Create more wealth. Attract real liquidity. A. Kersting PANGEA 2023 Q4 FWJ

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Create more wealth.

Attract real liquidity.

Using your business balance sheet...

By Alvin Kersting

PANGEA FAMILY WEALTH JOURNAL | 2023 HOLIDAY EDITION

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per employee by over 200% and grew profitably over 300% within 2.5 years ...

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As such, they were protected in the process of going public

The second report will be generated by sweeping the floors with employees to assess how much scrap supplies were on the floor. For example, paying attention to waste of sandpaper, grinding materials, etc. as it was clear staff gave

This company increased revenue

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Our partnered CEOs/Owners understood that two companies required full attention – the public company and the operating company. Their preference was to control their business and to partner with active shareholders with capital markets expertise and the bonus of a 100+ network of M&A deal sourcing partners spanning the globe.

One report will consist of a weekly survey of employees to assess how well instructions are shared with them and what our company’s methods will be moving forward. For example, Lean Principles and a shift to pull versus push.

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The first step was having a clear understanding that access to the massive benefits of the capital markets was a function of time management and accountability.

This was simple instruction but the existing team thought we were going to transform the business with things like sophisticated reporting. Much to their surprise, I instructed that there will be only 2 reports, and both would be generated by me during the first 3 months.

Daily behaviours changed for the better and this company increased revenue per employee by over 200% and grew profitably over 300% within 2.5 years and sustained that for several more years, all while firing 2 of its major clients making up 50% of revenue in the early days. The importance of simplicity cannot be overstated.

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In addition, net equity growth soared from $31M to $81M as a result of 29 acquisitions of profitable, cash flowing companies made using a majority of shares but also with a cash component derived from issuing approximately $50M in bonds. All done in 4 years!

This is the benefit of harnessing the power of our capital markets.

One of the 8 companies I turned around had a very entitled culture (absent of empathy) allaround. The first instruction offered upon arrival was that management must undertake a perspective that they work for the employees and not the other way around. Simple.

These two simple reports became a very important feedback loop for the performance of the company, helping us change trajectory to become an empathetic, accountable team. This culture shift was non-invasive and supported a long-term, continuous improvement plan that narrowed the gap of expectations between staff and management while creating better experiences for customers. Even if this shift meant letting go of mis-aligned customers.

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After tactful negotiations to help them see the value of joining forces, we helped to catapult their combined $14M revenue to $167M.

UNCONVENTIONAL SIMPLICITY

no consideration for the value of these “low-cost items” and management was oblivious that these behaviours conveyed important information about employee motivation and engagement.

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Let me tell you about a major success we celebrated with two business-owner clients.

and more importantly, postlisting as they positioned to exponentially grow the company. This was done in a secure and cost-effective approach ensuring the owners had, “skin-in-the-game.”

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Harnessing the power of our capital markets

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FEAR vs. SUCCESS The fear of being wrong is more overwhelming than the realization of success. I will now briefly turn my attention to the topic of, leadership.

While some of my opinions on the topic of leadership may be controversial, I believe it is worth considering. As I read about leadership, I rarely read about employees being accountable and instead always seeking inspiration from leaders for them to perform better.

It makes me ask, Is inspiration a synonym for leadership? We need to remember that leaders are also human, and their inspiration is also derived from motivated colleagues from all angles of the reporting structure. Colleagues who aren’t waiting, but actively driven to execute to attain personal satisfaction and compensation.

So perhaps a fair question to ask everybody in the organization may very well be, “Have you inspired everyone else around you to become better, including the people you report to?”

I recall an experience from my last day with a company that grew 400% and enjoyed a greater than 250% increase in revenue/employee growth during my time there.

I remember an employee whose salary increased from $26K/year to $87K/year in 2 years was asked if the past 5+ years working together generated overall positive results?

His response was that it wasn’t good and that I was too hard on the team because leadership held them accountable to the systems and processes our customers and regulators held us accountable to. He thought it was too hard even though these systems and processes enabled the company to grow profitably.

This feedback gave me a sinking feeling. I thought I was doing what was best for the employees and the company - making everyone more money so they could put food on the table for their families.

Of the many valuable things I learned, the most important remains that a business is built, like our own human body, from within, and by a culture with values based upon empathy and accountability flowing in all directions, otherwise stated as interconnected. This is mandatory.

Without these values, it is a struggle to get to planning and then to assigning responsibility. It also demands creativity by the people in charge to configure simple approaches.

Leadership is best instilled into an organization as a two-way street and is not always only measured by a salary increase, but also in personal growth. If the company benefits, so too should all in a commensurate manner and vice versa.

This wasn’t the case. www.alliancegroupcapitalmarkets.com

I thought I was doing what was best for the employees and the company - making everyone more money so they could put food on the table for their families.

This wasn’t the case.

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COLLABORATION LEADS TO PROSPERITY I read that the source of free markets stemmed from farmers trading excess inventories to broaden their product offerings within their respective markets.

For example, in a case where the cabbage farmer didn’t grow his own tomatoes, he would undertake a trade with a tomato farmer (or joint venture or a merger) so he would have tomatoes to sell to his customers that were already buying cabbage from him. The cabbage farmer scaled his offering, effectively enhancing his and his partners’ total benefit. This is an example of how collaboration leads to prosperity.

Collaboration, fostered by a free-market system has proven to be not only effective in social scenarios as a powerful form of community-building, but the direct relationship to scaling is quite clear in economic

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circumstances when bringing people together was prudently and carefully undertaken.

M&A USING LOW COST OF CAPITAL The past 15 years of low interest rates has fuelled artificially high valuations of many public stock and private companies. The phenomena has become so prevalent that the idea of building businesses that have solid balance sheets and healthy profit has become a foreign concept.

Why? Likely, because the low cost of capital can act as jet fuel to skyrocket company value within a shorter runway. This process has become the norm to such a degree that business professionals have said to me that emphasizing strong balance sheets and profitability in today’s market is, “unique.”

While some companies are in business for the quick buck, others prefer to create meaningful, long-term value.

Consider companies like Google, Facebook, IBM and Berkshire Hathaway. To grow and add long-term value, they all acquired complementary businesses to propel them to their enormous proportions today.

How did they do it? Like Microsoft, they leveraged their balance sheet to diversify their businesses to adapt to changes in the marketplace.

Why don’t they exit? Why don’t they pump and dump their stock?

WHY DO STRONG COMPANIES BUY BACK THEIR STOCK? These software, social media, hardware, or holding companies became corporations that evolved from a specific service or product to become acquirers of profitable, complementary companies.

Over time however, they simply became acquirers of profitable companies.

YOUR COMPANY HERE ?

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3. Introduce owners/shareholders to partners like PANGEA to oversee their family financial affairs (wealth structuring, estate planning, tax planning, and investment planning)

For over 15 years, low interest rates have distorted fundamental business building.

PANGEA FAMILY WEALTH JOURNAL | 2023 HOLIDAY EDITION

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2. Execute M&A Activities (sourcing, financial structuring, transactions of audited acquisitions into the company)

Our process enables the CEOs/Owners to maintain control with a clear focus on operating their business without distractions, as they ultimately make all the good final decisions confidently and with peace of mind.

INVESTMENT BANKING FUNCTIONS

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INVESTMENT BANKING IN CANADA

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Our team has partnered with over 50 companies worldwide on M&A transactions.

1. Structure the Capital Markets requirements (quarterly reporting, exchange fees, bond/equity structuring)

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Alternatively, one can argue that there isn’t a better partner than a working shareholder with skin in the game - before, during and after the deal is done.

Post-listing we;

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Trusted partners are typically transactional and usually don’t bear the consequences of poor service decisions, long after a deal is done.

1. Prospectus 2. Investor Relations 3. Public Relations 4. National Roadshow 5. Exchange Interfacing

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Successful business owners can generally tell a story of family, sacrifice, struggle, compromise, and conquest. They are unlikely to be an expert in all things all the time.

Our team seamlessly orchestrates the intense listing process including;

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Combining the two to make acquisitions or to acquire growth capital enabled them to grow in an accretive manner, profitably. They then bought back shares in their company that increased in value without excessive debt or excessive stock dilution. All the while remaining in control. This sounds logical while building the business through hard work and sacrifice.

TRUSTED PARTNERS

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They utilized their base case business which became profitable through hard work and then utilized the capital markets to convert their stock into a form of currency and also to access lower cost of capital via bonds where their coupons can be easily serviced with the cash being generated by the combined entity.

It is our conviction that Alliance Group’s Capital Markets partnership coupled with our Global M&A strategy remains a time-tested, proven wealth building strategy where CEOs/Owners need not exit, but use the balance sheet and profits they so diligently worked so hard to develop, as their personal bank to create more wealth and attract real liquidity.

About the author: Alvin Kersting, CAO Alliance Group With more than 25 years of business-building expertise, Mr. Kersting has held leadership roles in highly regulated environments including Aerospace, Oil & Gas, Power Generation, Nuclear, Mining & Renewable Energy.

He served as a Board Director for the American Chamber of Commerce in Canada, (AMCHAM), as well as the Ontario Aerospace Council, (OAC). He is a preferred PANGEA partner.

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Access to global markets from the perspective of Canadian firms, financing options are not limited to what is offered in Canada alone. Data show that larger Canadian firms have developed the size and reputation to access global markets on a cost-effective basis.

In terms of dollar value, Canadian corporations raise about half of their bond issues offshore, most recently mainly in the United States. These U.S. offerings are twice the size of Canadian offerings, on average. Large investment grade Canadian firms have a range of low-cost financing options in Canada but, when raising large amounts of capital, they often decide to look abroad as well.

And, because the United States has the world’s largest high-yield market, Canadian firms with large high-yield financing needs tend to go there (Anderson, Parker, and Spence 2003).”

- Sheryl Kennedy, Deputy Governor (1994-2008) Bank of Canada

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PANGEA PRIVATE WEALTH CANADA's PRIVATE FAMILY WEALTH FIRM

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TRUST Trusted by hundreds of clients over 25 years, our team advises on private family wealth matters ranging from business succession planning, investment planning, tax planning, real estate management, estate planning, risk management, traditional and alternative financing, all integrated within one family wealth strategy.

WISDOM Canada’s late 1980s real estate bubble was so big it resulted in a correction lasting over a decade. We were there for the Dotcom bubble and the post-housing bubble Great Recession that lingered for 18 months between 2007 and 2009. We thrived through the COVID19 pandemic with our team of seasoned professionals (CFPs, CPAs, CAs, CMAs, CGAs, LL.Bs, JDs and CFAs) who have navigated complex economic cycles for decades, to the benefit of our clients.

CREDIBILITY Our implementation partners include some of the biggest, most respected institutions around the world, including law firms, accounting firms, investment banks, financing companies and insurance companies - all accessible to our clients though their PANGEA Family Wealth Executive. Our focus is to help our clients save time and reduce worry.

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PANGEA Private Wealth

150 King Street West, Suite 248 Toronto, ON. M5H 1J9

416-915-4165

2023 HOLIDAY EDITION

PANGEA FAMILY WEALTH JOURNAL www.pangeaprivatewealth.com 150 King Street West, Suite 248 Toronto, ON M5H 1J9