it will
look once things do re-open. We will not emerge unscathed, but overall we expect the impact to be manageable
considering the diversification of our investments, the fact that the underlying demand remains intact for our investments’
services, and the level of our liquidity that is available to support our portfolio companies and make new investments. We
have always commented that wealth creation and staying power are linked, but it is only in times like these is it so evident.
We entered this crisis in a position of strength. Despite a challenging fourth quarter where we saw significant market
shocks, Clairvest completed fiscal 2020 with a book value per share of $55.55, an increase of 9% over the prior year,
including dividends paid. We continued to lead the market by a significant margin with a compounded growth in book value
of 11.1% over the last 24 years, after tax, while the S&P 500 delivered only 7% in pre-tax growth. This is despite an average
cash balance of 37% during the period, and an ending cash & equivalent balance of $31 per share. Looking back at our
activity during fiscal 2020, I am pleased to say that it was a highly productive year. Clairvest completed five new
investments in fiscal 2020, deploying over $190 million of capital in many of our core domains such as waste management,
gaming and equipment rental, as well as an entry into a new domain; multi-unit healthcare, with a US$39 million
investment in ChildSmiles Group. In addition, in December 2019, we completed the exit of County Waste of Virginia that
generated a 3.6x return on capital invested and a 32% IRR. Broadly, the portfolio continued to grow with 9 add-on
acquisitions, and we helped our partners raise over $270 million in debt and equity capital to support their growth.
As we look to fiscal 2021, despite the uncertain economic outlook, we are ready for the challenge. On February 28, 2020,
Clairvest launched its newest US$850 million fund, CEP VI. To date CEP VI completed three new investments that continue
to build on our industry expertise in the solar renewal energy industry and in waste management. In the current economic
climate, having a well-capitalized fund is an advantage.
In concluding my remarks, I want to recognize the commitment of our employees during this unique time. Your hard work
and dedication is the basis of our continued success. I would also like to acknowledge our investment partners whose
commitment and agility has proved invaluable. This unique time has reminded us why we are passionate about our
business. Supporting business leaders who are committed to their companies, customers and employees is what helps
sustain our economy during difficult times and lead to recovery. Most importantly, we are proud to partner with individuals
who share our values of partnership, integrity, tenacity, open mindedness, and long-term focus. Thank you to our board of
directors for your continued guidance and support and thank you fellow shareholders for your confidence in our team.
Respectfully,
Ken Rotman
Chief Executive Officer
2
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2020
June 24, 2020
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,
2020 ("consolidated financial statements").
The following MD&A is the responsibility of Management and is as at June 24, 2020. 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 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")
which together, are herein referred to as Clairvest Equity Partners III and IV.
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")
which together, are herein referred to as Clairvest Equity Partners V and VI.
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 which 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.
CEP MIP GP Corporation
Clairvest USA Limited
Clairvest General Partner Limited Partnership
Clairvest General Partner III Limited Partnership
Clairvest General Partner IV Limited Partnership
3
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2020
June 24, 2020
During fiscal 2020, the Company determined that Clairvest General Partner V Limited Partnership (“Clairvest GP V”) met the
definition of an investment entity, as defined in IFRS 10. This change in status resulted from an amendment to the business
purpose of Clairvest GP V for it to invest directly in CEP V Co-Investment 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:
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")
Clairvest GP V
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"), 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, Clairvest GP V 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, 2020, Clairvest, through these acquisition entities, had 17 core investments in 10 different
industries and 5 countries. One was a joint investment with CEP III, three were joint investments with CEP IV and CEP IV-A
(together, the "CEP IV Fund"), eleven were joint investments with CEP V, CEP V India and CEP V-A (together, the "CEP V
Fund"), and one was a joint investment with CEP VI, CEP VI-A and CEP VI-B (together, the “CEP VI 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, 2020:
4
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2020
June 24, 2020
SUMMARY OF CLAIRVEST'S INVESTEE COMPANIES AS AT MARCH 31, 2020
Investee
Company
Industry
Segment
Geographic
Segment
Clairvest Ownership
Percentage(19)
CEP Fund Ownership
Percentage(19)
Total Ownership
Percentage(19)
Description of Business
INVESTMENTS DIRECTLY HELD
Grey Eagle Casino(1)
Gaming
Canada
Equity participation
Wellington
Financial
Financial
Services
Canada
N/A
A casino on Tsuu T'ina First Nation reserve lands, located
southwest of the city of Calgary, Alberta.
Wellington Financial was realized during fiscal 2018. Certain
entitlements on the residual warrants portfolio remain
outstanding as at March 31, 2020.
INVESTMENTS MADE BY CEP III CO-INVEST ALONGSIDE CEP III
Chilean Gaming
Holdings(2)
Gaming
Chile
36.8%
37.7%
74.5% An investment vehicle which holds an equity interest in
various gaming entertainment complexes in Chile.
INVESTMENTS MADE BY CEP IV CO-INVEST ALONGSIDE CEP IV/CEP IV-A
Gaming
Centaur Gaming
United
States
County Waste of
Virginia
Waste
Management
United
States
N/A
N/A
The owner and operator of the Hoosier Park Racing & Casino
in Anderson, Indiana and the Indiana Grand Casino and
Indiana Downs Racetrack in Shelbyville, Indiana.
Investment was realized during fiscal 2019. Certain deferred
considerations on the sale remain outstanding as at March
31, 2020.
regional solid waste collection company servicing
A
customers in the states of Virginia and Pennsylvania.
Investment was realized during fiscal 2020. Certain sale
proceeds and entitlement remain outstanding as at March
31, 2020.
Comprised two entities ("Davenport North" and "Davenport
South") holding real estate surrounding a casino
in
Davenport, Iowa.
Northco is a specialty aviation services company operating
across Canada. Top Aces is a supplier of advanced adversary
services across three continents.
16.3% Momentum Solutions was a wholly-owned subsidiary of MAG
Aerospace, an
investment realized during fiscal 2018.
Momentum Solutions is a Toronto based, inter-connected
global network of leading strategic support companies.
Operates North America’s premier standardbred horse racing
track located in East Rutherford, New Jersey.
United
States
18.7% of
Davenport North
13.4% of
Davenport South
51.1% of
Davenport North
36.6% of
Davenport South.
69.8% of
Davenport North
50.0% of
Davenport South
Canada 38.7% of Northco
23.9% of Top Aces
57.8% of Northco
33.7% of Top Aces
96.5% of Northco
57.6% of Top Aces
Canada
4.4%
11.9%
Davenport Land
Investments(3)
Other
Specialty
Aviation &
Defence
Services
Specialty
Aviation
Northco / Top Aces(4)
Momentum
Solutions(5)
New Meadowlands
Racetrack (the
"Meadowlands")(6)
Gaming
United
States
Debentures and equity investment rights
(1)
(2)
(3)
(4)
(5)
(6)
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, subject to certain extension rights.
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 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 $23.6 million in convertible debentures of Northco with a stated interest rate of 2% per annum effective April 1, 2020, and 3,867 common shares of
Northco. Clairvest also held 685.7824 common shares of Top Aces.
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, 2020
June 24, 2020
Investee
Company
Industry
Segment
Geographic
Segment
Clairvest Ownership
Percentage(19)
CEP Fund Ownership
Percentage(19)
Total Ownership
Percentage(19)
Description of Business
INVESTMENTS MADE BY CEP V CO-INVEST ALONGSIDE CEP V/CEP V India/CEP V-A
Accel Entertainment(7)
Gaming
Also Energy(8)
Renewable
Energy
ChildSmiles Group(9)
Dental Services
Digital Media
Solutions(10)
DTG Recycle(11)
Durante Rentals(12)
FSB Technology(13)
Marketing
Services
Waste
Management
Equipment
Rental
Gaming
Head Digital Works(14)
Gaming
United
States
United
States
United
States
United
States
United
States
United
States
United
Kingdom
India
6.4%
11.9%
15.0%
13.8%
14.6%
21.5%
24.5%
32.7%
17.8%
14.8%
14.9%
27.9%
35.0%
32.2%
34.2%
50.1%
57.2%
42.7%
41.4%
34.5%
21.3% A licensed video gaming terminal operator in Illinois. Listed
on the NYSE under the symbol ACEL.
39.8% 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 solar
plants globally.
50.0% A multi-specialty dental practice with five offices across New
Jersey.
46.0% A digital media company which operates as a lead generation
engine for companies in a variety of different industries.
48.8% A waste hauling and recycling company with operations
the greater Seattle-Tacoma area of
concentrated
Washington State.
in
71.6% A construction equipment rental provider in the New York
Metropolitan area.
81.7% A business-to-business
sports and
internet gaming
technology supplier based in London, United Kingdom.
75.4% 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, delivering a mobile social gaming
experience.
59.2% A company based in Houston, Texas that designs, installs and
manages complex networking solutions for businesses.
49.3% A Canadian
independent heating, ventilation and air-
conditioning contractor operator out of various locations in
Ontario and Manitoba and focused strictly on the residential
replacement market.
46.7% A regional solid waste collection, recycling and disposal
company servicing customers in Long Island, New York.
Information
Technology
Residential
Services
United
States
Canada
Meriplex
Communications(15)
Right Time Heating
and Air Conditioning
("Right Time
HVAC")(16)
Winters Bros. Waste
Systems of Long
Island ("Winters
Bros. of LI")(17)
Waste
Management
United
States
14.0%
32.7%
INVESTMENTS MADE BY CEP VI CO-INVEST ALONGSIDE CEP VI/CEP VI-A/CEP V-B
SunSystem
Technology(18)
Renewable
Energy
United
States
18.2%
48.9%
67.1% A solar operations and maintenance company serving both
commercial and residential sector in the United States.
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
Clairvest held 4,994,907 Class A-1 Shares, 244,675 Class A-2 Shares, and 299,052 private warrants of Accel Entertainment.
Clairvest held 1,013,062 Class A Preferred Stock, 45,181 Class A Common Stock and 11,037 Class B Preferred Stock of Also Energy and a promissory note with a stated
interest rate of 10% per annum from Also Energy.
Clairvest held 11,836,135 Class B preferred units of ChildSmiles Group.
Clairvest held 6,150,000 Class B units of Digital Media Solutions.
Clairvest held 8,657,622 Class A convertible preferred shares of DTG Recycle.
Clairvest held 217,721.20 LLC Units of Durante Rentals.
Clairvest held 6,935,287 Class A Shares and 420,804 Preferred Shares of FSB Technology.
Clairvest held 202,230 common shares of Head Digital Works and INR₹657.9 million in compulsory convertible debentures with a stated interest rate of 16% per annum.
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., 256,037 units of WBLI II, LLC, and 1,398 units in WBLI III, LLC, affiliates to Winters Bros. of LI which are owned
proportionately by the same unitholders as Winters Bros. of LI.
Clairvest held 3,030.588 Class A Preferred Stock of SunSystem Technology.
(18)
(19) Ownership percentage calculated on a fully diluted basis as at March 31, 2020.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2020
June 24, 2020
OVERVIEW OF FISCAL 2020
An overview of the significant events during fiscal 2020 and those which occurred subsequent to year end follows:
Overall and Corporate
•
Clairvest's book value increased by $58.7 million, or $4.11 per share, to $837.4 million or $55.55 per share. The
increase was primarily due to net income and comprehensive income ("net income") of $4.60 per share, net of $0.5144
per share in dividends paid. Inclusive of dividends paid, Clairvest’s book value increased by 9.0% during fiscal 2020. For
the fiscal year ended March 31, 2020, Clairvest recorded $129.3 million in total revenue and $69.5 million in net
income, compared to $204.2 million and $119.2 million, respectively, in the prior fiscal year.
• During fiscal 2020, 61,194 common shares were purchased and cancelled under the various normal course issuer bids
at an average price of $48.84 per share, reducing the number of common shares outstanding to 15,075,301. On March
7, 2020, Clairvest filed a new normal course issuer bid enabling it to make market purchases of up to 759,984 of its
common shares in the 12-month period commencing March 7, 2020, 743,084 of which remained available as at March
31, 2020. A further 9,000 common shares were purchased and cancelled subsequent to year end and up to June 24,
2020.
• During fiscal 2020, Clairvest paid an annual ordinary dividend of $0.10 per share and a special dividend of $0.4144 per
share. The dividends were paid on July 25, 2019 to common shareholders of record as of July 5, 2019. The dividends
were eligible dividends for Canadian income tax purposes.
Clairvest/CEP III Co-Invest and CEP III
• As at March 31, 2020 and June 24, 2020, 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 24, 2020. Based on the fair value as at March 31, 2020, 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.
Clairvest/CEP IV Co-Invest and the CEP IV Fund
•
In January 2020, Clairvest and the CEP IV Fund completed the sale of County Waste of Virginia, a regional solid waste
collection company servicing customers in the states of Virginia and Pennsylvania. As at March 31, 2020, Clairvest and
the CEP IV Fund had received cash proceeds on the sale totalling US$170.5 million and an additional US$2.2 million
subsequent to year end. Clairvest and the CEP IV Fund are also entitled to a deferred payment which is contingent on
achieving certain corporate milestones. Cash proceeds received during fiscal 2020 and subsequently, in U.S. dollar
terms, generated 3.6 times invested capital, or a 32% IRR over the 7-year holding period. In Canadian dollar terms, CEP
IV Co-Invest received total sale proceeds of $60.1 million against the cost of its investment of $14.8 million, or 4.1 times
invested capital. The probability of achieving the required corporate milestones for the deferred payment is currently
unknown and as a result, no value has been assigned to this deferred payment as at March 31, 2020.
• Upon the sale of County Waste of Virginia, Clairvest and the CEP IV Fund has exited 8 of its 12 investments, generating
$1.48 billion of total sale proceeds against $263 million of invested capital. As at March 31, 2020, the CEP IV Fund had
returned over 2.8 times invested capital to its third-party investors on a net basis.
• Remaining investments include Top Aces, New Meadowlands and our residual interest in Davenport Land Investments
and Northco. Based on the fair values as at March 31, 2020, the CEP IV Fund is expected to generate approximately 3.3
times invested capital or an IRR of approximately 26% for its third-party investors on a net basis.
Clairvest/CEP V Co-Invest and the CEP V Fund
•
The CEP V Fund was active during fiscal 2020, completing four new investments, as well as realizing one investment,
completing one merger between a portfolio company and a publicly-traded company, and another proposed merger
with a publicly traded company currently in progress for another portfolio company.
In February 2020, the CEP V Fund completed its investment period, with 12 investments to date, representing
approximately 77% of its committed capital. Following the completion of its investment period, the CEP V Fund is only
permitted to make follow-on investments in these 12 investments.
•
7
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2020
June 24, 2020
•
•
•
•
•
•
•
•
In June 2019, CEP V Co-Invest and the CEP V Fund invested US$34.5M (C$45.1 million) in Durante Rentals, a
construction equipment rental provider in the New York Metropolitan area. CEP V Co-Invest invested US$10.4 million
(C$13.6 million) for common equity representing a 21.5% ownership interest in Durante Rentals.
In July 2019, CEP V Co-Invest and the CEP V Fund invested £23.1 million (C$37.9 million) in FSB Technology, a B2B
sports and internet gaming technology supplier based in London, UK. An additional £1.4 million (C$2.4 million) of
follow-on investments was made in FSB Technology following the initial investment and up to March 31, 2020. In
totality, CEP V Co-Invest invested £7.4 million (C$12.1 million) in FSB Technology in the form of 6,935,287 Class A
common shares and 420,804 Class B convertible preferred shares for a 24.5% ownership interest in FSB Technology.
In November 2019, CEP V Co-Invest and the CEP V Fund realized its investment in GTA Gaming for aggregate cash
proceeds of $52 million. CEP V Co-Invest received $15.5 million in cash proceeds against the cost of its investment of
$9.0 million.
In November 2019, Accel Entertainment completed a business combination with a public company whereby CEP V Co-
Invest and the CEP V Fund rolled 100% of its equity interest in Accel Entertainment into the new combined entity which
is traded on the New York Stock Exchange under the symbol ACEL.
In January 2020, CEP V Co-Invest and the CEP V Fund invested US$28.9M (C$37.7 million) in DTG Recycle, a waste
hauling and recycling company with operations in the greater Seattle-Tacoma area of Washington State. CEP V Co-
Invest invested US$8.7 million (C$11.3 million) in DTG Recycle in the form of 8,657,622 Class A convertible preferred
shares which are convertible into a 14.6% ownership interest.
In February 2020, Digital Media Solutions, a portfolio company of CEP V Co-Invest and the CEP V Fund, announced it is
exploring a business combination with Leo Holdings Corp. (“Leo”), an agreement of which was signed in April 2020.
Clairvest’s obligation to consummate the transaction is subject to, among other things, the delivery by Leo of a
minimum cash amount.
In March 2020, CEP V Co-Invest and the CEP V Fund invested US$39.5M (C$53.0 million) in ChildSmiles Group, a multi-
specialty dental practice providing oral health care with operations in various locations across the state of New Jersey.
CEP V Co-Invest invested US$11.8 million (C$15.9 million) in ChildSmiles Group in the form of 11,836,165 Class B
preferred units representing a 15.0% ownership interest.
Subsequent to year end, CEP V Co-Invest and CEP V Fund made a US$12.0 million (C$16.2 million) follow-on investment
to acquire 1,775 Class A common shares of Also Energy from a minority investor. CEP V Co-Invest invested US$3.6
million (C$4.9 million), increasing its ownership interest to 18.0%.
• Based on the fair values as at March 31, 2020, the CEP V Fund is tracking to 1.2 times invested capital to its third-party
investors on a net basis.
Clairvest/CEP VI Co-Invest and the CEP VI Fund
•
•
The CEP VI Fund was formed in April 2019 with US$230 million commitment by Clairvest through CEP VI Co-Invest, and
US$620 million of third-party capital.
In February 2020, upon the completion of the CEP V Fund investment period, the investment period of the CEP VI Fund
commenced. The commencement of the CEP VI Fund investment period brings an enhanced level of fees as described
in the Outlook section of the MD&A.
•
• With the commencement of the CEP VI Fund, Clairvest allocated its US$11.2 million investment in SunSystem
Technology (“SST”) amongst CEP VI Co-Invest and the CEP VI Fund on a pro-rata basis, with CEP VI Co-Invest retaining
US$3.0 million of the investment.
Subsequent to year end, CEP VI Co-Invest and the CEP VI Fund invested US$30.2 million to acquire the solar operations
and maintenance business of SunPower Corporation. Upon closing the business was renamed as NovaSource Power
Services (“NovaSource”). CEP VI Co-Invest invested US$9.2 million for a 29.2% ownership interest in NovaSource.
• Also subsequent to year end, CEP VI Co-Invest and the CEP VI Fund invested US$10.0 million in Arrowhead
Environmental Partners (“AEP”), a non-hazardous waste-by-rail operator in the Northeastern United States. CEP VI Co-
8
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2020
June 24, 2020
Invest invested US$2.7 million in AEP in the form of 2,706 Class A preferred units representing a 11.3% ownership
interest.
OUTLOOK
On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic. As at March 31, 2020 and June
24, 2020, the duration and impact of COVID-19 pandemic on Clairvest and its investee companies are unknown. A number
of the Company’s investee companies are located in jurisdictions or are in segments of the economy which have been
severely impacted by COVID-19, where some have suffered a temporary 100% decline in revenue as a result of a shutdown
of all non-essential businesses as mandated by the relevant local or federal government.
The Company and its investee companies have taken and will continue to take actions to mitigate the effects of
COVID-19, keeping in mind the interests of the various stakeholders. These changes and any additional changes in
operations by Clairvest and its investee companies in response to COVID-19 could materially impact the financial results of
the Company. In recent weeks, some of these businesses have begun re-opening; however, it is not possible to reliably
estimate the length and severity of COVID-19-related impacts on the financial results and operations of Clairvest and its
investee companies.
Uncertain economic conditions resulting from the COVID-19 outbreak have materially impacted the debt and
equity markets, which could materially impact the ultimate exit value of the Company’s investee companies. A number of
the Company’s investments are structured with a preferred position in the capital structure, providing additional downside
protection against temporary fluctuations of value.
As at March 31, 2020, Clairvest and its controlled acquisition entities had $1.6 billion 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. The current economic and capital markets environment may present unique opportunities for the
Company’s existing investee companies to complete acquisitions or for the Company and the CEP VI Fund to acquire new
businesses that it may not be able to acquire otherwise. As the Company’s investment mission is to partner with existing
entrepreneurs to help build strategically significant businesses, the Company and the CEP Funds intend to continue
supporting their investee companies providing them with the opportunity to realize on their investment thesis through this
pandemic and beyond.
With the commencement of the CEP VI Fund investment period, the Company is benefiting from the additional
fees and priority distributions over the next few years, currently estimated to be approximately $13 million per annum,
subject to foreign exchange rate fluctuations and reductions as CEP III, CEP IV and CEP V continue to realize on their
respective portfolio, thereby reducing the asset base of which fees and priority distributions are calculated. These
additional fees and priority distributions will ensure that the Company can continue to grow its human resource capital and
infrastructure to maintain the rigorous standards in identifying, qualifying and closing on new investment opportunities,
and to continue to support our existing investee companies.
From inception, the Company has invested its own capital in every investment. Clairvest's team of professionals
have all invested significant amounts of capital in the Company which allows Clairvest to approach each investment as
owners and shareholders. As a long-term investor, Clairvest is focused on building value in its investee companies by
contributing strategic expertise, advising on operational improvement and helping its investee companies capitalize on new
opportunities that arise. As at June 24, 2020, Clairvest's current management team has made 54 platform investments and
has realized or partially realized on 37 investments which have in aggregate generated 3.6 times invested capital.
The table below summarizes the status of the CEP Funds as at June 24, 2020:
9
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2020
June 24, 2020
Status of Clairvest Equity Partnerships as at June 24, 2020
($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
C$225
C$75
C$300
Capital
Called
79.8%
Clairvest Equity Partners IV ("CEP IV")
2010
C$342
C$125
C$467
91.2%
Clairvest Equity Partners V ("CEP V")
2015
C$420
C$180
C$600
76.5%
Clairvest Equity Partners VI ("CEP VI")
2020
US$620
US$230
US$850
6.3%
FINANCIAL POSITION AND BOOK VALUE
Number of
Investments
Total
8
11
12
3
Currently
Held
1
4
11
3
The following table summarizes the Company's financial position and book value as at March 31, 2020 and 2019:
Financial Position
As at, ($000's, except number of shares and per share amounts)
Cash, cash equivalents and temporary investments ("treasury funds")
Carried interest from Clairvest Equity Partners III and IV
Corporate investments, including carried interest from Clairvest Equity Partners V and
VI, and net of corresponding management participation
Total assets
Management participation from Clairvest Equity Partners III and IV
Total liabilities
Book value
Book value per share
Dividends per share paid during the fiscal year ended
Number of common shares outstanding
March 31, 2020
March 31, 2019
$
428,856 $
44,409
452,325
56,484
400,291
944,878
34,115
107,463
837,415
55.55
0.5144
15,075,301
366,279
911,253
42,599
132,561
778,692
51.44
0.4401
15,136,495
ASSETS
As at March 31, 2020, Clairvest had total assets of $944.9 million, an increase of $33.6 million during fiscal 2020. 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, 2020, the Company's treasury funds of $428.9 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-,
marketable securities, and other fixed income securities as permitted by the Company's treasury policy. 2141788 Ontario
also held $43.6 million in cash, investment savings accounts and guarantee investment certificates with consistent ratings
to the Company’s treasury funds. Clairvest also had access to $12.8 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 2024 and is eligible for a one-year extension on each
10
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2020
June 24, 2020
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, 2020 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, 2020.
As at March 31, 2020, Clairvest had corporate investments with a fair value of $400.3 million, an increase of
$34.0 million during fiscal 2020, $367.6 million of which represented the fair value of Clairvest's investee companies, $3.6
million of which represented carried interest from Clairvest Equity Partners V and VI net of management participation, and
the remaining $29.1 million of which represented other net assets (liabilities) held by Clairvest's acquisition entities.
Excluding the carried interest and management participation from Clairvest Equity Partners V and VI and the net
assets (liabilities) held by Clairvest's acquisition entities, the aggregate carrying value of Clairvest's investee companies
increased by $28.0 million during fiscal 2020, which primarily comprised the following:
- Net increase in unrealized gain on investee companies of $31.0 million;
-
-
-
-
-
-
-
-
-
-
An investment of $15.9 million in ChildSmiles Group;
An investment of $13.6 million in Durante Rentals;
An investment of $12.1 million in FSB Technology;
An investment of $11.3 million in DTG Recycle;
An investment of $4.0 million in SST;
Follow-on investment in existing investee companies totalling $2.6 million;
Accrued interest on debt investments and dividends totalling $1.4 million;
Foreign exchange revaluation gains on invested companies totalling $0.4 million; partially offset by
The sale of County Waste which had a fair value of $31.2 million as at March 31, 2019;
Reclassification of CIBC common shares from corporate investment to temporary investment upon the
expiry of the trading restrictions. The carrying value of the CIBC common shares on the date of
reclassification was $23.2 million;
The sale of GTA Gaming which had a fair value of $9.0 million as at March 31, 2019;
The sale of Impero Waste which had a fair value of $0.5 million as at March 31, 2019.
-
-
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, 2020, 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 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 note 15 to the consolidated financial statements.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2020
June 24, 2020
The table below details the cost and fair value of Clairvest’s investee companies, aggregated by industry concentration, as
at March 31, 2020 and 2019:
Dental services
Equipment rental
Financial services
Gaming
Information technology
Marketing services
Renewable energy
Residential services
Specialty aviation and defence services
Waste management
Other investments
March 31, 2020
March 31, 2019
Fair value
16,636
7,102
3,009
186,484
8,602
7,471
18,523
6,375
81,016
27,117
5,257
367,592
Cost
15,902
13,591
—
120,688
6,732
995
16,185
6,375
60,304
21,951
2,346
265,069
Difference
734
(6,489)
3,009
65,796
1,870
6,476
2,338
—
20,712
5,166
2,911
102,523
Fair value
Cost
Difference
—
—
22,634
177,319
7,016
10,055
12,463
6,375
56,687
43,390
3,609
339,548
—
—
154
117,565
6,732
995
11,621
6,375
59,100
28,486
2,651
233,679
—
—
22,480
59,754
284
9,060
842
—
(2,413)
14,904
958
105,869
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 2020 are further described in note 5 to the consolidated
financial statements.
LIABILITIES
As at March 31, 2020, Clairvest had $107.5 million in total liabilities, which included $8.3 million in accrued management
and director compensation, $39.0 million in share-based compensation, $34.1 million in management participation from
Clairvest Equity Partners III and IV and $14.1 million in current and deferred tax liability. $48.6 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, 2020 was $69.5 million compared with net income of $119.2 million for
the year ended March 31, 2019. The following table summarizes the composition of net income for the years ended
March 31:
12
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2020
Financial Results
Year ended March 31, ($000's, except per share amounts)
Net investment gain (loss)
June 24, 2020
2020
2019
- Investee companies inclusive of foreign exchange hedging activities
- Carried interest less management participation from
Clairvest Equity Partners V and VI
$
58,412
$
119,114
3,560
—
- 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
Carried interest from Clairvest Equity Partners III and IV
Total expenses
Income before income taxes
Income tax expense
Net income and comprehensive income
Net income and comprehensive income per share - basic and fully diluted
(40,396)
(242,266)
21,576
(123,152)
10,370
4,509
10,424
59,804
85,107
22,615
50,014
79,284
9,786
69,498
4.60
9,974
3,460
8,029
258,205
279,668
47,691
66,329
137,878
18,636
119,242
7.87
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 2020, CEP IV Co-Invest realized on its investment in Impero Waste and County Waste of Virginia and
received interest payments and other partial sale proceeds from other investee companies. In aggregate, CEP IV Co-Invest
received total cash proceeds of $62.7 million during fiscal 2020. CEP IV Co-Invest made distributions totalling $62.2 million,
$56.2 million of which were paid to Clairvest, $0.9 million were paid to an acquisition entity of Clairvest and $5.1 million
were paid as management participation.
During fiscal 2020, CEP V Co-Invest realized on its investment in GTA Gaming and received distributions from other
investee companies. In aggregate, CEP V Co-Invest received total proceeds of $18.0 million during fiscal 2020, the proceeds
of which were retained and used to fund expenses and other investments made by CEP V Co-Invest.
The following tables summarize, by industry concentration, the net investment gain or loss of investee companies
for the years ended March 31, 2020 and 2019. The net investment gain or loss is inclusive of the impact on the foreign
exchange hedging activities related to these investments.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2020
Net investment gain (loss), by industry concentration
Year ended March 31, 2020 ($000's)
Dental services
Equipment rental
Financial services
Gaming
Information Technology
Marketing Services
Renewable energy
Specialty aviation and defence services
Waste management
Other investments
Net investment gain (loss) on investee companies
$
(1) Inclusive of foreign exchange hedging activities
Year ended March 31, 2019 ($000's)
Financial services
Gaming
Information Technology
Marketing Services
Renewable energy
Specialty aviation and defence services
Waste management
Other investments
Net investment gain (loss) on investee companies
(1) Inclusive of foreign exchange hedging activities
$
June 24, 2020
Net realized
gains (losses)
—
—
—
6,812
—
—
—
551
30,837
—
38,200
Net unrealized
gains (losses)
—
(6,974)
2,871
9,419
1,223
(2,987)
—
23,279
2,579
1,628
31,038
Foreign
exchange
gain (loss)(1)
(26)
(564)
—
(9,639)
(41)
(12)
(106)
—
(412)
(26)
(10,826)
Net realized
gains (losses)
—
49,859
—
—
—
21,097
434
—
71,390
Net unrealized
gains (losses)
(2,418)
29,602
—
7,914
—
11,725
5,282
—
52,105
$
$
Foreign
exchange
gain (loss)(1)
—
(3,811)
(19)
71
(64)
154
(672)
(40)
(4,381) $
Total
(26)
(7,538)
2,871
6,592
1,182
(2,999)
(106)
23,830
33,004
1,602
58,412
Total
(2,418)
75,650
(19)
7,985
(64)
32,976
5,044
(40)
119,114
During fiscal 2020, the net impact of foreign exchange on the investee companies included a $5.9 million loss (2019 – $2.4
million) on the Chilean Pesos denominated investment, a $3.2 million loss (2019 – $0.7 million gain) on U.S. Dollar
denominated investments, a $1.5 million loss (2019 – $2.7 million) on the Indian Rupee denominated investment, and a
$0.2 million loss (2019 – nil) on the British Pound denominated investment.
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:
14
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2020
Distributions, Interest, Dividends, and Fees from Investee Companies
2020
Earned
through
acquisition
entities
Earned
directly by
Clairvest
Earned
directly by
Clairvest
Total
2,108
30
—
—
—
—
—
2,138
898
—
898
1,473
—
3,112
3,276
570
1,012
655
148
8,773
—
6,400
6,400
—
2,108
3,142
3,276
570
1,012
655
148
10,911
898
6,400
7,298
1,473
113
522
—
—
391
—
—
1,026
1,094
—
1,094
1,340
June 24, 2020
2019
Earned
through
acquisition
entities
—
8,048
6,209
288
3,834
369
126
18,874
Total
113
8,570
6,209
288
4,225
369
126
19,900
—
1,421
1,421
603
1,094
1,421
2,515
1,943
Year ended March 31, ($000's)
Distributions and interest income
Financial services
Gaming
Marketing Services
Renewable energy
Specialty aviation and defence services
Waste management
Other investments
Dividend Income
Financial services
Gaming
Advisory and Other Fees
Distributions, interest, dividends and
fees from investee companies
4,509
15,173
19,682
3,460
20,898
24,358
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:
Distributions, Fees and Interest from the CEP Funds
Year ended March 31, ($000's)
Priority distributions
Management fees
Interest on loans advanced
Distributions, fees and interest from the
CEP Funds
2020
Earned
through
acquisition
entities
Earned
directly by
Clairvest
Earned
directly by
Clairvest
Total
2019
Earned
through
acquisition
entities
Total
$
7,591 $
— $
7,591 $
8,164 $
— $
8,164
2,025
754
—
14
2,025
768
1,259
551
—
33
1,259
584
$ 10,370 $
14 $ 10,384 $
9,974 $
33 $ 10,007
Carried interest from Clairvest Equity Partners III and IV during fiscal 2020 and 2019 was $22.6 million and $47.7 million
respectively. Carried interest from Clairvest Equity Partners V and VI during fiscal 2020 was $14.5 million. During fiscal 2020,
the Company received $34.7 million in carried interest from Clairvest Equity Partners III and IV and none from Clairvest
Equity Partners V and VI.
Included in distributions and interest income for the year ended March 31, 2020 and 2019 was interest earned
from treasury funds of $10.1 million and $8.0 million respectively. Acquisition entities of Clairvest earned interest from its
treasury funds totalling $1.5 million and $0.9 million respectively during fiscal 2020 and 2019.
15
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2020
June 24, 2020
Total expenses for the year were $50.0 million, compared with $66.3 million for the year ended March 31, 2019. 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 from Clairvest Equity Partners III and IV
2020
$
22,056
$
4,161
5,338
489
17,970
Total expenses, excluding income taxes
$
50,014
$
2019
12,200
11,332
8,515
809
33,473
66,329
Included in employee compensation and benefits during fiscal 2020 was a $7.4 million bonus paid to management upon the
final closing of the fundraising of the CEP VI Fund.
The following table summarizes share-based compensation expenses incurred by the Company for the year ended March
31:
Total Share-Based Compensations Expenses
Year ended March 31, ($000's)
Non-voting options expense (recovery)
Book value appreciation rights expense
Deferred share units and appreciation deferred share units expense (recovery)
Employee deferred shares units expense (recovery)
Total share-based compensation expense
$
$
2020
(985) $
7,411
(1,618)
(647)
2019
3,436
6,825
931
140
4,161
$
11,332
The share price of a Clairvest common share decreased between March 31, 2019 and March 31, 2020, resulting in a
recovery of expenses on certain share-based compensation.
Management participation is further described in note 7 to the consolidated financial statements.
The Company recorded $9.8 million in income tax expenses, and its acquisition entities recovered $4.3 million in
income tax expenses during fiscal 2020, compared with $18.6 million in income taxes expenses incurred by the Company
and $3.6 million in income tax expense incurred by the acquisition entity during the prior fiscal year. Income tax expense
incurred or recovered by the Company’s acquisition entities are reflected in net investment gain (loss).
16
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2020
SUMMARY OF QUARTERLY RESULTS
June 24, 2020
($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*
$
$
$
(1.65)
(38,036)
March 31, 2020
4.83
110,770
December 31, 2019
1.03
28,283
September 30, 2019
0.39
28,281
June 30, 2019
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
* 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
(24,937)
73,046
15,511
5,878
27,182
24,032
13,373
54,655
(1.65)
4.83
1.03
0.39
1.80
1.59
0.88
3.61
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 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 loss for the fourth quarter of fiscal 2020 was $24.9 million compared with a net income of $27.2 million for the fourth
quarter of fiscal 2019.
Revenue for the fourth quarter of fiscal 2020 comprised $98.9 million in net investment loss, $60.7 million in
distributions, interest, dividends and fees, and $0.1 million in net carried interest from Clairvest Equity Partners III and IV.
This compares with $14.5 million in net investment loss, $50.5 million in distributions, interest, dividends and fees and
$17.7 million in net carried interest for the fourth quarter of fiscal 2019.
The net investment loss of $98.9 million for the fourth quarter of fiscal 2020 resulted from $36.7 million in net
unrealized loss from Clairvest's investee companies inclusive of foreign exchange hedging activities, reduction in net carried
interest of $5.6 million from Clairvest Equity Partners V and VI and $56.6 million in net unrealized loss from Clairvest's
acquisition entities. This compared with $28.2 million in net unrealized gain from Clairvest's investee companies and
$42.7 million in net unrealized loss from Clairvest's acquisition entities for the fourth quarter of fiscal 2019. During the
fourth quarter of fiscal 2020, Clairvest received distributions totalling $52.6 million from CEP IV Co-Invest primarily as a
result of the realization of County Waste. 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 in both the fourth quarter of fiscal 2020 and 2019.
Distributions, interest, dividends and fees for the fourth quarter of fiscal 2020 included income on treasury funds
of $2.3 million, general partner distributions and interest earned from the CEP Funds of $2.2 million, distributions and
interest earned from investee companies of $0.7 million and $53.5 million in distributions from acquisition entities. This
compared with income on treasury funds of $2.7 million, general partner distributions and interest earned from the CEP
Funds of $2.1 million, distributions and interest earned from investee companies of $0.1 million and $44.6 million in
distributions from acquisition entities for the same quarter last year.
Carried interest from Clairvest Equity Partners III and IV of $0.1 million for the fourth quarter of fiscal 2020
comprised $32.0 million in realized carried interest and a corresponding reduction of $31.9 million in unrealized carried
interest. Carried interest of $17.7 million for the fourth quarter of fiscal 2019 comprised $25.3 million in realized carried
17
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2020
June 24, 2020
interest from CEP Funds, $6.9 million in realized carried interest from other co-investors and a reduction of $14.5 million in
carried interest from the CEP Funds. Carried interest from Clairvest Equity Partners III and IV is further described in note 7
to the consolidated financial statements.
Expenses for the fourth quarter of fiscal 2020 included an expense recovery of $8.6 million in management and
director compensation expenses, an expense recovery of $0.1 million in management participation from Clairvest Equity
Partners III and IV, an expense recovery of $1.1 million in administrative and other expenses, an expense recovery of
$0.3 million in finance and foreign exchange expenses and an expense recovery of $3.0 million in income tax expense. This
in management
compares with $7.2 million
participation, $4.0 million in administrative and other expenses, $0.2 million in finance and foreign exchange expenses
recoveries, and $3.4 million in income tax expense recovery for the fourth quarter of fiscal 2019. The share price of a
Clairvest common share fell by $9.30 per share during the fourth quarter of fiscal 2020.
in management and director compensation expenses, $11.7 million
Management participation is further described in note 7 to the consolidated financial statements.
EQUITY AND SHARE INFORMATION
As at March 31, 2020, Clairvest had 15,075,301 common shares issued and outstanding.
During fiscal 2020, Clairvest purchased and cancelled 61,194 common shares under the Company's normal course
issuer bids. An additional 9,000 shares were purchased and cancelled between April 1, 2020 and June 24, 2020. As at June
24, 2020, Clairvest had 15,066,301 common shares issued and outstanding.
No Series 1 or Series 2 Shares had been issued as at March 31, 2020 and June 24, 2020.
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, 2020, 518,758 options were outstanding and 193,685 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, 2020 and June 24, 2020. As at March 31, 2020 and June 24, 2020, 107,496 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 2020, fiscal 2019 and
fiscal 2018. During fiscal 2020, and 2019 and 2018, Clairvest also paid a special dividend of $0.4144 and, $0.3401 and
$0.2621 per share respectively.
Subsequent to year-end, Clairvest declared an annual ordinary dividend of $0.10 per share, and a special dividend
of $0.4555 per share. The dividends will be payable to common shareholders of record as of July 3, 2020. The dividend will
be paid on July 24, 2020. 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
transfer are recorded at amounts at fair values which take into account the escrow terms or other restrictions. In
18
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2020
June 24, 2020
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 recognizes unrealized carried interest from Clairvest Equity Partners III and IV on its consolidated statements
of financial position which is based on the fair values of the financial instruments held by those funds. As discussed
previously, fair values of certain financial instruments are determined using valuation techniques which by their nature
involve 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 receivable and the resulting accrued liabilities for future
payouts relating to these carried interest receivables at the statement of financial position date. In accordance with IFRS 15,
the Company would only recognize unrealized carried interest from Clairvest Equity Partners III and IV in the event a
significant reversal during a future period is highly improbable. The unrealized carried interest from Clairvest Equity
Partners V and VI and the amounts ultimately payable to the limited partners of the corresponding MIPs are accounted for
at fair value through profit or loss in accordance with IFRS 10 and included in Corporate Investments.
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.
Impact on COVID-19 on Significant Estimates
On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic. A number of the Company’s
investee companies are located in jurisdictions or are in segments of the economy which have been severely impacted by
COVID-19, where some have suffered a temporary 100% decline in revenue as a result of a shutdown of all non-essential
businesses as mandated by the local or federal government. As a result, the fair value estimates of the Company’s
corporate investments as at March 31, 2020 were impacted due to cash flow forecasts and risk premiums implied by equity
and credit markets. These fair value estimates required significant judgment given the uncertainty regarding the long-term
19
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2020
June 24, 2020
impact of COVID-19 and the ultimate impact of COVID-19 on the Company’s investee companies are unknown. If the
duration or the spread of the pandemic, the related advisories and restrictions are significantly longer than the Company’s
estimate, or the impact on the equity or credit markets or the economy in general is significantly worse than the Company’s
estimate, the fair value of its corporate investments may be materially adversely affected resulting in a material adverse
impact to the Company’s financial results.
ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS
Effective April 1, 2019, the Company adopted IFRS 16, Leases (“IFRS 16”) on a modified retrospective basis. The Company
has identified that it has approximately $4.2 million in right of use assets and $4.2 million in lease liabilities which were
identified from adoption of IFRS 16, and in accordance with transitional provisions, has chosen to not restate its
comparative information. Accordingly, the comparative information continues to be presented in accordance with the
Company’s previous accounting policy. Clairvest recognized right-of-use assets and their corresponding lease liabilities for
all significant lease contracts. In applying IFRS 16, Clairvest has used the following practical expedients as permitted by the
standard: 1) Operating leases with a remaining lease term of less than 12 months as at April 1, 2019 were treated as short-
term leases under IFRS 16; and 2) Payments associated with leases of low-value assets are recognized on a straight-line
basis as an expense in the consolidated statements of comprehensive income.
TRANSACTIONS WITH RELATED PARTIES
Clairvest is entitled to other various entitlements from its acquisition entities as described in note 10 to the condensed
consolidated financial statements.
As at March 31, 2020, Clairvest had accounts receivable from its investee companies totalling $2.9 million, from
CEP III totalling $0.3 million, from CEP IV totalling $37 thousand, from CEP IV-A totalling $27 thousand, from CEP V totalling
$3.7 million, from CEP V India totalling $1.6 million, from CEP V-A totalling $4.6 million, from CEP VI totalling $3.5 million,
from CEP VI-A totalling $4.8 million and CEP VI-B totalling $3.1 million. Additionally, acquisition entities of Clairvest which
were not consolidated in accordance with IFRS held receivables from CEP V-A totalling $1.3 million.
In addition, the Company advances loans to its acquisition entities, the CEP Funds and short-term loans to investee
companies. During fiscal 2020, the Company advanced net loans of $10.3 million, such that $20.1 million in loans remained
outstanding as at March 31, 2020. Further details are described in note 10(e) to the consolidated financial statements.
As at March 31, 2020, Clairvest had advanced share purchase loans to certain employees of Clairvest totalling $2.7
million. The loans are interest bearing, have full recourse to the individual and are collateralized by the common shares of
Clairvest owned by the employees with a market value of $3.3 million. None of these loans were made to key management.
Interest of $63 thousand 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 2020 were $8.3 million.
As at March 31, 2020, the total amounts payable to the CEO, the Vice Chairman, and the President under the
aforementioned plans was $14.2 million. During fiscal 2020, no cash compensation was paid to directors under the BVAR,
DSU or ADSU plans. As at March 31, 2020, the total amounts payable to the directors of Clairvest under the DSU, ADSU and
Non-Voting Option plans was $15.8 million.
During fiscal 2020, Clairvest earned $2.1 million in distributions and interest income, $1.2 million in dividend
income and $1.5 million in advisory and other fees from its investee companies. Additionally, acquisition entities of
Clairvest which were not consolidated in accordance with IFRS earned $8.8 million in distributions and interest income and
$6.4 million in dividend income.
20
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2020
June 24, 2020
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
Clairvest has committed a total of $55.5 million in various Wellington Financial funds, all of which was unfunded as at
March 31, 2020. As a result of the sale of Wellington Financial to CIBC in January 2018, these Wellington Financial 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,
2020, the Realized Amount under the Bonus Program was $2.3 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 $2.3 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, CEP V Co-Invest and CEP VI Co-Invest.
In conjunction with the sale of Casino New Brunswick, Clairvest provided a guarantee which as at March 31, 2020
was $1.6 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, 2020, 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. The deposits were redeemed and used to repay the loans in full during fiscal 2020.
Clairvest has guaranteed up to US$2.5 million to support SST’s credit facility with its bank. The guarantee is callable
by the lender under certain circumstances and should it be called, Clairvest will assume the lender’s security position that
supports the loans provided by the lender. Clairvest intends to allocate any amounts called under this guarantee to CEP VI
Co‐Invest, CEP VI, CEP VI-A and CEP VI‐B on a pro‐rata basis in accordance with their respective capital commitments in the
CEP VI Fund. As at March 31, 2020, the total contingent exposure under this guarantee is US$2.0 million, US$0.5 million of
which would be assumed by CEP VI Co‐Invest if called. Any additional guarantee is subject to Clairvest’s consent at its sole
discretion.
As at March 31, 2020, the Company had an accrued liability resulting from future minimum annual lease payments
for the use of office space totalling $4.5 million, of which $0.6 million is due within one year, $2.5 million is due after one
year but not more than five years and $1.4 million is 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.
21
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2020
June 24, 2020
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 inputs for fair value measurement
are earnings before interest, taxes, depreciation and amortization (“EBITDA”) and the earnings multiple which is applied to
the EBITDA in valuing 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 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. Earnings multiples used are
based on public company valuations as well as private market multiples for comparable companies. The potential effects to
the carrying value of the Company’s investments are further described in note 18 to the consolidated financial statements.
Clairvest may also use information with respect to recent transactions 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, 2020.
The Company's corporate investment portfolio was diversified across 17 investee companies in 10 industries and 5
countries as at March 31, 2020. The Company has considered current economic events indicators, including an estimate of
the potential impact of COVID-19, 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.
The potential effect on the Company’s treasury funds from fluctuations in interest rates are further described in
note 17 to the consolidated financial statements.
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, India, Chile and the United Kingdom. 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,
2020, the Company’s foreign exchange exposure with respect to the CLP and with respect to its equity investment in India
22
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2020
June 24, 2020
are unhedged. Significant depreciation in value in these currencies could result in a material impact to the performance of
Clairvest’s investment portfolio and the carried interest the Company could earn from the CEP Funds.
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, and could impact the carried interest the Company could earn from the CEP Funds. The Company
manages this risk through oversight responsibilities with existing investee companies and by reviewing the financial
condition of investee companies regularly.
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, 2020, 8 of the 17 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.
23
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2020
June 24, 2020
Gaming investment risk
As at March 31, 2020, Clairvest's exposure to the gaming industry represented 22.3% 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
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, 2020, 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
24
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2020
June 24, 2020
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.
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 $404.6 million as at March 31, 2020. 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, 2020.
As at March 31, 2020, Clairvest had treasury funds of $428.9 million and access to $100.0 million in credit to
support its obligations and current and anticipated corporate investments. Clairvest also had access to $56.4 million in
treasury funds held by its acquisition entities and $1.0 billion in uncalled committed third-party capital through the CEP
Funds as at March 31, 2020 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, 2020, Clairvest's Board of Directors and employees owned approximately 76% 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.
25
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2020
June 24, 2020
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. Foreign
exchange hedging activities during fiscal 2020 are further described in note 15 to the consolidated financial statements.
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, 2020 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, 2020. Management has concluded
that the design of internal controls over financial reporting were effective and operated as designed as at March 31, 2020
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.
26
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at, and for the year ended, March 31, 2020
June 24, 2020
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.
27
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,
2020. Based on that evaluation, management concluded that the Company’s internal control over financing reporting was
effective for the year ended March 31, 2020.
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, 2020, 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
28
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, 2020 and 2019, 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, 2020 and 2019, 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 with 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
29
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.
30
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 24, 2020
31
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at March 31
$000s
2020
2019
ASSETS
Cash and cash equivalents (notes 3 and 14)
Temporary investments (note 3)
Accounts receivable and other assets (note 10(f))
Loans receivable (note 10(e))
Derivative instrument (note 15)
Income taxes recoverable
Deferred income tax asset (note 11)
Carried interest from Clairvest Equity Partners III and IV (note 7)
Corporate investments (note 5)
Fixed assets (notes 8 and 16(f))
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable and accrued liabilities (note 10(h))
Income taxes payable
Accrued compensation expense (notes 13 and 16(b))
Share-based compensation (note 13)
Management participation from Clairvest Equity Partners III and IV (note 7)
Deferred income tax liability (note 11)
Contingencies, commitments and guarantees (note 16)
Shareholders' equity
Share capital (note 12)
Retained earnings
$
$
$
$
$
$
$
272,938
155,918
33,695
20,063
85
8,000
417
44,409
400,291
9,062
944,878
$
$
$
$
11,861
1,998
8,317
39,039
34,115
12,133
107,463
80,917
756,498
837,415
944,878
$
See accompanying notes
On behalf of the Board:
MICHAEL BREGMAN
Director
JOSEPH J. HEFFERNAN
Director
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
32
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended March 31
$000s (except per share information)
REVENUE
Net investment gain (loss) (notes 4 and 5)
Distributions and interest income (notes 5, 6 and 10)
Carried interest from Clairvest Equity Partners III and IV (note 7)
Dividend income (note 10(g))
Management fees (note 6)
Advisory and other fees (note 10(g))
EXPENSES
Employee compensation and benefits (notes 13 and 16(b))
Share-based compensation expenses (note 13)
Administration and other expenses
Finance and foreign exchange expenses
Management participation from Clairvest Equity Partners III and IV (note 7)
Income before income taxes
Income tax expense (note 11)
Net income and comprehensive income for the year
Basic and fully diluted net income and comprehensive income per share
(note 12)
See accompanying notes
2020
2019
$
21,576
80,397
22,615
1,212
2,025
1,473
129,298
22,056
4,161
5,338
489
17,970
50,014
79,284
9,786
69,498
$
(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
4.60
$
7.87
$
$
$
33
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the years ended March 31
$000s
Share capital Retained earnings
shareholders’
Total
As at April 1, 2019
Changes in shareholders' equity
Net income and comprehensive income for the year
Dividends declared ($0.5144 per share)
Purchase and cancellation of shares (note 12)
As at March 31, 2020
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 12)
As at March 31, 2019
See accompanying notes
$
81,245
$
697,447
$
778,692
equity
69,498
(7,786)
(2,661)
69,498
(7,786)
(2,989)
(328)
80,917
$
756,498
$
837,415
81,388
$
585,933
$
667,321
$
$
119,242
(6,671)
(1,057)
(143)
$
81,245
$
697,447
$
119,242
(6,671)
(1,200)
778,692
34
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 from Clairvest Equity Partners III and IV
Non-cash items relating to foreign exchange forward contracts
Non-cash items relating to corporate investments
Adjustments for:
Net proceeds on sale (cost of acquisition) of temporary investments
Net loans repaid by (advanced to) acquisition entities or the CEP Funds (note 10(e))
Cost of settlement of realized foreign exchange forward contracts
Decrease in restricted cash
Investments made in investee companies or acquisition entities
Proceeds on sale of investee companies
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 14)
Cash provided by (used in) operating activities
INVESTING ACTIVITIES
Sale (purchase) of fixed assets
Cash provided by (used in) investing activities
FINANCING ACTIVITIES
Cash dividends paid
Purchase and cancellation of shares (note 12)
Cash used in financing activities
Net increase (decrease) in cash during the year
Cash and cash equivalents, beginning of year (note 14)
Cash and cash equivalents, end of year
SUPPLEMENTAL CASH FLOW INFORMATION
Interest received
Distributions received (notes 5 and 10)
Income taxes paid
Interest paid
See accompanying notes
2020
2019
$
69,498
$
119,242
1,216
6,034
7,937
(21,576)
3,591
883
21,101
88,684
7,485
(10,336)
(968)
—
(57,524)
154
23,833
(7,260)
(44,616)
(49,709)
(5,641)
432
432
(7,786)
(2,989)
(10,775)
(15,984)
288,922
272,938
10,652
106,321
29,902
700
$
$
$
$
$
$
$
$
$
$
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
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019 (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 businesses. As at March 31, 2020, 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"), 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”) and Clairvest Equity Partners VI-B Limited Partnership (“CEP VI-B”)
(together, the "CEP Funds"). CEP III, CEP IV and CEP IV-A are herein referred to as Clairvest Equity Partners III and IV. CEP V,
CEP V India, CEP V-A, CEP VI, CEP VI-A and CEP VI-B are herein referred to as Clairvest Equity Partners V and VI.
Clairvest contributes financing and strategic expertise to support the growth and development of its investee
companies in order to create realizable value for 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, 2019, the Company adopted IFRS 16, Leases on a modified retrospective basis. The Company has
identified that it has approximately $4.2 million in right of use assets and $4.2 million in lease liabilities which were
identified from adoption of IFRS 16, and in accordance with transitional provisions, has chosen to not restate its
comparative information. Accordingly, the comparative information continues to be presented in accordance with the
Company’s previous accounting policy. The Company recognized right-of-use assets and their corresponding lease liabilities
for all significant lease contracts. In applying IFRS 16, the Company has used the following practical expedients as permitted
by the standard: 1) Operating leases with a remaining lease term of less than 12 months as at April 1, 2019 were treated as
short-term leases under IFRS 16; and 2) Payments associated with leases of low-value assets are recognized on a straight-
line basis as an expense in the consolidated statements of comprehensive income.
Other than noted above, the Company has consistently applied the same accounting policies throughout all
periods presented in these consolidated financial statements, as if these policies had always been in effect.
These consolidated financial statements and related notes of Clairvest for the years ended March 31, 2020 and
2019 ("consolidated financial statements") were authorized for issuance by the Board of Directors on June 24, 2020.
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
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
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019 (tabular dollar amounts in thousands, except per share information)
would include those which earn priority distributions or management fees from the CEP Funds and carried interest from
Clairvest Equity Partners III and IV. 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”)
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 fair value through profit or loss (“FVTPL”) rather than consolidating them. As discussed under critical
accounting estimates and judgments, management exercised judgment when determining whether subsidiaries are
investment entities.
On November 22, 2019, the Company determined that Clairvest General Partner V Limited Partnership (“Clairvest
GP V”) met the definition of an investment entity, as defined in IFRS 10. This change in status resulted from an
amendment to the business purpose of Clairvest GP V for it to invest directly in CEP V Co-Investment Limited
Partnership.
As a result of this change in status, the assets and liabilities of Clairvest GP V have been derecognized from the
Company’s consolidated statement of financial position and the Company’s investment in Clairvest GP V has been
recognized in corporate investments as at November 22, 2019, with an initial fair value of $0.1 million. There was no
material transition gain or loss on the change. Effective November 22, 2019, Clairvest GP V is considered an acquisition
entity of Clairvest and investments made by Clairvest GP V in CEP V Co-Investment Limited Partnership are measured at
FVTPL. The change in status of Clairvest GP V has been accounted for prospectively from November 22, 2019, in
accordance with IFRS 10.
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.
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019 (tabular dollar amounts in thousands, except per share information)
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")
Clairvest GP V
MIP V Limited Partnership ("MIP V")
CEP VI Co-Investment Limited Partnership (“CEP VI Co-Invest”)
MIP VI Limited Partnership (“MIP VI”)
Clairvest SLP VI Limited Partnership (“Clairvest SLP VI”)
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.
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 notes 6 and 7. 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 (“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 traded 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.
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019 (tabular dollar amounts in thousands, except per share information)
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
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 Clairvest
Equity Partners III and IV. Each Clairvest Equity Partners III and IV 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, Revenue from Contracts with Customers (“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.
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019 (tabular dollar amounts in thousands, except per share information)
(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.
(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
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019 (tabular dollar amounts in thousands, except per share information)
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 includes various limited partnerships 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 Clairvest Equity Partners III and IV which
are ultimately paid to the limited partners of the corresponding MIP partnerships which are external to the consolidated
group are recorded as a management participation liability and a management participation expense on the
consolidated financial statements. The amounts ultimately paid to the limited partners of the corresponding MIP
Partnerships resulting from carried interest from Clairvest Equity Partners V and VI are accounted for at FVTPL.
(l) Leases
Lease liabilities are measured at the present value of the remaining lease payments, discounted using the Company’s
incremental borrowing rate. Each lease payment is allocated between the repayment of the lease liability and finance
expenses. Finance expenses are charged to the consolidated statement of comprehensive income over the lease period
to produce a constant periodic rate of interest on the remaining balance of the lease liability for each period. The
associated right-of-use assets were measured at an amount equal to the lease liabilities, adjusted for previously
recognized lease accruals, in accordance with the transitional provisions of IFRS 16, and comprised entirely real estate
premises. The right-of-use assets are included within fixed assets in the consolidated statement of financial position and
amortized on a straight-line basis over the shorter of the asset’s useful life and the lease term. There was no impact to
retained earnings on April 1, 2019 resulting from the adoption of IFRS 16.
(m)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
Right-of-use asset
10%
30%
50%
20%
Term of lease
Term of lease
The computer 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 cost 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.
(n) 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.
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019 (tabular dollar amounts in thousands, except per share information)
(o) 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.
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 Clairvest Equity Partners III and IV. In accordance with IFRS
15, the calculated carried interest can only be recognized 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 realizations of Clairvest Equity Partners III and IVs’ 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.
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019 (tabular dollar amounts in thousands, except per share information)
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.
Impact on COVID-19 on Significant Estimates
On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic. A number of the Company’s
investee companies are located in jurisdictions or are in segments of the economy which have been severely impacted
by COVID-19, where some have suffered a temporary 100% decline in revenue as a result of a shutdown of all non-
essential businesses as mandated by the local or federal government. As a result, the fair value estimates of the
Company’s corporate investments as at March 31, 2020 were impacted due to cash flow forecasts and risk premiums
implied by equity and credit markets. These fair value estimates required significant judgment given the uncertainty
regarding the long-term impact of COVID-19 and the ultimate impact of COVID-19 on the Company’s investee
companies are unknown. If the duration or the spread of the pandemic, the related advisories and restrictions are
significantly longer than the Company’s estimate, or the impact on the equity or credit markets or the economy in
general is significantly worse than the Company’s estimate, the fair value of its corporate investments may be materially
adversely affected resulting in a material adverse impact to the Company’s financial results.
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, 2020, the pre-tax weighted average yield was 0.8% (2019 – 2.2%) per
annum.
As at March 31, 2020, temporary investments comprised guaranteed investment certificates, corporate bonds,
marketable securities 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. Guaranteed investment
certificates and corporate bonds have maturities greater than 90 days from the date of acquisition and through to
December 2021. The pre-tax weighted average yield was 2.6% (2019 – 3.5%) per annum. The composition of Clairvest's
temporary investments as at March 31 was as follows:
March 31, 2020
March 31, 2019
Due in 1 year
or less
Due after 1 year
$
Total
Total
$
Guaranteed investment certificates
Corporate bonds
Marketable securities(1)
Other fixed income securities(2)
126,231
6,003
—
31,169
163,403
215,245 common shares of Canadian Imperial Bank of Commerce (“CIBC”, TSX:CM), comprised 194,876 common shares received on the sale of
Wellington Financial during fiscal 2018, where the sale restriction ended in January 2020, plus dividends received in the form of 20,369 CIBC
common shares to March 31, 2020.
The pre-tax weighted average yield on other fixed income securities was 6.8% (2019 – 7.5%).
123,503
3,012
—
7,539
134,054
127,403
3,012
17,964
7,539
155,918
3,900
—
17,964
—
21,864
(1)
(2)
$
$
$
$
$
$
Additionally, Clairvest’s acquisition entities held $30.1 million (2019 – $28.3 million) in cash and cash equivalents and $26.4
million (2019 – $19.7 million) in temporary investments as described in note 5.
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019 (tabular dollar amounts in thousands, except per share information)
4. NET INVESTMENT GAIN (LOSS)
Net investment gain (loss) for the year ended March 31, 2020 and 2019 comprised the following:
$000's
Net investment gain on investee companies (note 5)
Net investment loss on the fair value revaluation of acquisition entities
Net change in unrealized gain (loss) on corporate investments
Carried interest from Clairvest Equity Partners V and VI (note 7)
Management participation from Clairvest Equity Partners V and VI (note 7)
$
$
2020
58,412
(40,396)
18,016
14,453
(10,893)
21,576
$
$
2019
119,114
(242,266)
(123,152)
—
—
(123,152)
5. 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, 2020
Acquisition
entities net
assets
(liabilities)
Investee
companies
Total
Investee
companies
March 31, 2019
Acquisition
entities net
assets
(liabilities)
Total
Held directly by Clairvest Group Inc.
$
3,787
$
—
$
3,787
$
25,077
$
—
$
25,077
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
Clairvest GP V
MIP V
CEP VI Co-Invest
MIP VI
Total
51,197
2,186
13,843
554
107,392
1,627
166,954
12,056
3,737
2,839
1,420
38,684
(3,113)
4,531
(10)
(711)
(6)
(10,190)
7,190
(80)
(7,226)
3,630
89,881
(927)
18,374
544
106,681
1,621
156,764
19,246
3,657
(4,387)
5,050
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
—
—
$
367,592
$
32,699
$
400,291
$
339,548
$
26,731
$
366,279
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, CEP V Co-
Invest, Clairvest GP V and MIP V, and CEP VI Co-Invest, Clairvest SLP VI and MIP VI are described in notes 10(a), 10(b), 10(c)
and 10(d).
During the year ended March 31, 2020, Clairvest made an additional investment of $5.0 million in 2486303
Ontario. Also during the year ended March 31, 2020, Clairvest made net investment of $27.1 million in CEP V Co-Invest.
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019 (tabular dollar amounts in thousands, except per share information)
2141788 Ontario and Clairvest GP V also made net investment of $2.6 million and $7.5 million, respectively, in CEP V Co-
Invest during fiscal 2020.
During fiscal 2020, CEP IV Co-Invest received total cash proceeds of $62.7 million primarily as a result of the
realizations of County Waste of Virginia and Impero Waste. Accordingly, during fiscal 2020, CEP IV Co-Invest declared
distributions totalling $62.2 million, $56.2 million of which were paid to Clairvest, $0.9 million of which were paid to an
acquisition entity of Clairvest and $5.1 million of which were paid as management participation. During fiscal 2020, CEP V
Co-Invest received total cash proceeds of $15.5 million as a result of the realization of GTA Gaming, the proceeds of which
were retained by CEP V Co-Invest and used to fund other investments made by CEP V Co-Invest.
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, 2020
March 31, 2019
Assets
Cash and cash equivalents
Temporary investments
Accounts receivable and other assets
Derivative instruments
Income taxes recoverable
Carried interest from Clairvest Equity Partners V and VI
Loans receivable
Deferred income tax asset
Liabilities
Accounts payable and accrued liabilities
Derivative instruments
Income taxes payable
Management participation from Clairvest Equity Partners V and VI
Loans payable
Deferred income tax liability
Net assets
$
$
$
$
$
$
30,070
26,362
1,326
—
491
14,453
540
1,286
74,528
$
5,915
11,407
82
10,893
8,209
5,323
41,829
32,699
$
$
$
28,275
19,662
435
1,619
128
—
—
640
50,759
1,805
3,240
648
—
8,759
9,576
24,028
26,731
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, aggregated by industry concentration, are summarized below.
Dental services
Equipment rental
Financial services
Gaming
Information technology
Marketing services
Renewable energy
Residential services
Specialty aviation and defence services
Waste management
Other investments
March 31, 2020
March 31, 2019
Fair value
16,636 $
7,102
3,009
186,484
8,602
7,471
18,523
6,375
81,016
27,117
5,257
367,592 $
$
$
Cost
15,902 $
13,591
—
120,688
6,732
995
16,185
6,375
60,304
21,951
2,346
265,069 $
Difference
Fair value
Cost
734 $
(6,489)
3,009
65,796
1,870
6,476
2,338
—
20,712
5,166
2,911
102,523 $
— $
—
22,634
177,319
7,016
10,055
12,463
6,375
56,687
43,390
3,609
339,548 $
— $
—
154
117,565
6,732
995
11,621
6,375
59,100
28,486
2,651
233,679 $
Difference
—
—
22,480
59,754
284
9,060
842
—
(2,413)
14,904
958
105,869
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019 (tabular dollar amounts in thousands, except per share information)
During fiscal 2020, the aggregate fair value of Clairvest’s investee companies increased by $28.0 million, comprised $59.5
million in new and follow-on investments, $31.0 million in net changes in unrealized gains in investee companies, $1.4
million in interest accrued on debt investments and dividends accrued, $0.5 million of gains in foreign exchange
revaluation, net of investment realizations which had an aggregate fair value of $41.2 million as at March 31, 2019 and
$23.2 million in corporate investments reclassified as temporary investments.
The fair value of each investee company reflected valuation methodologies as described in note 18. 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 15). 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) Investments made by CEP III Co-Invest alongside CEP III
As at March 31, 2020 and 2019, CEP III Co-Invest had one investment remaining in Chilean Gaming Holdings, which has a
50% ownership interest in each of Casino Marina del Sol in Concepcion, Chile and Casino Chillan in Chillán, Chile, and a
73.8% ownership interest in each of Casino Osorno in Osorno, Chile, and Casino Sol Calama in Calama, Chile. As at March
31, 2020 and 2019, CEP III Co-Invest held 30,446,299 limited partnership units of Chilean Gaming Holdings, representing a
36.8% equity interest.
During fiscal 2020, CEP III Co-Invest earned dividends totalling $6.4 million (2019 – $1.4 million) through its
investment in Chilean Gaming Holdings, bringing dividends earned to March 31, 2020 to $21.8 million (2019 – $15.4
million).
(b) Investments made by CEP IV Co-Invest alongside CEP IV
As at March 31, 2020, CEP IV Co-Invest had four (2019 – seven) investments remaining. Significant activities of CEP IV Co-
Invest portfolio companies were as follows:
Gaming
New Meadowlands Racetrack
New Meadowlands Racetrack (the "Meadowlands") operates a standardbred horse racing track located in East Rutherford,
New Jersey. As at March 31, 2020 and 2019, CEP IV Co-Invest had invested US$5.4 million (C$5.6 million) in the
Meadowlands in the form of secured convertible debentures. CEP IV Co-Invest also holds warrants which entitle it to invest
in equity securities of the Meadowlands subject to certain conditions. 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.
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. During fiscal 2019, CEP IV Co-Invest realized its interest in
Centaur Gaming for aggregate proceeds of US$166.8 million (C$219.4 million) and is entitled to deferred consideration of
US$8.4 million through to July 2021. There was no change to the entitlement of the deferred consideration during fiscal
2020 and as such, remained outstanding as at March 31, 2020.
Specialty aviation and defence services
Northco / Top Aces
Northco is a specialty aviation services company operating across Canada and in selected locations internationally. As at
March 31, 2020 and 2019, CEP IV Co-Invest held $22.9 million in Northco debentures and 3,867 common shares of Northco
at a cost of $0.4 million which represented 38.7% ownership interest on a fully diluted basis. During fiscal 2020, CEP IV Co-
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019 (tabular dollar amounts in thousands, except per share information)
Invest received payments on the Northco debentures totalling $1.1 million. Subsequent to year end, the interest rate on the
Northco debentures were amended from 10% per annum to 2% per annum.
Top Aces is a supplier of advanced adversary services across three continents. As at March 31, 2019, CEP IV Co-
Invest held 667.9553 common shares of Top Aces at a cost of $32.1 million, representing a 23.9% ownership interest on a
fully diluted basis. During fiscal 2020, Top Aces completed an equity financing of $100.0 million which comprised $20
million from existing shareholders and $80 million from a new investor. CEP IV Co-Invest made a $2.1 million investment for
17.8271 common shares of Top Aces in support of this equity financing. As at March 31, 2020, CEP IV Co-Invest held
685.7824 common shares of Top Aces, representing a 18.7% ownership interest on a fully diluted basis.
Subsequent to year end, Top Aces completed an additional $60 million equity financing, where CEP IV Co-Invest
acquired an additional 37.1895 common shares of Top Aces for $4.3 million, increasing total shares held to 722.9719 shares
which represented a 17.3% ownership interest on a fully diluted basis.
Momentum Solutions
Momentum Solutions is an inter-connected global network of leading strategic support companies which was spun out of
MAG Aerospace following its realization in fiscal 2018. As at March 31, 2020 and 2019, CEP IV Co-Invest had a 4.4%
ownership interest of Momentum Solution.
Waste management
Impero Waste
Impero Waste was originally called Winters Bros. Waste Systems of CT, a regional solid waste collection, recycling and
disposal company based in Danbury, Connecticut, an investment made by CEP IV Co-Invest during fiscal 2014. During fiscal
2018, the investment was partially realized and renamed as Impero Waste. As at March 31, 2019, 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 2020,
CEP IV Co-Invest realized on its interest in Impero Waste for US$2.3 million (C$3.0 million).
County Waste of Virginia
County Waste of Virginia ("County Waste") is a regional solid waste collection company servicing customers in the states of
Virginia and Pennsylvania. As at March 31, 2019, 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 and
a US$2.7 million 15% convertible promissory note, which can be redeemed at two times of the cost upon a sale or change
of control, from County Waste.
During fiscal 2020, CEP IV Co-Invest realized its investment in County Waste and received total cash proceeds of
US$45.6 million (C$59.3 million) on the equity interest and the promissory notes. Subsequent to year end, an additional
US$0.6 million (C$0.8 million) in sale proceeds was received from the sale. CEP IV Co-Invest is also entitled to a deferred
payment which is contingent on achieving certain corporate milestones, the probability of which is currently unknown.
Other investments
As at March 31, 2020 and 2019, CEP IV Co-Invest has an investment of $1.6 million in Davenport Land Developments which
hold real estate surrounding a casino development in Davenport, Iowa.
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.
(c) Investments made by CEP V Co-Invest alongside CEP V
As at March 31, 2020, CEP V Co-Invest had eleven (2019 – eight) investments. Significant activities of CEP V Co-Invest
portfolio companies were as follows:
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019 (tabular dollar amounts in thousands, except per share information)
Dental services
ChildSmiles Group, a new investment made during fiscal 2020, is a multi-specialty dental practice with various offices across
New Jersey providing families with accessible oral health care. The investment was made in the form of 11,836,165 Class B
preferred units for US$11.8 million (C$15.9 million) representing a 15.0% ownership interest on a fully diluted basis. The
Class B preferred units are entitled to a liquidity preference over all other equity of ChildSmiles Group.
Equipment rental
Durante Rentals, a new investment made during fiscal 2020, is a construction equipment rental provider in the New York
Metropolitan area. The investment in Durante Rentals was made in the form of 217,721.20 LLC units for US$10.4 million
(C$13.6 million) representing a 21.5% ownership interest on a fully diluted basis.
Gaming
Accel Entertainment
Accel Entertainment is a licensed video gaming terminal operator in Illinois. As at March 31, 2019, CEP V Co-Invest held
283,478 Class D preferred shares of Accel Entertainment at a cost of $16.0 million, representing a 7.6% ownership interest
on a fully diluted basis. The Class D preferred shares are entitled to a liquidity preference over all other equity of Accel
Entertainment.
During fiscal 2020, Accel Entertainment completed a business combination with TPG Pace Holdings Corp. In
support of the transaction, CEP V Co-invest rolled 100% of its equity interest in Accel Entertainment into the new combined
entity (“Accel”) and received 4,872,570 Class A-1 shares, 367,011 Class A-2 Shares and 299,052 private warrants of Accel.
The Class A-1 shares held by CEP V Co-Invest are publicly listed on the NYSE under symbol ACEL. CEP V Co-Invest is subject
to a hold period on the Class A-1 shares which expires subsequent to year end and have customary registration rights. The
Class A-2 shares converts into Class A-1 shares subject to certain criteria based on share price or earnings. The private
warrants have a strike price of US$11.50 per share and expire in five years. As at March 31, 2020, 122,337 of the Class A-2
shares held by CEP V Co-Invest were converted to 122,337 Class A-1 shares such that as at March 31, 2020, CEP V Co-Invest
held 4,994,907 Class A-1 shares, 244,674 Class A-2 shares and 299,052 private warrants of Accel Entertainment, together
representing a 6.4% ownership interest on a fully diluted basis.
FSB Technology
During fiscal 2020, CEP V Co-Invest invested £7.4 million (C$12.1 million) in FSB Technology, a Business-to-Business sports
and internet gaming technology supplier based in London, United Kingdom. The investment was made in the form of
6,935,287 Class A common shares and 420,804 Class B convertible preferred shares for a 24.5% ownership interest on a
fully diluted basis. The Class B convertible preferred shares are entitled to a liquidity preference over the Class A common
shares.
Head Digital Works
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, 2020 and 2019, CEP V Co-Invest had investments totalling $46.8 million in Head Digital Works. The
investment comprised INR₹657.9 million (C$13.7 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 39,412,175
common shares representing a 32.7% ownership interest on a fully diluted basis.
Subsequent to year end, the CCD was repaid in full.
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019 (tabular dollar amounts in thousands, except per share information)
GTA Gaming
CEP V Co-Invest’s investment in GTA Gaming comprised investments in two limited partnerships which operates various
gaming assets in the Province of Ontario. As at March 31, 2019, CEP V Co-Invest had a $9.0 million investment in GTA
Gaming. During fiscal 2020, CEP V Co-Invest realized on its investment in GTA Gaming and received cash proceeds totalling
$15.5 million. CEP V Co-Invest also received distributions totalling $1.6 million from GTA Gaming during its hold period.
Information technology
Meriplex Communications, an investment made during fiscal 2019, is a company based in Houston, Texas that designs,
installs and manages complex networking solutions for businesses. As at March 31, 2020 and 2019, CEP V Co-Invest held
5,250 common shares of Meriplex Communications representing an 17.8% ownership interest on a fully diluted basis at a
cost of $6.7 million.
Marketing services
Digital Media Solutions, an investment made during fiscal 2016, operates as a lead generation engine for companies in a
variety of different industries. As at March 31, 2020 and 2019, 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.
During fiscal 2020, Digital Media Solutions completed a dividend recapitalization and made a distribution to its
owners. CEP V Co-Invest received US$2.3 million (C$3.0 million) (2019 – US$9.4 million (C$12.3 million)) which was
recorded as a distribution and a corresponding reduction to fair value. Also during fiscal 2020, CEP V Co-Invest earned
quarterly distributions totalling $0.3 million (2019 – $1.2 million) from Digital Media Solutions, bringing total cash proceeds
to March 31, 2020 to $18.3 million (2019 – $15.0 million).
Subsequent to year end, Digital Media Solutions entered into an agreement for a business combination with Leo
Holdings Corp. (“Leo”), a publicly traded special purpose acquisition company. Clairvest’s obligation to consummate the
transaction is subject to, among other things, the delivery by Leo of a minimum cash amount.
Renewable energy
Also Energy, an investment made during fiscal 2017, 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 solar plants in
the United States and around the world.
As at March 31, 2019, CEP V Co-Invest had invested US$5.0 million (C$6.4 million) for various equity shares of Also
Energy, representing a 10.0% ownership interest on a fully diluted basis.
During fiscal 2020, CEP V Co-invest invested an additional US$0.4 million (C$0.5 million) in Also Energy. As at
March 31, 2020, CEP V Co-Invest held various equity shares together representing a 11.9% ownership interest on a fully
diluted basis.
In addition, CEP V Co-Invest has also 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. The promissory note had an initial maturity date of April 20,
2020 and was extended to December 31, 2020 subsequent to year end. During fiscal 2020, CEP V Co-Invest earned interest
totalling US$0.4 million (C$0.6 million) on the promissory note.
Subsequent to year end, CEP V Co-Invest made a US$3.6 million (C$4.9 million) follow-on investment to acquire
532 Class A common shares of Also Energy from a minority investor. Following the transaction, CEP V Co-Invest’s ownership
interest increased to 18.0%.
Residential services
Right Time Heating and Air Conditioning (“Right Time HVAC”), an investment made during fiscal 2018, is 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. As at March 31, 2020 and 2019, CEP V Co-Invest held 6,375,000 Class A
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019 (tabular dollar amounts in thousands, except per share information)
preferred shares which are convertible into a 15.0% ownership interest in Right Time HVAC on a fully diluted basis for $6.4
million.
Waste management
DTG Recycle
During fiscal 2020, CEP V Co-Invest invested US$8.7 million (C$11.3 million) in DTG Recycle, a waste hauling and recycling
company with operations concentrated in the greater Seattle-Tacoma area of Washington State. The investment was made
in the form of 8,657,622 Class A convertible preferred shares of DTG Recycle representing a 14.6% ownership interest on a
fully diluted basis.
Winters Bros. Waste Systems of Long Island
Winters Bros. Waste Systems of Long Island (“Winters Bros. of LI”) is a regional solid waste collection, recycling and disposal
company servicing customers in Long Island, New York. As at March 31, 2020 and 2019, CEP V Co-Invest held a 14.0%
ownership in on a fully diluted basis in Winters Bros. of LI and its various affiliates.
(d) Investments made by CEP VI Co-Invest alongside CEP VI
Renewable energy
As at March 31, 2020, CEP VI Co-Investment has one (2019 – nil) investment, SunSystem Technology, a solar operations and
maintenance company serving both the commercial and residential sector in the United States. The investment was made
in the form of 3,030.588 Class A preferred stock for US$3.0 million (C$4.0 million) for a 18.2% ownership interest on a fully
diluted basis.
(e) Investments directly held
Financial services
As at March 31, 2020, the Company has a residual interest in Wellington Financial, which was realized during fiscal 2018
and currently comprise the residual warrants portfolio which is being liquidated over time.
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 were restricted for sale subject to certain
conditions until January 7, 2020. In conjunction with the lifting of the sales restriction in January 2020, the CIBC common
shares were reclassified as marketable securities and included as temporary investments on the Consolidated Statement of
Financial Position.
During fiscal 2020, Clairvest received distributions totalling $2.1 million (2019 – $0.1 million) from Wellington
Financial. As at March 31, 2020, Clairvest had received distributions totalling $57.9 million (2019 – $55.8 million) from
Wellington Financial.
Gaming
As at March 31, 2020 and 2019, the Company has an investment in Grey Eagle Casino, which is located on the Tsuu T'ina
First Nation reserve lands, southwest of the City of Calgary, Alberta. As at March 31, 2020 and 2019, 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, 2486303 Ontario and Clairvest collectively hold a 100% interest in
CEP.
During fiscal 2020, Clairvest earned $31 thousand (2019 – $0.5 million) and CEP earned $0.1 million (2019 – $1.6
million) in equity distributions from Grey Eagle Casino.
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019 (tabular dollar amounts in thousands, except per share information)
The following tables summarize, by industry concentration, the net investment gain or loss on investee companies for the
years ended March 31, 2020 and 2019. The net investment gain or loss is inclusive of the impact on the foreign exchange
hedging activities related to these investments.
Net investment gain (loss), by industry concentration
Year ended March 31, 2020 ($000's)
Dental services
Equipment rental
Financial services
Gaming
Information Technology
Marketing Services
Renewable energy
Specialty aviation and defence services
Waste management
Other investments
Net investment gain (loss) on investee companies
$
(1) Inclusive of foreign exchange hedging activities
Year ended March 31, 2019 ($000's)
Financial services
Gaming
Information Technology
Marketing Services
Renewable energy
Specialty aviation and defence services
Waste management
Other investments
Net investment gain (loss) on investee companies
$
(1) Inclusive of foreign exchange hedging activities
Net realized
gains (losses)
—
—
—
6,812
—
—
—
551
30,837
—
38,200
Net unrealized
gains (losses)
—
(6,974)
2,871
9,419
1,223
(2,987)
—
23,279
2,579
1,628
31,038
Foreign
exchange
gain (loss)(1)
(26)
(564)
—
(9,639)
(41)
(12)
(106)
—
(412)
(26)
(10,826)
Net realized
gains (losses)
—
49,859
—
—
—
21,097
434
—
71,390
Net unrealized
gains (losses)
(2,418)
29,602
—
7,914
—
11,725
5,282
—
52,105
$
$
Foreign
exchange
gain (loss)(1)
—
(3,811)
(19)
71
(64)
154
(672)
(40)
(4,381) $
Total
(26)
(7,538)
2,871
6,592
1,182
(2,999)
(106)
23,830
33,004
1,602
58,412
Total
(2,418)
75,650
(19)
7,985
(64)
32,976
5,044
(40)
119,114
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 2020, the net impact of foreign exchange on the investee companies
included a $5.9 million loss (2019 – $2.4 million) on Chilean Pesos denominated investment, a $3.2 million loss (2019 – $0.7
million gain) on U.S. Dollar denominated investments, a $1.5 million loss (2019 – $2.7 million) on Indian Rupee
denominated investment, and a $0.2 million loss (2019 – nil) on British Pound denominated investment.
6. GENERAL PARTNER PRIORITY DISTRIBUTIONS AND MANAGEMENT FEES
Clairvest derives revenue from its investment management services for the CEP Funds in the form of general partner
priority distributions or management fees. The priority distributions and management fees are charged as a percentage of
committed capital on the most recent CEP Fund and of invested capital less write-downs on the other CEP Funds. The
priority distributions and management fees received by Clairvest are reduced proportionately by fees earned by Clairvest
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019 (tabular dollar amounts in thousands, except per share information)
from corporate investments of the CEP Funds and other amounts as provided in the respective Limited Partnership
Agreements.
During fiscal 2020, 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-Invest
(see note 10(d)), and US$620.0 million of commitments from third-party investors through CEP VI, CEP VI-A and CEP VI-B.
Clairvest Equity Partners VI is the successor fund to Clairvest Equity Partners V. The General Partner of CEP V delivered a
notice to CEP V pursuant to its Limited Partnership Agreement which terminated the Commitment Period of CEP V effective
February 28, 2020. Accordingly, general partner priority distributions and management fees on Clairvest Equity Partners VI
commenced March 1, 2020.
For the year ended March 31, 2020 and 2019, general partner priority distributions and management fees from
the CEP Funds were as follows:
Priority Distributions
$000's
CEP III
CEP IV
CEP V
CEP V India
CEP VI
Management Fees
$000's
CEP IV-A
CEP V-A
CEP VI-A
CEP VI-B
$
$
$
$
2020
370
1,235
4,957
629
400
7,591
2020
195
914
560
356
2,025
$
$
$
$
2019
525
1,776
5,223
640
—
8,164
2019
291
968
—
—
1,259
7. CARRIED INTEREST AND MANAGEMENT PARTICIPATION
As governed by the respective CEP Fund Limited Partnership Agreements, certain Clairvest consolidated subsidiaries and
acquisition entities are entitled to participate in distributions equal to 20% of all net gains (“carried interest”), which is
subject to the respective investors of each CEP Fund achieving a minimum net return on their investment. On Clairvest
Equity Partners VI, the carried interest increases from 20% to 25% once their investors achieve a net return of two times
their aggregate capital contributions.
Clairvest is entitled to 50% of the carried interest realized in each CEP Fund and Clairvest management is entitled
to the other 50% of the carried interest through their limited partnership interests in the various MIP partnerships. Clairvest
management is also entitled to an 8.25% carried interest from the various CEP Co-Invest partnerships as governed by their
respective Limited Partnership Agreements. Clairvest management is required to purchase limited partnership units of the
various MIP partnerships at fair market value.
As described in note 2(k), Clairvest records the carried interest from Clairvest Equity Partners III and IV and records
an expense and a liability on that portion of the carried interest which is payable to Clairvest management. In accordance
with IFRS 10, the carried interest from Clairvest Equity Partners V and VI and the corresponding management participation
has been included in net investment gain as described in note 4.
Carried interest from Clairvest Equity Partners III and IV for fiscal 2020 and 2019 comprised the following:
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019 (tabular dollar amounts in thousands, except per share information)
$000's
Realized carried interest
Net change in unrealized carried interest
$
$
2020
34,690
(12,075)
22,615
$
$
2019
119,107
(71,416)
47,691
The following tables detail the carried interest received from Clairvest Equity Partners III and IV and management
participation paid for fiscal 2020 and 2019 and the corresponding receivable and payable balances as at the respective
balance sheet dates:
$000's
CEP
CEP III
CEP IV
CEP IV-A
Co-Investors
$000's
CEP III
CEP IV
CEP IV-A
CEP III Co-Invest
CEP IV Co-Invest
CEP V Co-Invest(1)
Co-Investors
Realized carried interest
Received during fiscal
2019
2020
24
960
28,950
4,756
—
34,690
$
$
350
—
94,731
17,093
6,933
119,107
$
$
Management participation
Paid during fiscal
2020
2019
480
14,475
2,378
470
5,128
—
—
22,931
$
—
47,366
8,547
—
22,630
—
3,600
82,143
$
Unrealized carried interest
As at March 31
2020
515
7,971
30,927
4,996
—
44,409
$
$
2019
1,333
11,969
37,112
6,070
—
56,484
Management Participation
Payable as at March 31
2020
3,986
15,463
2,498
3,233
8,935
—
—
34,115
$
2019
5,985
18,556
3,035
4,889
9,008
1,126
—
42,599
$
$
$
(1) Effective November 22, 2019, management participation from CEP V Co-Invest were accounted for in accordance with note 2(k).
During fiscal 2020, no carried interest was received from Clairvest Equity Partners V and VI and no management
participation payments were made by Clairvest related to Clairvest Equity Partners V and VI. The following tables detail the
carried interest receivable from Clairvest Equity Partners V and VI and management participation payable balances, as at
the respective balance sheet dates, which have been included in corporate investments:
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019 (tabular dollar amounts in thousands, except per share information)
Unrealized Carried Interest
$000's
CEP V and CEP V India
CEP V-A
Management Participation
$000's
CEP V and CEP V India
CEP V-A
CEP V Co-Invest(1)
As at March 31
2020
11,090
3,363
14,453
$
$
As at March 31
2020
5,546
1,681
3,666
10,893
$
$
2019
—
—
—
2019
—
—
—
—
$
$
$
$
(1) Prior to November 22, 2019, management participation from CEP V Co-Invest were accounted for in accordance with note 2(k).
8. FIXED ASSETS
The composition of Clairvest's fixed assets was as follows:
At cost
Balance as at April 1, 2019
Additions
Disposals
Balance as at March 31, 2020
Accumulated amortization
Balance as at April 1, 2019
Amortization expense
Disposals
Balance as at March 31, 2020
Carrying amount as at March 31, 2020
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
$
$
$
$
$
$
$
$
$
Aircrafts(1)
IT equipment
Furniture,
fixtures and
equipment
Leasehold
improvements
Right-of-use
asset(2)
Total
9,528
66
(3,603)
5,991
3,367
594
(3,070)
891
$
$
$
$
16
—
—
16
15
1
—
16
$
$
$
$
295
1
—
296
230
25
—
255
$
$
$
$
708
—
—
708
366
182
—
548
$
$
$
$
4,175
—
—
4,175
—
414
—
414
$
$
$
$
14,722
67
(3,603)
11,186
3,978
1,216
(3,070)
2,124
5,100
$
—
$
41
$
160
$
3,761
$
9,062
3,603
5,925
9,528
$
$
2,715
$
652
3,367
$
16
—
16
11
4
15
$
$
$
$
280
15
295
$
$
708
—
708
$
$
203
$
182
$
27
184
230
$
366
$
—
—
—
—
—
—
$
$
$
$
4,607
5,940
10,547
3,111
867
3,978
Carrying amount as at March 31, 2019
6,569
(1) A corresponding payable equal to 50% of the net book value of the aircrafts had been recorded to reflect the ownership interest of the related
6,161
342
65
—
$
$
$
$
1
$
$
parties.
(2) As a result of adopting IFRS 16: Leases, Clairvest included an accrued liability resulting from future minimum annual lease payments for the use of
office space. $0.6 million is due within one year, $2.5 million due after one year but no more than five years, and $1.4 million due after five years.
Refer to note 16(f) for further details.
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019 (tabular dollar amounts in thousands, except per share information)
9. CREDIT FACILITIES
As at March 31, 2020 and 2019, Clairvest maintained a $100.0 million revolving credit facility which is participated in by
several Schedule 1 Canadian chartered banks. The credit facility, which has a current expiry of December 2024 (2019 –
December 2023) 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. The prime rate as at
March 31, 2020 was 2.45% (2019 – 3.95%) per annum. The amount available under the credit facility as at March 31, 2020
and 2019 was $100.0 million. No amounts had been drawn on the facility during fiscal 2020 and 2019 and as at March 31,
2020 and 2019.
10. RELATED PARTY DISCLOSURES
Investments in acquisition entities and investment-related transactions with acquisition entities are further described in
note 5.
(a) CEP III Co-Invest, an investment vehicle established in fiscal 2007, has committed to co-invest alongside CEP III in all
investments undertaken by CEP III. 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 III Co-Invest’s co-investment commitment is $75.0 million, $15.2 million (March 2019 – $15.2 million) of which
remained unfunded as at March 31, 2020. CEP III Co-Invest is capitalized by three limited partners, Clairvest, 2141788
Ontario and MIP III. In accordance with the co-investment agreement, the proportion of the commitment amongst its
three limited partners is at their own discretion. As at March 31, 2020, MIP III had invested $1.1 million in CEP III Co-
Invest. 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. During fiscal 2020, MIP III distributed $78 thousand (2019 –
nil) to Clairvest. As at March 31, 2020, $2.4 million (2019 – $2.3 million) had been received by Clairvest.
(b) CEP IV Co-Invest, an investment vehicle established in fiscal 2010, 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 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 proportionately number of
securities of that corporate investment held by CEP IV and CEP IV-A.
CEP IV Co-Invest’s co-investment commitment is $125.0 million, $11.7 million (2019 – $12.7 million) of which
remained unfunded as at March 31, 2020. CEP IV Co-Invest is capitalized by two limited partners, Clairvest and MIP IV.
In accordance with the co-investment agreement, the proportion of the commitment amongst its two limited partners
is at their own discretion. As at March 31, 2020, MIP IV had invested $1.6 million in CEP IV Co-Invest. 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 2020, MIP IV distributed $0.8 million (2019 – $5.4 million) to
Clairvest. As at March 31, 2020, $6.2 million (2020 – $5.4 million) had been received by Clairvest.
(c) CEP V Co-Invest, an investment vehicle established in fiscal 2015, has committed to co-invest alongside CEP V, CEP V
India and CEP V-A in all investments undertaken by CEP V, CEP V India CEP V-A. CEP V Co-Invest may only sell all or a
portion of a corporate investment that is a joint investment with CEP V, CEP V India and CEP V-A if it concurrently sells
a proportionately number of securities of that corporate investment held by CEP V, CEP V India and CEP V-A.
CEP V Co-Invest’s co-investment commitment is $180.0 million, $45.0 million (2019 – $85.7 million) of which
remained unfunded as at March 31, 2020. CEP V Co-Invest is capitalized by four limited partners, Clairvest, 2141788
Ontario, Clairvest GP V and MIP V. In accordance with the co-investment agreement, the proportion of the
commitment amongst its four limited partners is at their own discretion. Clairvest, as the general partner of Clairvest
GP V and MIP V, is entitled to participate in distributions equal to the realizable value on the amounts invested by
Clairvest GP V and MIP V in CEP V Co-Invest. As at March 31, 2020, Clairvest GP V and MIP V had invested $7.5 million
and 2.4 million, respectively, in CEP V Co-Invest. No distribution was made from Clairvest GP V and MIP V to Clairvest
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019 (tabular dollar amounts in thousands, except per share information)
during fiscal 2020. As at March 31, 2020, Clairvest had received no distributions from Clairvest GP V and $9 thousand
(2019 – $9 thousand) from MIP V.
(d) CEP VI Co-Invest, an investment vehicle established in fiscal 2020, has committed to co-invest alongside CEP VI, CEP VI-
A and CEP VI-B in all investments undertaken by CEP VI, CEP VI-A and CEP VI-B. CEP VI Co-Invest may only sell all or a
portion of a corporate investment that is a joint investment with CEP VI, CEP VI-A and CEP VI-B if it concurrently sells a
proportionately number of securities of that corporate investment held by CEP VI, CEP VI-A and CEP VI-B.
CEP VI Co-Invest’s co-investment commitment is US$230.0 million (C$323.3 million), all of which remained
unfunded as at March 31, 2020. CEP VI Co-Invest is capitalized by three limited partners, Clairvest, Clairvest SLP VI and
MIP VI. In accordance with the co-investment agreement, the proportion of the commitment amongst its three limited
partners is at their own discretion. Clairvest, as the general partner of Clairvest SLP VI and MIP VI, is entitled to
participate in distributions equal to the realizable value on the amounts invested by MIP VI in CEP VI Co-Invest. As at
March 31, 2020, no investments had been made by Clairvest, Clairvest SLP VI and MIP VI into CEP VI Co-Invest.
(e) Changes in loans receivable for the years ended March 31, 2020 and 2019 were as follows:
CEP V(1)
CEP V-A(1)
CEP VI(1)
CEP VI-A(1)
CEP VI-B(1)
CEP V Co-Invest(2)
CEP VI Co-Invest(2)
2486303 Ontario(3)
Other
April 1, 2019
658
125
—
—
—
—
—
8,759
9,542
185
9,727
$
$
$
$
Net loan advanced
(repaid)
(285) $
(125)
3,491
4,885
3,106
190
4,259
(5,000)
10,521
(185)
10,336
$
March 31, 2020
373
—
3,491
4,885
3,106
190
4,259
3,759
20,063
—
20,063
Net loan advanced
(repaid)
$
CEP V(1)
CEP V-A(1)
CEP IV Co-Invest(2)
CEP V Co-Invest(2)
2486303 Ontario(3)
March 31, 2019
658
125
—
—
8,759
9,542
185
9,727
(1) Loans advanced to CEP IV, CEP IV-A, CEP V, CEP V India, CEP V-A, CEP VI, CEP VI-A and CEP VI-B bear interest at the reference rate in accordance
with the respective Limited Partnership Agreements. Interest of $0.8 million (2019 – $0.5 million) was earned from loans advanced to these
counterparties during fiscal 2020.
April 1, 2018
794
151
2,700
405
9,551
13,601
—
13,601
(26)
(2,700)
(405)
(792)
(4,059)
185
(3,874) $
(136) $
Other
$
$
$
(2) Loans advanced to these acquisition entities are non-interest bearing.
(3) Loans advanced to 2486303 Ontario bear interest at 10.0% per annum. Interest of $0.6 million (2019 – $0.9 million) was earned from these
loans during fiscal 2020.
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019 (tabular dollar amounts in thousands, except per share information)
(f) Accounts receivable and other assets comprised the following:
Clairvest’s investee companies
CEP III
CEP IV
CEP IV-A
CEP V
CEP V India
CEP V-A
CEP VI
CEP VI-A
CEP VI-B
Other accounts receivable and prepaid expenses
Share purchase loans
March 31, 2020
March 31, 2019
$
$
2,948
275
37
27
3,680
1,563
4,574
3,509
4,832
3,073
24,518
6,494
2,683
33,695
$
$
1,213
430
86
39
6,315
839
4,591
—
—
—
13,513
3,052
3,304
19,869
Included in accounts receivable and other assets as at March 31, 2020 were share purchase loans made to certain
employees of the Company totalling $2.7 million (2019 − $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
employees with a market value of $3.3 million (2019 – $6.4 million) as at March 31, 2020. None of these loans were
made to key management. Interest of $63 thousand (2019 – $66 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 5 held receivables from CEP V-A totalling $1.3 million (2019 – $5 thousand). As at March 31, 2019, these
acquisition entities held receivable from CEP IV totalling $31 thousand, from CEP V totalling $25 thousand and from
Clairvest’s investee companies totalling $0.4 million, all of which were repaid during fiscal 2020.
(g) During fiscal 2020, Clairvest earned $2.1 million (2019 – $1.0 million) in distributions and interest income, $1.2 million
(2019 – $1.1 million) in dividend income and $1.5 million (2019 – $1.3 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 5 earned $8.8 million (2019 – $18.9 million) in distributions and interest income and $6.4 million
(2019 – $1.4 million) in dividend income. These acquisition entities did not receive any advisory or other fees from its
investee companies (2019 – $0.6 million).
(h) 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.
11. INCOME TAXES
Income tax expense for the years ended March 31, 2020 and 2019 comprised the following:
Current income tax expense
Deferred income tax expense (recovery)
$
$
2020
1,849
7,937
9,786
$
$
2019
38,801
(20,165)
18,636
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019 (tabular dollar amounts in thousands, except per share information)
A reconciliation of the income tax expense for the years ended March 31, 2020 and 2019 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 gains 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 and loss carryforwards
Other
2020
2019
$
%
$
%
79,284
137,878
21,010
(7,482)
(2,255)
(600)
(154)
(792)
59
9,786
26.50
26.50
(9.44)
(2.84)
(0.76)
(0.19)
(1.00)
0.07
12.34
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
In addition to the income tax expense recorded by Clairvest, acquisition entities of Clairvest recorded an income tax expense
recovery of $4.3 million (2019 – expense of $3.6 million) during fiscal 2020, which had been included in the fair value
determination of these acquisition entities.
Net 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 derivative instruments
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, 2020 March 31, 2019
$
$
17,417
11
(8,931)
(1,427)
2,096
2,550
11,716
$
$
6,690
—
(7,905)
489
2,085
2,420
3,779
All deferred income tax expenses (recoveries) were recognized in net income during fiscal 2020 and 2019.
12. 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)
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019 (tabular dollar amounts in thousands, except per share information)
Issued and outstanding
March 31, 2020
March 31, 2019
Shares
Amount
Shares
Amount
Common shares, beginning of year
15,136,495
$
81,245
15,162,995
$
81,388
Purchased and cancelled under normal course issuer bid
(61,194)
(328)
(26,500)
(143)
Common shares, end of year
15,075,301
$
80,917
15,136,495
$
81,245
In March 2020, the Company filed a normal course issuer bid enabling it to make market purchases of up to 759,984
(2019 – 760,747) of its common shares in the 12-month period ending March 6, 2021. During fiscal 2020, the Company
purchased and cancelled 16,900 common shares under the current normal course issuer bid and purchased and cancelled
44,294 common shares under a previous normal course issuer bid for an aggregate cost of $3.0 million.
Common shares of 15,075,301 (2019 − 15,136,495) were outstanding as at March 31, 2020. The weighted average
number of common shares outstanding during fiscal 2020 was 15,110,507 (2019 – 15,151,018).
The basic and fully diluted net income per share computations for 2020 and 2019 were as follows:
Net income and
comprehensive
income
(000s)
69,498
$
Weighted
average
number of
shares
15,110,507
2020
Per share
amount
4.60
Net income and
comprehensive
income
(000s)
119,242
$
Weighted
average
number of
shares
15,151,018
2019
Per share
amount
7.87
Basic and fully diluted
No Series 1 or Series 2 Shares had been issued as at March 31, 2020 and 2019.
13. 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,
2020 and 2019. As at March 31, 2020 and 2019, 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 2020, Clairvest granted 106,667 (2019 – 49,487) options under the Non-Voting Option Plan.
None of the options were exercised or forfeited during fiscal 2020 and 2019. As at March 31, 2020, 518,758 (2019 –
412,091) options were outstanding, 193,685 (2019 – 111,269) of which had vested.
Clairvest recognized stock-based compensation expense based upon the fair value of the outstanding stock options
as at March 31, 2020 using the Black-Scholes option pricing model with the following assumptions:
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019 (tabular dollar amounts in thousands, except per share information)
2019
106,667
95.95
2018
49,487
92.51
2017
2016
168,829
70.39
193,775
54.97
As at March 31, 2020
Year of grant
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)
20%
5%
1.00%
1.94%
1.25
4,996
Based on two times the five-day weighted average closing price of Clairvest common shares at date of grant and is adjusted for special dividends
paid by the Company.
Share price for a Clairvest common share as at March 31, 2020 was $43.00 (TSX: CVG).
20%
5%
1.00%
1.92%
2.25
2,287
20%
5%
1.00%
1.93%
3.25
261
20%
5%
1.00%
2.00%
4.25
348
$
$
$
$
(2)
During fiscal 2020, Clairvest recognized a share-based compensation expense recovery of $1.0 million (2019 – expense of
$3.4 million) with respect to the Non-Voting Option Plan, as the price of a Clairvest common share decreased during fiscal
2020.
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, 2020. During fiscal 2020, 29,047 (2019 – 27,893) EDSUs were issued based on the terms
and conditions of the EDSU Plan. As at March 31, 2020, a total of 107,496 (2019 – 78,449) EDSUs were outstanding, the
accrual in respect of which was $4.5 million (2019 – $3.7 million) had been included in share-based compensation liability.
During fiscal 2020, Clairvest recognized an expense recovery of $0.6 million (2019 – expense of $0.1 million) with respect to
EDSUs, as the price of a Clairvest common share decreased during fiscal 2020.
As at March 31, 2020, a total of 422,584 (2019 – 595,948) BVARs were outstanding, the accrual in respect of which
was $11.5 million (2019 – $11.4 million) and had been included in share-based compensation liability, and an additional
$5.6 million (2019 – $7.2 million) not accrued as those BVARs had not vested. During fiscal 2020, 4,082 (2019 – 32,012)
BVARs were granted and 177,446 (2019 – 120,984) BVARs were exercised. For the year ended March 31, 2020, Clairvest
recognized an expense of $7.4 million (2019 – $6.8 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 16(b), 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:
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019 (tabular dollar amounts in thousands, except per share information)
2020
2019
Paid
Salaries
Annual incentive plans(1)
Book value appreciation rights
836
1,417
1,821
4,074
(1) Included an aggregate bonus of $2.9 million paid upon the final closing of the fundraising of CEP VI ("CEP VI bonus"). The total CEP VI bonus paid by
the Company to management was $7.4 million.
912
4,422
2,923
8,257
$
$
$
$
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, 2020
March 31, 2019
$
$
$
2,464
2,621
7,957
1,204
14,246
$
5,095
3,028
6,193
1,069
15,385
As at March 31, 2020, 266,673 (2019 – 257,573) DSUs were held by directors of the Company, the accrual in respect of
which was $12.0 million (2019 – $12.7 million) and had been included in share-based compensation liability. During fiscal
2020, 9,100 (2019 – 9,766) DSUs were granted. For the year ended March 31, 2020, Clairvest recognized an expense
recovery of $0.7 million (2019 – expense of $1.1 million) with respect to DSUs, as the price of a Clairvest common share
decreased during fiscal 2020.
As at March 31, 2020 and 2019, 120,000 ADSUs were held by directors of the Company, the accrual in respect of
which is $3.1 million (2019 – $3.6 million) and had been included in share-based compensation liability. For the year ended
March 31, 2020, Clairvest recognized an expense recovery of $0.5 million (2019 – expense of $0.3 million) with respect to
ADSUs, as the price of a Clairvest common share decreased during fiscal 2020.
During fiscal 2020, no compensation was paid to directors under the BVAR, DSU or ADSU plans (2019 – nil). In
addition to the DSU and ADSU plans previously discussed, compensation payable to the directors of Clairvest included
$0.8 million (2019 – $0.9 million) under the Non-Voting Option Plan.
14. 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
$
$
2020
(13,826) $
(8,000)
(2,866)
(20,333)
(4,684)
(49,709) $
2019
8,533
394
6,878
16,651
1,358
33,814
61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019 (tabular dollar amounts in thousands, except per share information)
Cash and cash equivalents as at March 31, 2020 and 2019 comprised the following:
Cash
Cash equivalents
March 31, 2020
March 31, 2019
$
$
246,621
26,317
272,938
$
$
262,286
26,636
288,922
15. 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. During fiscal 2020, the Company paid $1.0 million (2019 – $8 thousand) on the settlement of realized foreign
exchange forward contracts.
As at March 31, 2020, the Company had an unexpired foreign exchange forward contract to sell US$11.2 million
(2019 – nil) at an average rate of C$1.4141 per U.S. dollar (2019 – nil) through to April 2020. The fair value of the forward
contract as at March 31, 2020 was a gain of $0.1 million (2019 – nil).
The fair value of foreign exchange forward contracts entered into by the Company’s acquisition entities to hedge
against foreign-denominated investee companies had been included in the fair value of Clairvest's investment in these
acquisition entities on the consolidated statements of financial position. The net impact of foreign exchange on the investee
companies are described in note 5 and 17 under Currency Risk.
No collateral was funded to the counterparties for Clairvest's foreign exchange forward contracts and those of its
acquisition entities as at March 31, 2020 and 2019.
16. CONTINGENCIES, COMMITMENTS AND GUARANTEES
(a) Clairvest has committed a total of $55.5 million (2019 – $55.5 million) in the Wellington Funds, all of which was
unfunded as at March 31, 2020 and 2019. 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.
(b) 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,
2020, the Realized Amount under the Bonus Program was $2.3 million (2019 − $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 recorded a
$2.3 million (2019 − $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, CEP V Co-Invest and CEP VI Co-Invest.
(c) In conjunction with the sale of Casino New Brunswick, Clairvest provided a guarantee which as at March 31, 2020 was
$1.6 million (2019 – $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, 2020 and 2019, no amounts with respect to this guarantee have been funded.
(d) 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. During fiscal 2020, the deposits were redeemed and used to repay the loan in full.
(e) Clairvest has agreed to guarantee up to US$2.5 million to support SunSystem Technology’s credit facility with its bank.
The guarantee is callable by the lender under certain circumstances and should it be called, Clairvest will assume the
lender’s security position that supports the loans provided by the lender. Clairvest intends to allocate any amounts
called under this guarantee to CEP VI Co‐Invest, CEP VI, CEP VI-A and CEP VI‐B on a pro‐rata basis in accordance with
62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019 (tabular dollar amounts in thousands, except per share information)
their respective capital commitments in the CEP VI Fund. As at March 31, 2020, the total contingent exposure under this
guarantee is US$2.0 million, US$0.5 million of which would be assumed by CEP VI Co‐Invest if called. Any additional
guarantee is subject to Clairvest’s consent at its sole discretion.
(f) As at March 31, 2020, the Company had an accrued liability resulting from future minimum annual lease payments for
the use of office space. The detail of the lease liability recognized from April 1, 2019 is as follows:
$000's
Operating lease commitment disclosed as at March 31, 2019
Discount of future lease payments
Lease liability recognized as at April 1, 2019
Payments applied from April 1, 2019 to March 31, 2020
Lease liability as at March 31, 2020
(1) As at March 31, 2020, the incremental borrowing rate was prime plus 1.25% per annum (April 1, 2019 - Prime plus 1.25%)
$
$
5,144
(969)
4,175
(414)
3,761
(g) 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.
17. 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 18.
The Company's corporate investment portfolio was diversified across 17 investee companies in 10 industries and 5
countries as at March 31, 2020. Concentration risk by industry and by country as at March 31, 2020 and 2019 was as
follows:
March 31, 2020
March 31, 2019
Canada
United States
International(1)
Total
Canada
United States
International(1)
Total
Dental services
$
— $
16,636 $
— $
16,636 $
Equipment rental
Financial services
Gaming
Information technology
Marketing services
Renewable energy
Residential services
Specialty aviation and
defence services
Waste management
Other investments
—
3,009
2,914
—
—
—
6,375
81,016
—
50
7,102
—
72,594
8,602
7,471
18,523
—
—
27,117
5,207
—
—
7,102
3,009
110,976
186,484
8,602
7,471
18,523
6,375
—
—
—
—
—
—
—
81,016
56,687
27,117
5,257
—
355
— $
—
22,634
17,323
—
—
—
6,375
— $
— $
—
—
54,591
7,016
10,055
12,463
—
—
43,390
3,254
—
—
105,405
—
—
—
—
—
—
—
—
—
22,634
177,319
7,016
10,055
12,463
6,375
56,687
43,390
3,609
Total
$
93,364 $
163,252 $
110,976 $
367,592 $
103,374 $
130,769 $
105,405 $
339,548
(1) Includes investments in Chile, India and the UK
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019 (tabular dollar amounts in thousands, except per share information)
The Company has considered current economic events and indicators, including an estimate on the impact of COVID-19, 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
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.
As at March 31, 2020, $270.9 million (2019 - $285.9 million) of the Company’s treasury funds are held in accounts
which pay interest commensurate with prime rate changes, and $127.4 million (2019 - $126.2 million) of the Company’s
treasury funds are in guaranteed investment certificates with an average remaining duration of 0.6 years (2019 – 0.7 years).
If interest rates were higher or lower by 1% per annum, and assuming the renewal rates of these guaranteed investment
certificates commensurate with prime rate changes, the potential effect would have been an increase of $4.0 million (2019
– $4.4 million) per annum or decrease of $4.0 million (2019 – $4.3 million) per annum to distributions and interest income
on a pre-tax basis.
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 18.
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, India, Chile and the United Kingdom. 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, 2020, the
Company foreign exchange exposure with respect to the CLP and with respect to its equity investment in India are
unhedged. Significant depreciation in value in these currencies could result in a material impact to the performance of
Clairvest’s investment portfolio and potentially the carried interest it could earn from the CEP Funds.
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, 2020 and 2019, 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, 2020 and 2019, net of any
allowances for losses, were as follows:
64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019 (tabular dollar amounts in thousands, except per share information)
March 31, 2020
Acquisition
entities
Clairvest
Total
Clairvest
March 31, 2019
Acquisition
entities
$
Financial assets
Cash and cash equivalents
Temporary investments
Accounts receivable(1)
Loans receivable(2)
Derivative instruments
Corporate investments(3)
272,938
137,954
27,863
11,855
85
–
450,695
(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.
303,008
164,316
29,189
12,395
85
32,803
30,070
26,362
1,326
540
–
32,803
91,101
288,922
163,403
18,264
968
–
–
471,557
541,796
$
$
$
28,275
19,662
435
–
1,619
38,380
88,371
Total
317,197
183,065
18,699
968
1,619
38,380
559,928
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. As at March 31, 2020, the Company held derivative instruments which had
a net mark-to-market gain of $0.1 million (2019 – nil). Additionally, the Company's acquisition entities held derivative
instruments which had a net mark-to-market loss of $11.4 million (2019 – $1.6 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.
65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019 (tabular dollar amounts in thousands, except per share information)
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
Money market savings accounts
R1-High
R1-Low
March 31, 2020
March 31, 2019
Clairvest
$ 270,984
Acquisition
entities
29,769
Clairvest
Total
300,753 $ 287,610
Acquisition
entities
28,115
Total
315,725
389
235
279
—
668
235
283
—
154
—
437
—
Guaranteed investment certificates and investment savings accounts
AA
A+
A
A-(1)
BB+(1)
BB-(1)
BBB-(1)
Not rated(1)
Corporate bonds
A+
A
122,093
—
5,909
311
—
105
210
105
3,012
—
16,195
—
—
—
—
—
102
306
138,288
—
5,909
311
—
105
312
411
107,618
102
18,110
513
102
102
306
407
10,465
—
5,790
406
—
—
—
—
118,083
102
23,900
919
102
102
306
407
—
—
3,012
—
2,997
3,006
—
—
2,997
3,006
Other fixed income securities
Not rated(3)
Total cash, cash equivalents and fixed income securities
7,539
$ 410,892
9,781
56,432
17,320
31,169
467,324 $ 452,325
3,007
47,937
34,176
500,262
(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.
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 $404.6 million (2019 – $122.0 million) as at March 31, 2020. 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 (2019 – $100.0 million) credit
facility which was undrawn as at March 31, 2020.
As at March 31, 2020, Clairvest had treasury funds of $410.9 million (2019 – $452.3 million) and access to
$100.0 million (2019 – $100.0 million) in credit to support its obligations and current and anticipated corporate
investments. Clairvest also had access to $56.4 million (2019 – $47.9 million) in treasury funds held by its acquisition
entities and $1.0 billion (2019 – $286.2 million) in uncalled committed third-party capital through the CEP Funds as at
March 31, 2020 to invest along with Clairvest's capital.
66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019 (tabular dollar amounts in thousands, except per share information)
18. 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
The following table presents the financial instruments measured at fair value classified by the fair value hierarchy:
March 31, 2020
Fair value measurements using
Level 1
Level 2
Level 3
Assets/liabilities
at fair value
Financial assets
Cash equivalents
Money market savings accounts
$
423
$
Investment savings accounts
Temporary investments
Guaranteed investment certificates
Corporate bonds
Marketable securities
Other fixed income securities
Derivative instruments
Corporate investments
25,894
26,317
—
—
17,964
—
17,964
127,403
3,012
—
—
130,415
—
85
$
—
—
—
$
—
—
—
423
25,894
26,317
127,403
3,012
17,964
7,539
155,918
85
—
—
—
7,539
7,539
—
$
—
44,281
$
50,619
181,119
$
349,672
357,211
$
400,291
582,611
67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019 (tabular dollar amounts in thousands, except per share information)
Financial assets
Cash equivalents
Money market savings accounts
Investment savings accounts
Temporary investments
Guaranteed investment certificates
Corporate bonds
Other fixed income securities
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
283
26,354
26,637
126,231
6,003
31,169
163,403
Corporate investments
$
—
26,637
$
19,679
151,913
$
346,600
377,769
$
366,279
556,319
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 fiscal 2020, the Company transferred the fair value pertaining to its investment in CIBC common shares to
level 1 from level 2 of the fair value hierarchy as the sale restriction expired. Also during fiscal 2020, the Company
transferred the fair value pertaining to its investment in Accel Entertainment to level 2 from level 3 of the fair value
hierarchy upon completion of the business combination described in note 5.
(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, 2019
Transfer to (from)
level 3
Amount
included in
earnings
Purchases of
assets / issuances
of liabilities
Sales of assets /
settlements of
liabilities
Fair value
March 31, 2020
Financial assets
Other fixed income securities
Corporate investments
Financial assets
Other fixed income securities
Corporate investments
$
$
$
$
31,169 $
346,600
377,769 $
— $
(50,619)
(50,619) $
(2) $
20,154
20,152 $
— $
57,524
57,524 $
(23,628) $
(23,987)
(47,615) $
7,539
349,672
357,211
Fair value
April 1, 2018
Transfer to (from)
level 3
Amount
included in
earnings
Purchases of
assets / issuances
of liabilities
Sales of assets /
settlements of
liabilities
Fair value
March 31, 2019
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
68
Range
Range
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019 (tabular dollar amounts in thousands, except per share information)
(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 5) 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, 2020
Unquoted equity
warrants) or partnership units
instruments (including
Public
comparables
Valuation techniques
Significant
unobservable input
and
company
(a) EBITDA
Earnings
(c) 3.9x to 9.2x
Recent transactions
multiples
(b)
(a) n/a
(b) n/a
Corporate bonds, debentures or loans not
traded or other finite set of cash flows
Discounted cash
flows
Discount rates
(c) 6.0% to 20.0%
March 31, 2019
Unquoted equity
warrants) or partnership units
instruments (including
Public
comparables
Valuation techniques
Significant
unobservable input
and
company
(d) EBITDA
Earnings
(f) 3.5x to 9.0x
Recent transactions
multiples
(e)
(d) n/a
(e) n/a
Corporate bonds, debentures or loans not
traded or other finite set of cash flows
Discounted cash flows
Discount rates
(f) 6.0% to 20.0%
The most significant unobservable input for fair value measurement are earnings before interest, taxes, depreciation
and amortization ("EBITDA") and the earnings multiple which is applied to the EBITDA in valuing 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 (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, including an estimate of the potential impact of COVID-19. As
at March 31, 2020, 10 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 $18.0 million or decrease of $16.3 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, 2020 (2019 –
increase of $16.8 million or decrease of $16.8 million). Earnings multiples used are based on public company valuations
as well as private market multiples for comparable companies. Earnings are based on the last twelve-month EBITDA and
if necessary, adjusted for any non-recurring items such as, restructuring expenses and annualized pro-forma
adjustments from recently completed acquisitions. Adjustments to EBITDA may also consider forecasted impacts
arising from the current economic environment or recent developments of the investee company.
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
69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019 (tabular dollar amounts in thousands, except per share information)
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, 2020 and 2019.
19. 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, 2020 and 2019, Clairvest had no external capital requirements, other than as disclosed in note 16.
20. SUBSEQUENT EVENTS
Since the outbreak of COVID-19, emergency measures taken in response to the spread of COVID-19 have resulted in
significant disruption to business operations globally, resulting in an economic slowdown. Global equity and capital markets
have also experienced significant volatility and weakness. The governments have reacted with significant monetary and
fiscal interventions designed to stabilize economic conditions. These developments are constantly evolving, and the
duration and impact of the COVID-19 pandemic is highly uncertain and cannot be predicted at this time but could have a
material impact on the future financial results of the Company. In the face of the current environment of heightened
uncertainty, the Company continues to closely monitor its investee companies and its treasury funds.
Subsequent to year end, CEP VI Co-Invest and the CEP VI Fund invested US$30.2 million to acquire the solar
operations and maintenance business of SunPower Corporation. Upon closing the business was renamed as NovaSource
Power Services (“NovaSource”). CEP VI Co-Invest invested US$9.2 million (C$13.0 million) for a 29.2% ownership interest in
NovaSource.
Also subsequent to year end, CEP VI Co-Invest and the CEP VI Fund invested US$10.0 million in Arrowhead
Environmental Partners (“AEP”), a non-hazardous waste-by-rail operator in Northeastern United States markets. CEP VI Co-
Invest invested US$2.7million (C$3.7M) in AEP in the form of 2,706 Class A preferred units representing a 11.3% ownership
interest.
70
SHAREHOLDER INFORMATION
As at, and for the year ended, March 31, 2020
(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 23, 2020.
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
15,066,301
9,582,440
5,483,861
674,216,970
245,402,780
$
$
BOOK VALUE PER SHARE(1) AT MARCH 31
$59
$55
$51
$47
$43
$39
$35
$31
$27
$23
$19
$15
$11
$7
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
(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.
71
SHAREHOLDER INFORMATION
As at, and for the year ended, March 31, 2020
(unaudited)
SHARE PRICE VS BOOK VALUE PER SHARE
$60.00
$55.00
$50.00
$45.00
$40.00
$35.00
$30.00
$25.00
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
9
1
-
n
u
J
9
1
-
p
e
S
9
1
-
c
e
D
0
2
-
r
a
M
Book Value
Share Price
SHARE TRADING VOLUME FISCAL 2020 and 2019
Common shares
Year to March 31, 2020
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year to March 31, 2019
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
50.87
51.78
54.00
55.00
48.00
51.75
48.50
50.48
46.82
48.36
49.61
40.00
42.20
47.50
44.15
45.45
51.25
50.51
52.30
43.00
47.25
48.99
45.00
47.75
43,249
128,657
44,107
90,675
52,195
55,394
88,905
39,977
72
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
Montréal, 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 11, 2020 by way of a live audio webcast.
The link to join the live audio meeting can be found at:
www.clairvest.com/shareholders/annual-meeting
All Shareholders are encouraged to attend.