In conversation with Marc Létourneau

Marc Létourneau is very well known among the senior management and boards of directors of many emerging growth companies.  An accomplished investment banker with over 20 years of experience providing strategic advice, raising capital and negotiating mergers and acquisitions in both domestic and international markets, he has played a key role in shaping the current Canadian healthcare investment landscape.  Most recently, he was the head of CIBC’s healthcare investment banking practice.  Previously, he was Managing Director and Head of Diversified Industries – Canada of Merrill Lynch and a Managing Director and the head of healthcare investment banking at RBC Capital Markets, where he had founded that group.  In this exclusive interview with biotuesdays.com, Mr. Létourneau explains what he’s doing now.

Can you give us some of your background, including how you got into the healthcare financing field?

I followed a pretty standard path into investment banking.  I graduated with a B. Comm. from McGill University after studying Health Sciences at a Montreal CEGEP.  Although I enjoyed sciences, I became enamoured of business just as I was choosing a focus for university.  I worked for GM for three years after my undergrad, followed that up with an MBA from Ivey and eventually started at Dominion Securities in 1987.  My latent interest in healthcare was rekindled when I was diagnosed with type 1 diabetes in my mid-30’s.  Coincidentally, at about the same time, I was also approached to work on my first healthcare transaction while at RBC DS, representing Cangene in its reverse takeover by Apotex.

At the time, there were relatively few industry groups in Canadian investment banking other than oil and gas and mining; telecom and technology were just starting to gain enough interest to attract specialist bankers.  As I had done the Cangene/Apotex deal and expressed an interest in the sector, the next few healthcare companies that came in were directed my way.  That included a company that had recently completed its IPO called TLC Laser Eye Centers, headed by Elias Vamvakas.  From my perspective at the time, healthcare looked like the next big thing for Canada, and it was a unique opportunity to combine two personal areas of interest—healthcare and finance.  We got the group started, added some additional research and IB resources and eventually made it to the top of the league tables through a combination of focusing on the larger players and carefully picking a selected number of smaller players that we profiled within the RBC system.

In 2000, I joined Merrill Lynch, and after a brief tour of duty in the Menlo Park office of the technology group, I came back to Canada to head up the Canadian Diversified Industries Group, which included coverage of the larger Canadian healthcare names like MDS and Biovail.  In early 2003, I joined CIBC after Merrill had sold most of its Canadian operations to CIBC.  At the time, CIBC had the largest US investment banking operation owned by a Canadian bank, and within that group, healthcare was the largest US industry group.  I was attracted by the opportunity to finally spend my full time in healthcare, covering clients in both the US and Canada, which allowed me to service Canadian clients with an integrated cross-border practice.  Eventually, CIBC sold its US operations back to Oppenheimer and wound down most of its US investment banking activities, and I left CIBC shortly after that.

What attracted you to Greybrook Capital?

As I began to look around for my next opportunity, I felt the urge to scratch an entrepreneurial itch.  In late 2009, I started looking for opportunities where I could leverage my experience working with companies into a more operational executive role in a company where I could make a difference.   I maintained a close relationship with Elias over the years and shared my ambitions with him at the time.  He suggested I share an office at Greybrook and help him sort through some of the deal flow he was seeing, particularly in healthcare.  I quickly realized that Greybrook Capital not only offered its clients a great business model, it was also one that suited my skill set and my objectives perfectly.  In addition, I found a terrific team there, where team members complement each other very well, and a dynamic environment with a great mix of strong operators and deep functional expertise in many areas.  Most importantly, we have a lot of fun working together creating great companies, so it was an easy decision to take a position in Greybrook and start building a role that combined my investment banking skills with operational responsibilities in some of the investee companies.

Who is Greybrook Capital?

Greybrook Capital, or GBK, is private equity with a difference.  The firm provides capital, management expertise and shared services to companies in the four industries where we are invested:  IT , healthcare, real estate and  financial services.  We also provide advisory services to other companies within these industries.   In healthcare, we primarily seek to invest in growth opportunities where there is a proven product or service and customer demand—ideally as evidenced by an initial track record of revenues.  In Canadian healthcare, I believe we fill a niche between angel investors who finance start-ups and the venture capital community which usually seek to make larger investments.  We look for companies that have a great product or service and good start-up management that is ready to move to the next level of development and accelerate growth.  Our strategy is to imbed ourselves in the management of the company for a period of time so that it can develop to the point where we can be transitioned out and replaced by additional internal resources, ideally within a year or so.  Longer term, we stay involved as long as we, or our co-investors, have a material equity interest in the company.

GBK was founded by Elias in 1999 and operated as an investment company for his personal holdings for several years.  It began actively investing in small and medium companies almost ten years ago.  More recently, the business model has evolved with the addition of Marchant Securities, an exempt market dealer that allows us to access a network of co-investors.  This allows us to leverage our capital and our expertise to raise somewhat larger sums of capital for our companies.  Our sweet spot for IT and healthcare investments is in the $2 to $10 million range.  In real estate, we have raised over $40 million in equity for projects valued in excess of $400 million.  Our focus on IT, healthcare and real estate has evolved from the expertise of the senior partners—Elias in healthcare, Roberto Drassinower in IT and Greg Marchant in real estate.

TearLab Corporation of San Diego, one of our portfolio companies, is an excellent example of how we operate.   TearLab has begun to commercialize a diagnostic test for dry eye disease in several international markets, including Canada, and is awaiting final approvals for a US launch.  Greybrook and an affiliate have a significant direct equity investment in TearLab. We have raised over $13 million and advised on another $5 million for them, so our investors account for a significant ownership of that company.  We also provide a variety of capital markets advisory services to it.  We are very excited about the near term prospects for TearLab as it approaches the full commercial launch of its device in the US market.

What is Greybrook’s investment horizon?

We are not as concerned about investment horizons as other types of investors.  Obviously, assessing the exit is always an important consideration when making an investment.  But our model, which combines proprietary capital with co-investors who share our investment philosophy, gives us a little more flexibility to allow the business to mature and seek an appropriate exit.  We try to avoid the trap, that many Canadian biotech companies fall into, of going public too early and being orphaned in the market.  Because we are focusing on proven business models that can demonstrate accelerating revenue or other quantifiable metrics from the first day we invest, we feel we have more flexibility in respect of timing and can allow the investee company to develop a compelling story for the right exit.

What opportunities do you see in the Canadian healthcare space?

In the short time that I have been with the group, I have been surprised by the number and quality of opportunities in the healthcare space, both in Canada and the US.  Possibly because of the shortage of angel and venture capital in Canada, we are seeing a large number of very interesting investment opportunities here.  There are several that we are working on at the moment that we are quite excited about.  One of our particular areas of interest at the moment is in the healthcare services sector where there are a number of companies developing interesting applications that apply, not only in the Canadian context, but also in the broader international markets, including the US. Another area where we are actively working on some interesting opportunities is the eye care sector where, due to Elias’ background in the space, we have deep expertise and an extensive network of connections globally.

Currently, we don’t see ourselves participating in the early stage funding of many of the good technologies coming out of our health networks.  While I think we have some terrific science in Canada across many different specialties that needs to be developed, there is a funding gap that probably needs to be bridged by more government funding.

How do you like working primarily with smaller healthcare companies now?

Most people who have worked with me in my previous lives know that working in the healthcare space  with smaller clients was what I enjoyed most about investment banking.  While there are many benefits to working in a large institution, it can often be difficult to effectively focus the resources of the organization to service the smaller companies which really value the expertise and financing capabilities one can bring to these exciting growth stories.

A common theme among many of the people in Canada whom I have met, who have worked in or around healthcare companies, is that they usually find it the most interesting field to be involved in.  Unfortunately, relative to other sectors of the Canadian economy, the healthcare space is underrepresented, so I consider myself very fortunate to have found a new vehicle to work in that sector and continue to make a meaningful contribution.

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Marc Létourneau Title: Principal, Greybrook Capital Inc. Education: B. Comm McGill University, MBA University of Western Ontario Career Highlights: RBC Dominion Securities, Managing Director – Head of Healthcare Investment Banking; Merrill Lynch Canada, Managing Director Investment Banking – Head of Diversified Industries; CIBC World Markets, Managing Director North American Healthcare Investment Banking – Head of Canadian Healthcare Group

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