Houston Group Takes Local Businesses Public on TSX Using Groundbreaking Cross-Border Structure
HOUSTON, May 17 /CNW/ - Capstone Associated announced today the completion of the largest initial public offering in Canada for calendar year 2007. Northstar Healthcare (TSX:NHC), with operations located in Houston, began trading on the Toronto Stock Exchange this morning with a $150 million public float and with an enterprise value of $250 million.
Stewart Feldman, chairman and chief executive officer of Capstone Associated, led this cross-border transaction for the last two years. The transaction involved the formation of Delaware-based Northstar Healthcare Acquisitions, LLC and the rollup of the two largest independent ambulatory surgery centers in Houston - The Palladium for Surgery and Kirby Surgical Center with related operations elsewhere in Houston and Dallas.
These two surgery centers serve 100 of Houston's top surgeons who performed almost 30,000 procedures at these facilities in 2006. Northstar Healthcare Acquisitions sold its ownership in these Houston businesses in the Canadian public offering.
Feldman and his partner in Northstar Healthcare Acquisitions, Donald Kramer, M.D., chose Bank of Montreal's (TSX:BMO) BMO Capital Markets, Inc., a $300 billion financial services institution, to serve as the sole bookrunner and lead investment banker joined in the selling syndicate by other large Canadian investment banks.
“The Toronto Stock Exchange enabled us to achieve the greatest valuation possible,” noted Capstone's Feldman. “Although Capstone and all of Northstar's operations are located in Houston, the TSX offered the best alternative.” Capstone's Harry Fleming, who holds both U.S. and Canadian citizenship, noted that the Canadian dollar has appreciated 6 percent this year alone, making Canada the “go to” market for $250 million and under U.S. offerings.
Feldman, who also was raised in the North an hour from Toronto, has experience in the Canadian capital markets going back to the early 1980s. Feldman added: “Once the acquisition targets were onboard, the Canadian offering moved along reasonably well despite the sophisticated crossborder nature of the deal and the many team members involved.
The transaction addressed the desire of these U.S. business owners to sell a controlling interest at an excellent price while at the same time, we were able to appeal to the interests of Canadian investors in the high yield common stock of the U.S.-based businesses.” Feldman further commented: “For many years, the Canadian market has had an unsatisfied demand for high yield securities. Unlike in the U.S., Canada hasn't developed a high yield equity market. This type of innovative high yield, tax advantaged common stock will be a Canadian adaptation of what is found in the U.S.”
Serving as chief architects of the Northstar Healthcare transaction, Feldman's Capstone Associated led a team of investment bankers, lawyers, and accountants from Vancouver, Toronto, New York, Philadelphia, Houston and San Francisco in completing this groundbreaking deal.
Feldman is the senior partner in a Houston-based tax and corporate law firm, as well as three affiliated financial service companies that employ more than 40 lawyers, financial professionals and support staff. Capstone regularly serves as principals in complex multi-year transactions.
Donald Kramer, M.D., who owned The Palladium for Surgery, the larger of the two acquired companies, joined Feldman as a co-owner and funding source for Northstar Healthcare Acquisitions, the consolidation company.
Kramer now serves as president of Northstar Healthcare. Feldman is among the sellers today and resigns his position as chairman and chief executive officer of the acquiring company. This new financial structure applies to all types of U.S. businesses and provides their owners better value for their companies in the Canadian markets.
Feldman and his Capstone team are currently in discussions with other potential cross-border IPO candidates in the energy and healthcare sectors that can benefit from this highly tax efficient, cross border structure.
More about the Transaction
Feldman explained that this financial structure, which is new to Canada, will further develop the small existing Canadian market of high yield common stocks. Initially, Capstone considered an income trust structure for the Houston acquisition targets, which had developed over the last several years into a $200 billion dollar market in Canada for both Canadian domestic and U.S.-based businesses.
However, late into the Northstar transaction, Canada's Conservative government unexpectedly proposed new tax rules in the face of newly announced conversions of major companies to income trusts. Ottawa's October 31, 2006 evening pronouncement freezing Canadian-based income trusts came on the heels of $70 billion in announced conversions to income trusts by Bell Canada and Telus Corp. alone, resulted in the Canadian Government's announced freeze, known colloquially as the “Halloween Surprise.”
However, within a month of these significant year-end (2006) Canadian tax changes capital markets, the Feldman-led team of attorneys, investment bankers and accountants on both sides of the U.S.-Canadian border, created the new high dividend common share vehicle for the Canadian public markets. The new structure uses common stock with underlying cross border debt to give investors unusual tax efficiency. This new type of structure is widely expected to lead to a series of similar cross-border acquisitions.
Capstone Associated was founded in 1998 by Feldman, and, together with its affiliates, provides specialized financial services to owners of closely held businesses. In addition to cross-border financings, Capstone's financial engineering is more generally directed towards enhancing the enterprise value of its clients' businesses.
Capstone is one of the largest and most prominent providers of turnkey services for closely-held captive insurance companies, having grown since 1998 to managing 50 insurance companies with several hundred million dollars in assets.
Editor’s Notes: As of CURRENT_YEAR, Capstone has been operating for CAP_YEARS_NUMBER years and has formed over CAPTIVE_FORMATIONS captives. In addition, The Feldman Law Firm LLP has been operating for LAW_YEARS_NUMBER years and has successfully resolved over TAX_CONTROVERSIES tax matters. As of CURRENT_YEAR the cap on 831(b) captive insurance premiums is CURRENT_PREMIUM_CAP million.