The End

The irony is that it isn’t really the end but the beginning. As great as the MBA is, we all enter it as a gateway to better things afterwards, trying to look two years ahead. So it is with that expectation that we enter the program. But there is so much that happens in between, so many things that for one reason on another don’t make it on the blog and are therefore not captured. It has always been my aim that this blog would serve not only as a pensive collection for reflection, but also act as a source of entertainment, ideas and discussion with its readers. It is my hope that the impression I leave here is an honest and comprehensive reflection and an imprint of myself and my experiences contained within its digital pages.

I am grateful for all the rich experiences while I’ve been on the program. Obviously, I’m very lucky, having the opportunity to reap the benefits of the program by meeting smart hardworking people, being exposed to brilliant ideas and new ways of thinking, and taking full advantage of all the programs available whether they are international programs, case competitions or classes. I certainly feel like I'm on the top of the world right now seeing nothing but clear horizons.

I have throughly enjoyed my time on exchange in London and studying in Toronto. It’s with an invigorating sense of optimism that I look forward to the future. The adventure is hardly over as I’ll spend the summer travelling. And as always, even then, the end of that period is simply the beginning of the next intrepid endeavor.

Service Management Field Trip – Thessaloniki

Yesterday marked the last day of in person contact with our project sponsors. They have sent us some preliminary information to analyze and signed off on the project scope and definition. All that remains now is for us to do our analysis and provide our report. That coupled with the completion of our individual assignments will tie up the end of this course.

Shown above: View of Aristotelous Square from the Orizontes rooftop restaurant in Electra Palace Hotel Thessaloniki.

This has been a unique experience, to hear from the mouths of people who live here their opinion on a very timely topic: globalization, competitiveness and the structure of a nation’s (Greece’s) economy. Our professors did a lecture on Monday talking about the characteristics of the Greek economy, breaking down GDP components and telling a story about Greece’s economic focus and structure over the past 5 years as a backdrop for the current conditions the country is facing. They also prescribed a logical recipe for what would be needed to turn the Greek economy around and the challenges involved. These sentiments were echoed by many of the project sponsors who participated as many of them were looking to boost their competitiveness and engage the other economies of the world.

Today, I’ll be spending most of my time wrapping up all remaining loose academic ends in the hope of leaving nothing unfinished for my return to Toronto.

Prince William and Kate – Let the Market Decide

Apparently, Brits will bet on anything. I was just watching the BBC and there was a short clip on questions Brits were asking and what bookies were placing in terms of odds of various events happening at the wedding: Kate’s car breaking down, Prince Harry dropping the ring etc.

This got me to thinking about mathematically predicting the future. Not just in physical models (for instance forecasting weather) which is difficult enough, but also in these sort of abstract ideas. After all, how do you predict what is Prince Harry’s chance of dropping the ring? Let’s say you could even come up with a very convincing model that would give you one good guess.

Another method would be to let the invisible hand of the gambling market decide. Assuming you could get enough interested people to bid in the “market” on an individual question, having more or less people bid for or against any particular question can give you an indication as to whether the odds offered are too “generous” and allow you to recalibrate the odds directionally until you arrive at a relatively stable number.

For example, when asked: “What’s the chance of the Queen wearing a blue hat?” initially it’s even odds. However, people start doing their homework, statistical multi-factor regressions, etc and discover that she actually tends to wear a blue hat quite often (especially at royal weddings) and people starting overwhelmingly taking bets that she will wear a blue hat. If the bookie is paying attention, they will start moving the odds, maybe now offering 2:1 odds that she will wear a blue hat. People start fine tuning their model and continue to make bets until the odds rest at 3:1 (the current odds of the Queen wearing a blue hat). The bookie takes bets on either side taking the spread.

The invisible hand of the gambling market has determined the probability of the Queen wearing a blue hat. While we aren’t even sure what models were used, assuming intelligent people using real money have staked a “best guess” at what the appropriate value for the probability of the Queen wearing a blue hat is, we are given another robust answer.

Back in Thessaloniki

After taking some time to do a whirlwind tour of the Mediterranean, I’m back in Thessaloniki to finish my last class of the Exchange as well as my MBA program: Service Management field trip. I’ve met two of my group members as well as classmates from other teams as we did some basic exploring of the city’s waterfront.

Shown above: Thessaloniki waterfront at sundown.

We have our first official class today. We've already been in contact with our sponsor company and also have our first group meeting today as well as we meet face to face for the first time.

Tomorrow, we have an arranged city tour which I am looking forward to. Also, today is Palm Sunday, which marks the beginning of Holy Week in Greece which is a very important holiday with unique celebrations that I am looking forward to.

I am also in the process of completing my final project for Managing Corporate Turnarounds as my other team members have sent me their parts and I finish up the write up for our class.

After my class is done here on April 21st, there are a few days to spend before flying back to London on the 24th. My flight back to Toronto is the 26th. While I have really enjoyed my time here, I’m looking forward to going home, visiting my sister in New Orleans on the 27th (to drive back to Toronto).

I’ll be spending May studying for the CFA II exam after which I’ll also have the opportunity to visit friends and family in Australia in June and Malaysia (with a chance to climb Mt. Kinabalu and dive in Sipadan hopefully) in July before I return to Scotia Capital in August.

Ship of Theseus as a Metaphor for Replacement Cost

Looking at the Parthenon being restored, it reminds me of another Greek concept: the ship of Theseus. It is essentially an identity dilemma: If you take care of something, but are forced to replace parts due to decay over time, is that object still the same? This is something I’m sure archeologists wrestle with when they rebuild replica parts to restore murals or structures for which the original parts are long gone. Even if they use the same material, artistry and methods, the original has lost something ineffable.

This concept has been extended several times with several unique spins, my favourite being Plato’s carriage, where Socrates and Plato exchange parts on their carriages until finally “Socrates’” carriage is made entirely of Plato’s original carriage and vice versa. At what point did the identity of the carriage change?

In a vain attempt to bring all my philosophizing back into the MBA realm of finance, it’s sort of interesting when you think about it in the context of the idea in accounting principle of replacement cost or M&A. While accounting will capture the physical quantities contained within a company’s finances, there also exists value beyond the sum of its parts in the same way you would expect an M&A transaction’s synergies to broaden the qualities of the combined entities: that seemingly ineffable quality.

Parthenon and the Golden Ratio

Today I visited the Parthenon which is one of my favourite buildings and the preeminent landmark of Athens and located in the Acropolis. And yet, many people are unaware of the beautiful mathematical design it holds in plain view. Built into the Parthenon’s design you will often discover that many porportions are designed to the golden ratio, also known as the divine proportion, the ratio that many Greek’s believed to be the source of proportional mathematical beauty.

Shown above: Parthenon

Many believed that this ratio occurred often in nature and was the basis for beautiful proportions (for example it appears in Leonardo Da Vinci’s Vitruvian Man as the ratio between the length of the arms and legs).  Another occurance is with Fibonacci numbers as the ratio between them is an approximation of this same ratio (Fibonacci numbers are numbers in a sequence in which the next number is the sum of the previous two numbers). The approximation becomes more accurate the further out you go. Note: It's only an approximation because the first two numbers are one and one.

The golden ratio is mathematically defined as follows:

(A + B) / A = A / B

Or in layman’s terms, the proportion between two measures is the same as the proportion of their combined length and the larger length. Note that this definition can be recursive and applied over multiple lengths repeatedly.

Also note, that the proof for the actual ratio is self is quite elegant:

(A + B) / A = A / B (Multiplying both sides by A x B we get)

AB + B^2 = A^2

0 = A^2 – AB – B^2

= A^2 – AB + 1/4 B^2 – 1/4 B^2 – B^2

= (A – 1/2 B)^2 – 5/4 B^2

Now assume that B is 1.

= (A – 1/2)^2 – 5/4

5/4 = (A – 1/2)^2

Sqrt(5) / 2 = A – 1/2

Therefore, the golden ratio, A = [1 + sqrt (5)] / 2

Note that this makes A approximately 1.62. (it is an irrational mathematical constant)

Intricate in its beauty, elegant in its simplicity.

Near the Parthenon was once the statue of Athena overlooking the city.

Shown above: Athena's perch from which she offered Victory to the Athenians, now long vacant.

Previously, this building was home to statue of the grey-eyed goddess who watched over her namesake and in her raised hand held Nike, the winged goddess of victory. While the statue is long gone, perhaps it is time for the Greeks to look after her and her fellow Olympians as they recover and protect artifacts of the past.

Athens Metro

The Athens Metro is one of the newest and most beautiful metro systems in the world despite (or rather because) it took an immensely long time to build. This is because as they dug, they had to stop because they often ran into old archeological ruins. Then they would stop digging with machines and archeologists would dig with toothbrushes. The metro plan was equal parts archeological dig as it was construction site.

However, the result is a brilliantly new metro system that includes exhibits and finds from their digs and the duality continues: it is both museum and metro station.

The fare is 1.40 euro for a 90 minute multi-trip ticket which needs to be validated. A day pass is 4 euro.

Greek Hospitality

I tend to have a recklessly casual travel style when it comes to recreational travel (e.g. going to Mt Olympus when it’s closed because I won't be back for a few years). While this often tends to get me lost, I'd be lying if I didn't also admit that this has led to some of my best experiences while travelling.

Having said that, it can also lead to me being at the mercy of the locals. While I'd like to think I have the street smarts to get by, I also have to admit that the kindness inherent in the Greek culture makes it particularly easy.

Maybe it’s because they have had a seafaring culture for centuries / millennia and are accustomed to disoriented visitors arriving from around the world, but I have always had a deep respect for Greek hospitality, an important theme in the Odyssey by Homer, one of my favourite books. This also reminds me of one of my favourite scenes: Book VIII – The Games, when Ulysses meets Euryalus.

Context: Ulysses is lost. It's the whole premise of the book. And throughout, he experiences either kindness or evil from different characters. In this book, he arrives on the shore of the House of Alcinous. During the feast, the blind poet, Demodocus, sings songs of Ulysses' exploits, ironically, not knowing he is in the room. Ulysses' weeping is noticed only by Alcinous, who proceeds to distract his guest by suggesting they compete in athletic competitions instead.

During the competition, Alcinous's son, Laodamas, the best boxer, thinks to invite Ulysses to participate and Euryalus foolishly insults him when Ulysses politely declines due to the ravages of “infinite trouble” he’s experienced making his heart heavy for home. Ulysses proceeds to throw the heaviest disc the furthest distance (without even taking off his jacket) and proceeds to challenge anyone and everyone to any contest of their choosing (except for running due to his old age, and except for Laodamas, Alcinous' son, of course, respecting the role of the host's family). Alcinous politely calls Euryalus an idiot and calls for more festivities, hoping to prove to Ulysses that while the Phaeacians were not known for their athletic prowess, he was hoping to prove that they are exceptionally hospitable: “extremely fond of good dinners, music, and dancing”.

After acknowledging the spectacle of dancing, Ulysses compliments Alcinous, to which Alcinous responds by asking the twelve chief men (thirteen with himself) to give him “a clean cloak, a shirt, and a talent of fine gold”. Having disrespected Ulysses by supposing him to be unathletic and breaking the Greek code of hospitality to foreigners, Euryalus apologizes by giving him a gift: a beautiful bronze sword. Ulysses, making peace with his new friend, accepts the gift graciously, remarking that he hopes Euryalus will never have need of it.

(Read the original as this paraphrasing doesn’t do justice to the original poetry. Plus, there is a hilarious adulterer's story of warning told by Demodocus of Hephaistos, Venus and Aries)

As my highschool english teacher once explained, the concept of gift giving was important in Greek culture in that it emphasized the role of both gift giver and acceptee. It symbolized the greatness of the giver to be able to offer a gift as well as the importance of the recipient by being shown respect through the offer of a gift.

Climbing Mount Olympus

This is an instruction guide for anyone who might be interested in visiting Mount Olympus on a student budget. I thought I should write this down as I had unusual difficulty getting details and will probably be back here again sometime. After arriving in Thessaloniki, I got instructions, searched the internet and otherwise asked around for how to climb Mount Olympus:

Getting to Litohoro from Thessaloniki

1. From Thessaloniki airport, take the 78 bus into the city (it goes along Tsimiski street), buy the two ride ticket which costs 1 euro (allows two trips within 90 minutes if I read the instructions correctly)
2. From Thessaloniki, take the 31 bus from Egnatias street (one major street north of Tsimiski)
3. Take the 31 bus to the end of the line to Makedonia bus station
4. Go to the booth for KTEL (Greece public transit, similar to Greyhound) Platform 4 – Litohoro (or Litochoro, multiple spellings)
5. Buy a ticket (student fair is for Greek students only), one way was 8 euro, return was 14
6. Go to Platform 4 and take the bus (it is quite frequent, between one or two hours per bus)
7. The bus stops at Katerini (Don’t get off)
8. The ride to Litohoro is about an hour and drops you off in the city center

Note: There is a KTEL bus from Athens to Litohoro too. I don’t know where it leaves from, but I’ll find out tomorrow when I go to Athens from Litohoro.

Litohoro

The entire climb is along the E4 International Walking trail. Here you have two choices:

Choice 1: Scenic climb From Litohoro to Prionia

From the city center (the water fountain where the KTEL bus drops you off), walk straight past the Hotel Aphrodite and go right, past the residential housing, school and cemetery and past the power / utility plant (There are some dual language signs pointing the way to Olympus National Park).

You will reach the first gate which has signs saying “Olympus National Park”. The climb from Litohoro to Prionia is through the gorge of Olympus, and takes between 4.5 to 5 hours (or more if you take your time, relax and take photos) to go up. There are beautiful cliff faces and crystal clear waterfalls.

 

Choice 2: Skip with Taxi to Prionia (cost 25 to 30 euro one way, 20 minute drive)

If you come to Litohoro in the off season (season this year starts May 13th), then the refuges will be closed and your best bet is to climb the gorge. It is absolutely beautiful and mildly challenging. I promise you will enjoy it's undulating terrain. However, many people "cheat", take a taxi to the top and climb down or climb up and hitchhike down. It is a 5 hour hike one way afterall.

Above: Like Mount Kinabalu in Kota Kinabalu, Sabah, Malaysia (which I plan on doing again with a friend of mine this summer), you can expect to see a lot of this on your way up.

If you come to Litohoro when the refuges are open, then take the taxi to Prionia as it will be taxing enough just to make it to the refuge which is the midpoint from Prionia to the peaks of Mt. Olympus.

People often give advice to “book in advance”, but I was unable to find any good websites or information on ANYTHING, transport to Litohoro from Thessaloniki, accommodation etc.

I’m currently staying in the Hotel Mirtos in Litohoro which is charging me 30 euro a night (keep in mind this is the off season, I think I’m the only guest and they are currently under construction so I have no idea how much it costs when the tourists come in the on season). Tel 23520 81398.

Apparently, Refuge A (which from what I gather is the best one to be in) can be reached at 23520 81800. They spoke English when I called.

Good luck!

Cheerio!

Later tonight (or, more accurately, early tomorrow morning) I will be flying out of London for Thessaloniki, Greece for my last course: Service Management Field trip, a consulting based project where we work with local companies. While the class doesn’t start until the third week of April, I’ll be in Greece and surrounding countries travelling.

So I apologize in advance if there are few posts between now and then. But who knows? In the country that spawned famous philosophers and mathematicians, maybe there will be some inspiration. Plus, I still have a few small assignments to complete for MCT.

Being Made Whole in Bankruptcy

In our discussions in our Managing Corporate Turnarounds class during our financial restructuring session, I got to thinking about what it would take to be made whole in a bankruptcy scenario. While the hard math will tell you that it is impossible in the short term (EV = 80, Net Debt = 100), I began to think back to the PIK and using a high yield to restore value in the future. So my question became this: If I hold the debt of an insolvent company, what can I negotiate to help me restore value? The most obvious solution is to renegotiate the terms of my debt which will probably result in me taking a haircut (discount) on the principal or face value of my debt. However, we’ve acknowledged that in scenarios where people become riskier, obviously the company’s related securities should bear a higher return. So my question then evolved to: If I have to take a discount of X percent, what additional spread Y would I have to earn in order to be made whole in N years. It turns out:

FV x (1 + kd) ^ N = FV x (1 – X) x (1 + kd + Y) ^ N

However, this assumes that you can break even with (or more accurately, catch up to) where your security would have been if the company had not defaulted to begin with. After playing with these numbers, however, it was quite clear that even with a small discount (say 20% discount), the spread Y had to be astronomically (unreasonably) higher in order to have any chance of being made whole relative to the standard debt, so I thought it would be unrealistic not to include a factor which accounts for the value lost:

FV x (1 + kd) ^ N = FV x (1 – X) x (1 + kd + Y) ^ N + Value Lost

In trying to understand what these numbers mean, I looked at Value Lost / FV as a proxy for the default rate of this type of security in distress which is obviously closely tied to the actual economic circumstances of the company. In the graph, it is reflected by the distance between the Standard Debt curve and the PIK (Realistic) curve.

Also, Y can probably be determined by looking at the spread between similar bonds with different credit ratings (dropping from BBB to C for instance).

X is reflective of the economic scenario (so if EV was 80 and Net Debt was 100, X would be 20%). It is also reflective of the negotiations, as well as considering a discount in order to liquidate the current assets of the company.

Another problem is also that once a company switches from PIK to cash sweep, its risk profile drops and it stops earning high yields, dropping the return on capital and therefore making it impossible to “catch up”. Also, a bank which was happy to finance your debt will not be interested in converting neither into a mezzanine structure better suited for hedge funds nor into equity.

This model is similar to the VC model of predicting the failure rate using the discount rate except in reverse. It is also similar to the interest rate parity (IRP) model and boot strapping by using compounding to determine where you would have / should have been otherwise as a benchmark for where you are going.

I guess the real lesson is that bankruptcy is really expensive and that being made whole in this scenario is difficult, regardless of the financial engineering and patience, although these two factors can be used to ease the pain.

Managing Corporate Turnarounds - Part II

Wednesday

Often when things go wrong, people are inclined to fire the management. However, in the real world, things are hardly ever that simple. Firing management, like anything in turnarounds, is decided on whether or not this action will speed up or slow down the turnaround. Besides packages given to executives on exit, there is also a great deal of institutional knowledge that they take with them. There is a counter balance to understanding the value they bring through their experience versus the inertia they create against the changes required. This is particularly true in SMEs as well as family owned enterprises where the institutional knowledge is often not formalized (pricing mechanics, customer relationships etc.)

Also, with the separation of the chairman and CEO roles, it is possible that a power divide coupled with an inappropriate strategy may have smart people being told to chase bad strategies. One remedy which is often used is an immunity period: the idea that employees in a turnaround situation have a window of opportunity to identify any potential problems. This allows an honest analysis of problems without reprimand and realigns expectations (Are we going to make the numbers? Are our margins as good as we expect? Are we doing things right? Are we doing the right things?) Because a new team is put into place to fix previously created problems, it is not appropriate to assign current problems to new management. However, eventually, whether or not these issues were created by you initially you will inevitably begin to wear them if you don’t fix them soon enough or don’t manage expectations of the company and all stakeholders.

Thursday

Like in any business strategy, there are two major things to keep in mind in a restructuring: operations and financing. For operations, it is necessary to check if the overall business strategy works (are people buying your product and do you have a viable business) and if you are able to profitably deliver (are our margins good or are we chasing low quality customers). Also from a financing perspective, it is important to understand the liquidity constraints of the enterprise. For example, what is an appropriate financing structure to keep the company alive while providing adequate and appropriate protection and returns to current and new capital providers?

One such useful tool is the paid-in-kind (PIK) security. It is a type of mezzanine high yield debt that doesn’t pay a coupon. Typically, these types of securities return 14 to 17%. They return higher than senior debt because they are subordinated but they don’t require cash payments which allow the company to maintain its liquidity for short period of time when it’s heavily cash strapped. However, what usually happens is this is coupled with a cash sweep. To use a structure like this in this circumstance is tantamount to saying: “We understand you are strapped for cash now, so you don’t have to pay us immediately, but we want an appropriate return for taking this risk that’s more similar to equity if things recover. However, we still want to be paid sooner rather than later and when you have any excess cash, you will give us everything you have and we’ll consider you less risky and ratchet down your interest rate to reflect the change in risk.”

Artistry with Dr. Hilary Austen

Tonight, there was a Rotman panel discussion hosted at the Savoy Hotel in London by our dean, Roger Martin, on “Artistry Unleashed: Pursuing Great Performance in Work and Life” written by Dr. Hilary Austen. They had a great discussion on how our current educational system seems to focus heavily on quantitative knowledge potentially at the expense of qualitative knowledge which, although by definition difficult to measure, plays an important role not just in decision making, but our ability to perform well in different environments.

Vetran integrative thinkers can probably also recognize the concept of model tension between these two ideas and can appreciate that the conversation between the panelists with Roger facilitating lead to interesting perspectives and topics being raised (eg. the role of analytical versus intuitive recognition for diagnosis performed by doctors).

Afterwards, there was a cocktail reception with the opportunity to speak with people connected to the Rotman community in London through a variety of different channels: students like myself, alumni, business partners, patrons of business publications etc.

Managing Corporate Turnarounds

This week, I’m taking a block week course (one week intensive following the 10 week standard course period) at LBS: Managing Corporate Turnarounds. So far this course has actually been really interesting, with us looking at business cases for salvaging distressed companies and learning about the mechanics and considerations of struggling businesses.

Unlike my undergraduate strategy course, which I nicknamed “doom and gloom” because the distressed companies in our cases never seemed to recover, this course talks about different cases that were successfully turned around using a variety of different techniques to improve operational efficiencies and use financial tools like LBOs to capture the upside.

We’ve also had great guest speakers come talk about their specific experiences and their perspective on different aspects of turning companies around (shedding assets for cash, improving operations, recovering debt, how to identify target companies etc.) One of our requirements in class is to summarize some key learnings from the class, and in a similar fashion to the Latin America study tour which had a similar component, I plan on using this blog to jot a few notes for me to recall later as I compile my thoughts:

Monday

In turning a company around, it is important to understand where control lies. Since equity is flirting with bankruptcy, it may lose control to the debt holders. Some debt investors may be holding “grenades”, the intent to liquidate their holdings ASAP when a trigger event happens (broken covenants, default etc), and may not be interested in salvaging the company, even if there is potential to recover equity value because they just want to unwind their positions.

Companies need to have good strategies when it comes to M&A, otherwise they can fall victim of a vicious cycle: accretive acquisitions increase EPS (albeit in an inorganic manner) and can give false impressions of growth, which could potentially boost the P/E multiple. A higher P/E multiple gives the company expensive equity which it can use as a better transaction currency for buying other companies (low P/E) and still be accretive. This is a vicious cycle if the M&A is not well integrated with substantial delivery of synergies and/or overpays for targets. This typically occurs in new industries where there are a limited number of potential buyers (targets with low P/Es as there is no other mechanism for exit) and the industry is consolidating into larger players (large strategic buyers displace financial buyers niche shopping).

Another version of the problem above is when companies which are asset-light use M&A as a backdoor for raising leverage. Services companies cannot raise leverage in a traditional manner because they have neither hard assets nor collateral to borrow against, so they can acquire companies which have higher leverage ratios to boost their own ratios. Also, this type of reckless acquisition can divert focus from the core business. In turning around companies which have fallen along this path, one of the immediate remedies is to spin off non-core assets for cash.

Tuesday

When you are on the buyside for any company (not just distressed companies for turnaround), it is important to have multiple targets in the pipe, not just for the more obvious negotiation leverage points, but to prevent yourself from getting too much deal heat over one deal and to avoid negotiating against yourself and your emotions.

Negotiating a transaction involves much more than a “price”. There are terms of payment, the structure of the compensation, workouts, milestones, terms and conditions. A price which is seemingly too high can be restructured to be paid out overtime so that the undiscounted amount remains the same, but the risk and cash outflows can be spread over a longer period with the appropriate covenants and milestones.

Travelling in Europe

The bizarre truth is that it’s actually cheaper to visit other parts of Europe than it is to stay in London. With the end of the term (and MBA program) upon us, many students (exchange especially) are planning a variety of trips before the academic program is over.

(Shown above: Bull fight, La Plaza de Toros de Las Ventas, Madrid, Spain)

So far this week, I’ve been to Madrid, Spain and Bordeaux, France. I'm travelling with a few students from LBS and we are driving down the coast of the south of France and into northern Spain, visiting coastal towns as we make our way down and are currently San Sebastian, Spain. My French has been a bit rusty, but enough to decipher menus, make orders, ask directions and generally get around. It has been almost 5 years since my CFES days.

(Shown above: Chateau Margaux, Bordeaux, France)

(Shown below: San Sebastian, Spain)

Having visited Lisbon, Portugal and Rome, Italy there is only one other country I need to visit to collect my PIGS set: I plan on visiting Greece in early April for my final block week course: Service Management Field trip, a consulting project based in Thessaloniki, Greece.

I have always enjoyed Greek mythology, especially after reading the Odyssey in high school which was one of my favourite books of all time. I will certainly enjoy spending time in Athens visiting some of the ancient ruins. Greece is also home to many famous mathematicians and philosophers that derived such elegant concepts such as the approximation of pi or the golden ratio. I'm really looking forward to the trip.

Emerging Markets - China

We just completed our final presentation in the Emerging Markets class taught by Linda Yueh at LBS. Our group chose China, and we did a cross section of important business factors and how they affect investment decisions and mechanisms into the country. While the presentation was performed by myself and my classmate Tim, the other team members contributed greatly to the material and their preparation was reflective in the cohesive and comprehensive story we presented. It was easy to present the highly refined material to create an investment thesis branching across a broad range of industries and tell a story about how specific companies would benefit or be hindered by government regulations and financial market mechanisms.

Tim did a great job going into the details of the domestic business environment with some personal anecdotes from some of our team members’ recent trip to China. JEMBAs (aka January intake Executive MBAs) at LBS are required to a week intensive in a foreign country and three of our JEMBA team members visited China together.

I think we represented the hard work and analysis of our team well.

Planned Obsolescence

With the last week of the core 10 week period upon us at LBS, things have dramatically started to pick up. I have my final exam for Behavioural Finance on Thursday which promises to be challenging.

I've also got a final PEVC assignment due in-class tomorrow where our take home individual case will also be released. Also, tomorrow, I have a big presentation for Emerging Markets with the final group and individual papers due by the 18th.

What a roller coaster it's been, not just here but in the MBA program in general. It seems like not too long ago, I was stepping into Rotman for the first time. After taking a look back at this blog, I've realized how much I've enjoyed my time at Rotman. And with the end of the program so near, it's time to plan wrapping up of all the loose ends.

I have two more classes left, block week courses (one week intensives) which I'll be taking between now and the end of April. However, this provides me with ample opportunity to take advantage of the easy access to Europe and as such I'm planning trips with some of the fellow exchange students between now and when I leave. My last two classes are Managing Corporate Turnarounds (last week of March) and Service Management Field trip, a consulting project where our class will be in Greece (jokingly referred to as "exchange on exchange") which will be my final class of the MBA program.

I'll continue to blog as interesting ideas pop up in the last few classes and probably put up a few nice pictures from my travels, but I expect that I'll put up a final post around the end of April as I head back to Toronto.

FEI Competition

Apparently, our final round presentation for the Financial Executives International Case Competition is now available online. Unfortunately, I can't embed it into the blog, but I can include the link below:

http://www.feicanada.org/cfo-tv.php?vid=22&page=2

Enjoy!

KKR at LBS - Socially Responsible Private Equity

Just now, we had the inaugural talk for the Socially Responsible Private Equity talk given by Ken Mehlman, KKR's Global Head of Public Affairs. He was the Chairman of the United States Republican Party, campaign manager for President George W. Bush's re-election campaign, and White House Political Director. He was also a classmate of Barack Obama at Harvard Law.

He gave a great talk on how social responsibility is integral to sustainability of a business, especially one with patient capital in PE. One point he made which I thought was particularly poignant seemed to echo the ideas of Integrative Thinking. He said that there are generally two common models with regards to social responsibility:

1. Corporate CSR – Where a company makes contributions to organizations outside of its operations that show it cares.
2. It focuses solely on strong operations and generating business returns to the bottom line without much consideration for social responsibility.

He mentioned that KKR takes a third approach, and that it integrates social responsibility not just at some abstract corporate or portfolio level, but right down to the alignment of its operations to produce. Examples of this would include involving a broader definition of stakeholders versus shareholders such as environmental agencies and unions in determining the best course of action for a company’s future operations and how it should be run.

Besides some of the insightful deal war stories, future PE trends and industry knowledge he shared, he also gave great advice on what he thought it took to be successful which was well received by the crowd.

There were a host of excellent questions asked by the crowd in the Q&A session as well as the cocktail reception following. I’m looking forward to the next event hosted by the PEVC club.

MAJUP

The past few weeks have been pretty busy with a variety of events. LBS hosted its first combined TMT conference with the technology and media club on Friday Feb 25th with speakers on topics such as new revenue streams for IPTV and the forecast for cloud computing. There was one particularly interesting speaker who equated using cloud computing to storing informational currency in a bank. While you appear to be giving up control in the form of a physical box hosted on site, the security and convenience of cloud computing is similar to withdrawing money from an ATM.

That weekend I had some friends from Barcelona visiting (they were going to pursue careers in the TMT space) and they also had the fortune to stay for Tattoo, a school wide celebration of cultural diversity with artistic and gastronomic displays. The entire school was set up with tents as students prepared food native to their homelands wearing traditional dress and putting on performances to display their artistic talents.

This past weekend was spent in Lisbon. With exams coming up, it was a good opportunity for the exchange students to have one big go at a trip before many of us run off at the end of the 10 week term period. Time seems to have flown by as we are already in March.

YCIF London – First Conference Call

Today the YCIF in London hosted its first conference call. The speaker was Mr. Carlos Leitao, Chief Economist and Strategist at Laurentian Bank of Canada. He gave some great insight into the outlook of the Canadian economy by providing some colour as to the major macro indicators and the story of what was going on behind the key performance metrics.

I'm looking forward to the next conference call which is slated for Wednesday of next week. The topic will be the European state of the economy for 2011.

Weekends in London

The past few weekends in London have been interesting.

This past weekend the LBS International office hosted a London sightseeing event on a red double decker bus touring around to see the major sights: London bridge, tower bridge, London eye, Buckingham Palace, Big Ben, Parliament etc. The tour ended at the British Museum where we had lunch and a few of us went to check out the exhibits which include the famous Rosetta stone.

On Sunday, a few of the exchange students also went to see a Fulham football match at Craven College. We were sitting in the “Home/Neutral” section and it was a great match.


The weekend previous was the big Private Equity conference held by LBS on Friday with speakers from major firms like KKR, TPG and The Carlyle Group.

Another exchange student and I also ventured into Oxford to the Said Business School to attend the Enterprise Africa conference with various speakers on topics such as Private Equity, China and India's relationship with Africa etc. Speakers were from Goldman Sachs, Bank Of Maurituis, MTN and other top banks and industry representatives.

While there, we also had the opportunity to check out Christ Church, the place where the main hall of Hogwarts was filmed for Harry Potter.

Bid / Ask Curves

At the break in behavioural finance, I was speaking to a prop trader about the mechanics of the market. This reminded me of my short trading exercise in the Rotman Finance Lab with the Trading Simulation software.

In microeconomics, we discuss demand curves and how they are based on individuals with different levels of willingness to pay. So as the price increases due to a supply curve shift right (less supply), the quantity demanded decreases.

In markets, this is a little more transparent if you look at the bid / ask lists. These lists show the prices and volumes people are willing to buy and sell for. The other unique thing about the capital markets, is that there is actually a set number of securities (assuming that banks do not issue or buyback securities in the short term, supply is price inelastic based on total float) and that investors can be both buyers and sellers (short term suppliers and consumers) of securities. Actually, a better way to put it would be they can either hold or release securities (demand based relationship).

If their intrinsic value (IV) of a stock is above the current market price, they will buy the stock. If their IV is less than market, then they will sell. And in an exchange market, that is exactly the case (orders, unless removed before execution, are commitments to buy or sell at the stated price).

Shown here is an illustration of a “complete” market. This assumes that everyone’s IVs are included, that there are no hidden orders and that people’s opinions won’t change with the market price (a snapshot by nature). The current ask price is $8.00 and the bid is $7.75. As people’s sentiments change (or new investors are introduced into the market), orders to buy are satisfied at $8.00 and orders to sell are satisfied at $7.75. If all the potential sellers at $8.00 are taken up, then people can only buy the stock at $8.25 and the stock price goes up. Note that the differential between bid and ask is a proxy for market liquidity, as the lower the transaction fee to enter and exit a position the lower the cost of trading the security.

Also note that the steepness of the curve is a good proxy for potential volatility as well. Because if the slope of the curve is steep over a variety of prices, it means that the market doesn’t necessarily agree on the price. And if a few people cross the line from one side to another, the price can change quickly and dramatically (shown below):

Bridge to Value

One graph I've seen which I thought was clever was a breakdown of change in EV. This brings together many other details I've learned about M&A, LBO's and transactions in general.

Previously, I mentioned a framework for PE deal success, but it is easy to cut into more detail if necessary and really define and put a mathematical value to "synergies".

For example: After a transaction, we've increased sales by 21%. How does that affect EV? Well on one hand, you've immediately realized a 21% increase in revenue. After you account for associated costs with that increase in revenue (ie. You've sold more widgets, but it still costs you money to make those widgets), what do your future growth prospects look like as a result of this new growth (ie. Should you trade at a higher multiple? Have you gone from "boring" to "exciting"? Or is it just general market conditions?)

Previously, you had:

Market Cap = $100
Shares outstanding = 100
Price per share = $1

Debt = $100 (@ 5%)
Excess Cash = 0

EV = $200

Revenue - $100
COGS - $40
GPM = $60

Op Ex - $20
EBITDA = $40

DA - $10
EBIT = $30

Interest = $5

Tax = 40%

NOPAT = $18
NI = $15

Therefore:

EPS = 15 cents

P/E = ($1/$0.15) = 6.67x

EV/EBITDA = ($200/$40) = 5.00x

Let's tell a story: The 21% increase comes from opening a new line of products. You are selling 10% more products by introducing a new product line and this new product line actually increases your revenue per unit (across the board) by 10% (110% x 110% = 121%). All margins are the same.

What should we do? Bring everything down to the EBITDA level:

Now:
Revenue - $121
COGS - $44 (10% more products at same costs)

GPM = $77

Op Ex - $22

EBITDA = $55

DA - $10
EBIT = $47

Interest = $5

Tax = 40%

NOPAT = $28.20
NI = $25.20

EPS = 25.20c

(Magic happens - Which we will explain shortly)

New Price per share = $1.80

Market Cap = $1.80 x 100 shares = $180
Debt = $100
EV = $280

P/E = ($1.80) / ($0.2520) = 7.14x
EV/EBITDA = ($280 / $55) = 5.09x

Analysis:
So a lot is going on. The price of the equity and the enterprise has changed, but how can we do a cross section such that we know exactly where all the value is being driven from?

How much of this value is because of leverage (hint, we didn't change amount of leverage)?
How much of this value is simply because we are operationally better?
How much of this value is because we have a "brighter future" (better growth prospects)?

Step 1: Value from leverage arbitrage:
No change = 0

Step 2: Value from "synergies":
Total EBITDA level changes: $40 to $55 or $15
At a multiple of 5.00x (previous multiple), value increased is $75

Step 3: Value from "Brighter future"
Brighter future (higher multiple) due to either market conditions or expected future growth:
$55 at 5.00x versus at 5.09x = $55 x (5.09 - 5.00x) = $5

Total value created: $75 + $5 = $80 (note total increase in value of EV / Market Cap)

Next step, look closer at Step 2:
Change of $40 to $55 is created by:
$21 in Revenue (Price +10%, Volume +10%)
$4 in COGS (Volume + 10%)
$2 in Opex (Volume +10%)

For a $21 increase in revenue, keeping margins constant we would have expected an increase of:
$8.4 in COGS (40% of revenue) and $4.2 in Opex (20% of revenue). COGS is lower by $4.4 and Opex is lower by $2.2 versus what is expected.

Note we mentioned we can sell products for 10% more across the board.
This created value for existing product base (at EBITDA level) of
$110 - $40 - $20 or $50 versus $40 creating $10 of additional EBITDA level value (makes sense, increase topline growth by 10% without changing expenses / sales volumes results in increase of EBITDA by 10% of revenue)

Also, selling an additional 10% at old price we would expect:
$10 (additional sales) - COGS ($4) - Opex ($2) or $4

But selling new products at new price: Gain $1 (similar to math shown above)

Total change in EBITDA: $10 + $4 + $1 = $15
At 5.00x
$55 or ($10 + $1) x 5.00x of EV is generated from selling at a higher price
$20 ($4 x 5.00x) of EV is generated from selling new products (higher volume)

Above is what the bridge would look like if a PE firm had 60% ownership and management had 40%.

Note, this framework is iterative and can be applied across multiple product lines to help do a break out and sum of the parts analysis for companies to see where value is hidden in undervalued divisions.

Also note that as an interesting aside, if you were actually to build out a proper DCF model of this (using some basic business assumptions holding margins constant etc.), your short term growth rate would have to be adjusted upwards in order to come to the same intrinsic valuation that would justify the higher multiple.

Flight of Fancy - Market Price for Courses

So it turns out I’m not entirely crazy.

Obviously, one of the benefits of going on exchange is to meet new people and learn from new experiences. Previously, I had posted on a flight of fancy, where I wondered what would happen if we extended the idea of our bidding system at Rotman to the “next level”. Well it turns out that elective bidding at some other schools can be slightly more complicated.

Talking to some students at other MBA schools, they have more “progressive” (market driven, while not entirely "pure") bidding systems for courses, where you can actually buy and sell courses for a profit (expressed as a gain in “points”) where you bid for classes early and then “sell” them at a later date when their point value has increased.

The only short coming of their system (from a market perspective) is that there is only one form of “liquidity”. The only way to truly “exit” the market? Take a course. There is no other way to liquidate these points. This could easily be solved if you could simply transfer the points to another student (a secondary market would develop and even create an OTC market price in $$$'s for course points).

And then you would have a market answer for the question: “How much is the margin worth to take the elective course you want?”

YCIF – London Chapter Inaugural Event

Yesterday, the Young Canadians in Finance organized their inaugural event in London at the Royal Automobile Club. The guest speaker was from the Canadian High Commission and spoke on the strong relationship between the UK and Canada and how Canada’s focus on increasing value added exports such as talent in the financial services sector was helping to improve Canada’s name abroad, especially in the light of our strength in the recent financial crisis.

The RAC was a beautiful club and it was nice to meet with fellow Canadians on this side of the pond. It was also surprising what a small world it is, as some of the people I had met had worked with some of my fellow Rotman students back on Bay Street at Canadian banks as recently as this summer.




My friend, Mathieu Bouthillier, has been a driving force for organizing YCIF’s presence in London, the first chapter outside of North America. He’s got a great line up of events including a series of guest speakers and social events which will be happening later this month and in March which I am looking forward to and will certainly attend.

It’s amazing some of the contacts you make and what you can learn just by having conversations with intelligent hardworking people with similar interests and it was a pleasure to be a yesterday’s event.

Chinese New Year in London

xin nian kuai le; gong hai fat choi; selamat tahun cina baru

Earlier this week, a few of the exchange students at LBS went to celebrate Chinese New Year in typical fashion, over a splendid meal, in London’s “alternative” Chinatown near Queensway. While the lineup was fairly long (we ended up waiting for 45 minutes due to exceptionally high traffic volume), the service was otherwise very good and the meal was delicious.

Earlier that week, I was also lucky enough to catch a dragon dance show in London’s official Chinatown near Piccadilly Circus while buying some groceries.

The Globe and Mail featuring Rotman Students

My classmate, Alejandro Macareno, recently spoke with the Globe and Mail on why international students come to Canada and how they add value to the classroom through their unique experience and perspectives.

Being from Venezuela, Alejandro gave helpful comments on a case we had studied in our Managing People in Organization class way back in Q1 of first year when we looked at a Canadian bank acquiring a bank in Latin America and the merger of cultures. He certainly added some meaningful context to our discussion as someone who was born and raised in that part of the world.

You can listen to him speak on the Globe and Mail website on the experience of international students in Canada.

Some of my other classmates from Rotman featured include:
Ajay Jayarajan
Khaled Nounou (The same Khaled who was on the Islamic Finance ICP team)

Recently, I asked my classmates for guest posts about their unique experiences at Rotman and posted the series.

Islamic Finance – Executive 3 Day Program

Today, I presented remotely from London at the Islamic Finance Program, hosted at Rotman for the Executive Program in partnership with Bennett Jones. This was the final component of our Islamic Finance ICP. The team lead by Walid included myself, Arash, Shahzad, Khaled, Kashif and Noureen and we presented our materials to the executive program participants.

With the rise of Islamic finance, I’ve had some interesting conversations with people I’ve met while on exchange at LBS regarding Sharia compliant financial structures such as the various types of sukuks we’ve been analyzing.

Our spread analysis drove quite a bit of interest for people who were interested in what a Sharia compliant structure would yield and the market conditions for doing such an issuance. Even before our presentation, I had the opportunity to answer some basic questions regarding the pricing spread between Islamic instruments versus conventional.

Senatus Populus Que Romanus

Quando sei a Roma vai dove vanno i romani
"When in Rome do as the Romans do"

One of the benefits of doing exchange, particularly in Europe, is the ability to travel to new places, see new things and meet new people. This weekend I visited Rome flying on EasyJet from Gatwick. Thankfully, my teammate for Private Equity / Venture Capital was a good sport, agreeing to meet well in advance of an assignment due for next week to finish it as I would be incommunicado for the weekend.

I visited the Colosseum and the Roman forums where ancient ruins stretched across parks. Even the city itself was sprinkled with fountains, statues and monuments. It was impossible to travel for even a few meters without encountering a plethora of fountains, making it surprisingly difficult to navigate the entangled narrow streets using landmarks.

Like many travellers collecting stamps on our passports, I was hoping to get a stamp from the Vatican (afterall it is technically its own country, the smallest country in the world). However, despite the tall walls surrounding the city, there was no security or passport control. The Sistine chapel and St. Peter's Basillica were very serine and it was nice to just enjoy the solemnity and gravity of the place.

The trip itself was actually punctuated more with food and wine then tourism to be honest. It was nice to just relax somewhere enjoy copious amounts of "vino della casa", putting down several "brave soldiers", and generous portions of fresh pasta and risotto.

My only regret is pushing my return so late, arriving "home" to London on Tuesday afternoon with just enough time to shower and rush to class, a mistake I will not repeat on my next excursion.

Veni, vidi, vici

Intuitive Explanation of Bayes’ Rule

One of my favourite math identities is Bayes’ rule. It also occurs quite frequently in Behavioural Econ / Finance as well as integrative thinking because it is such a good (mathematically provable) example of flawed thinking and model construction.

But like any formula, if not understood at an intuitive level (aka memorizing the formula vs rebuilding it from scratch), applying the formula incorrectly will yield meaningless (and potentially misleading) results.

Bayes’ rule states:

P(A\B) = P(B\A) x P(A) / P(B)

On the surface, this formula seems to make no sense: “The probability of A given B is the probability of B given A multiplied by probability of A divided by probability of B.”

However, walking through step by step we first understand that:

P(A\B) = P(A Λ B) / P(B)

This makes sense. The probability of A happening given that B has happened is the area encompassed by A and B (gray) divided by the total universe of probabilities, B (red and gray), because we are told that B “has happened”.

So from here we can also understand that:

P(B\A) = P(A Λ B) / P(A)

Which is simply the same rationale as the one above. However, using algebra, we can see that:

P(A Λ B) = P(B\A) x P(A)

And combining the two formulas, we get the original:

P(A\B) = P(B\A) x P(A) / P(B)

Example provided in class:
Of patients entering a chest clinic:
Event A – Person has cancer
Event B – Person is a smoker

80% of people with cancer are smokers: P(A\B) = 80%

10% of patients have cancer: P(A) = 10%
50% of patients smoke: P(B) = 50%

If you knew someone was a smoker, what is the probability they have cancer?

Solution:

Most people would over estimate the number, due to various incongruities in the probabilities, namely because such a high percentage of patients with cancer are smokers at 80%.

However, the math shows us that P(B\A), the probability of finding cancer given that you know someone is a smoker is (80% x 10%)/50% or 16%. Although it is higher than the average of 10%, is still relatively unlikely that they have cancer relative to what most guesses anticipated.

You'll notice that the answer is heavily affected by the rarity (and relative elasticity) of event A, or the chance that someone has cancer to begin with.

Behavioural Finance and Bounded Rationality

Whether fortunately or unfortunately, human beings do not behave in perfectly economically rational ways which makes them very difficult to predict. Even with our most complex models accounting for a variety of different factors, there is a high degree of volatility not explained by our multifactor regressions and the models they produce.

Behavioural finance (along with it's fraternal twin, behavioural economics) aims to better understand how humans make decisions that are non-optimal in the strict finance / economics definition and don't comply with what academics would have us anticipate as expected behaviour.

While this course is particularly interesting, what did strike me as noteworthy was that a lot of the foundation material for this course is based on the same principals as integrative thinking taught in our FIT class. In fact, it seems as if we've been doing a review of FIT, focusing on how humans make errors in judgment and build sub-optimal mental models based on well documented shortcomings in how we think.

In fact, some of the examples used in the class are lifted from the exact same material presented to us in Q1 of our first year highlighting anchoring effects, neglecting regression to the mean, availability heuristic, rational probabilty assessments, hot hand and gamblers fallacy etc.

A Framework for Measuring PE Deal Success

The Analyst Exchange and Marquee group showed us how to build LBO models and the basic framework for showing how LBOs generate returns to private equity holders through 3 mechanisms:

1. Leverage arbitrage – Increasing leverage and paying down through cash sweeps
2. Operational arbitrage – Improving operations to generate higher earnings / EBITDA
3. Multiple arbitrage – Selling the company for a higher exit multiple

Of the three, the most meaningful method of generating returns is the second, operational arbitrage. Leverage arbitrage can generate returns, but is not a strategic differentiator when it comes to a bidding process (unless you have some unusual advantage in raising capital) and multiple arbitrage is simply based on market conditions. However, operational arbitrage is directly related to value creation and is the reason why a strategic buyer can afford to pay more than a financial one.

While this is useful notionally, how can we use this to build a framework to understand how each dimension performs in a deal? In my Private Equity and Venture Capital class, they proposed the following framework and example:

So the total gain in equity value is 78.9 (112.9 – 34.0)

1. Return from leverage arbitrage is actually negative because debt increased rather than decreased at -9.2 or (4 - 13.2) and contributes to the equity gain by -12% (-9.2 / 78.9).
2. Return from multiple expansion is 27.3 or (13 x (9.7 - 7.6)) and contributes 35% (28.6 / 78.9)
3. Return from operational improvement is 60.8 or (7.6 x (13 – 5)) and contributes 77%

Using this information, you can benchmark the deal against different performance metrics and determine if the deal generates equity gain simply because of leverage or multiple expansion versus creating value by improving operations.

[Rotman] 5 Great Speakers at Rotman

[Rotman Series: 1, 2, 3, 4, 5]

Jaime is a part-time student in the MBA program at Rotman. He has worked in the sports media industry since 2002 and is currently Manager, Digital Media for the Canadian Football League. He and I went to the Latin America study tour in May last year. He was gracious enough to do a write up for me on his favourite guest speakers which follows:

By Jaime Stein

One of the first things you notice when you obtain an e-mail account at the Rotman School of Management is the sheer volume of e-mails from a guy named Steve. At first it can be overwhelming, but if utilized wisely, it can be your ticket to an exclusive roster of speakers. Steve and his team are the masterminds behind the A-list speakers that regularly visit the Rotman School.

The hardest choice I have to make each week is which speakers I will NOT listen to. This is a good problem to have because choice is always welcome when working full time and attending school part time. I simply don’t have the time to listen to every speaker that passes through Rotman. However, in almost three years, I have been privileged to listen to close to 100 guest speakers.

Most of the speakers that I have seen have delivered outstanding talks, but for the purpose of this blog I present five of the best speakers I have listened to during my time at the Rotman School:

1. Paul Martin – Former Prime Minister of Canada

Imagine you are in your second semester of a three-year MBA degree and you are studying Macroeconomics. A large focus of the course stems around Canada’s macroeconomic policies during the 1980s and 1990s; specifically the country’s battle with debt and inflation. One day you find out that the man behind the plan to battle inflation will be speaking at your school. That would be like a young basketball player having the opportunity to shoot hoops with Michael Jordan and ask him for tips.

Fortunately for our macro class, Mr. Martin came to speak at the Rotman School one morning and for about an hour took us through his plan that brought Canada back from the brink in the mid-‘90s. Following his talk he took time to speak to each of us and share some more personal insights and war stories from his time as both Finance Minister and Prime Minister. This was one of the great days at school that left me wanting to explore a subject further.

2. Isadore Sharp – Founder, Chairman and CEO of Four Seasons Hotels and Resorts

One of the main selling points of the Rotman School is its focus on Integrative Thinking – the theory coined by the current Dean, Roger Martin. In one of his books on Integrative Thinking (The Opposable Mind), Martin focuses on the story of Isadore Sharp and his path to building the greatest luxury brand of hotels in the world. In many of our classes we study the Four Seasons Model for customer service and other best-in-class management techniques. We were fortunate to have Mr. Sharp visit the Rotman School and explain firsthand how he went from one Four Seasons hotel in 1961 in Toronto to operating a chain of approximately 100 properties worldwide.

For anyone with an ounce of entrepreneurial spirit this was a motivating discussion. You could see the passion, courage and drive that Mr. Sharp possessed to launch his vision and stay true to it along the way. Any successful company will create a competitive advantage – however, these are eventually replicated by the competition over time. When people are your competitive advantage, it becomes truly sustainable as Mr. Sharp has proven. While other hotels provide outstanding service, none of been able to match the formula created by the Four Seasons.

3. Rahaf Harfoush – Digital Strategist and Author

It was November 27, 2008 when Ms. Harfoush spoke (for the first time, I believe) at the Rotman School. There was lots of hype surrounding her talk that day because Barak Obama had recently been elected President of the United States and Ms. Harfoush was a part of his wildly successful digital media campaign. I also remember this talk vividly, because it was one day later on November 28, 2008 that I joined Twitter. A lot in my personal and professional life has changed since that defining moment – all for the better.

The topic of conversation at Rotman that day was, “Applying Barack Obama’s Social Media Strategy to Your Brand’s Communications Needs” and it was Ms. Harfoush’s talk that became the inspiration for a lot of what we have done at the Canadian Football League over the past two seasons in the social media realm. To me, this is what an MBA program is about – an exchange of ideas to help stoke peoples’ imagination and potential. I’m glad I made time to attend her talk that day.

4. Michael Lee-Chin – Founder and Chairman of Portland Holdings Inc.

In October, 2009 I attended the Rotman School MBA Leadership Conference in downtown Toronto. It was a star-studded event with speakers like George Butterfield, Co-President of Butterfield & Robinson, Beth Comstock the CMO for GE, Don Morrison, COO of Research in Motion, Robert Deluce the CEO of Porter Airlines and Michael Lee-Chin, the Founder and Chairman of Portland Holdings.

Mr. Lee-Chin is one of the most engaging speakers I have had the pleasure to listen to in person. Mr. Lee-Chin spoke for about an hour on a variety of subjects including how to create wealth. He focused on a small number of blue chip businesses with long-term growth potential. But he was adamant that you know and understand where you are investing your money. One quote from Mr. Lee-Chin that sticks with me is, “If you don’t understand what you own, are you investing or speculating?” This is important advice that too many people continue to ignore this day and age.

5. Jay Hennick – Founder and CEO of FirstService

Mr. Hennick spoke to our class recently at the Rotman School. He runs FirstService, a company that provides services in commercial real estate, residential property management and property services and generates about US $2 billion in annualized revenue. Mr. Hennick told us his amazing story of how he achieved his current standing atop a multi-national company. He got his start with a company he ran as a tenth grader that brought in an income of $200,000. Yes, you read that correctly – he was in grade 10.

His key message was focused on people management; what he believed was the differentiating factor for the success of his current company. His “Partnership Philosophy” states that impact players must have more than a salary and bonus invested in the business; they must have an equity stake. His company focuses on aligning employees’ interest with shareholders in building long-term value. This was both fascinating and eye opening for most students who believe this is hard to do in a company of 18,000+. Yet FirstService continues to succeed. Listening to Mr. Hennick and his passion for success was rewarding.

As you can see, there are some overarching themes from these speakers such as focusing on people and establishing long-term strategies. But ultimately, each of these speakers is among the leaders in their field and that is why I feel fortunate to have spent the past three years at the Rotman School. The access to these great minds alone was worth the price of admission – well almost!

Arrived in Britannia!

I've arrived and moved in to my flat which is right across the street from London Business School which is convenient. Apparently, we happen to be very close to some famous addresses on "Baker street":

We've met our exchange classmates from around the world and are slowly going around meeting the 400 students in each of the 2011 and 2012 classes. There are some impressive resumes and experiences of the small sample of people we've met so far.

[Rotman] Ghana, another perspective

[Rotman Series: 1, 2, 3, 4, 5]

Darshan is an another good friend of mine from Rotman. He holds Bachelor of Technology, Applied Electronics and Instru, University of Kerala and also spent this last summer in Ghana.

Darshan has graciously written me a summary of his experiences which were from a different perspective than Harman’s (Darshan's had a bit more of a engineering / technology flavour). It follows:

Snapshots from Ghana – An Emerging Nation in West-Africa
Looking back, my 3-month Ghanaian summer experience provided a fairly deep understanding of the opportunities and challenges present in this sub-Saharan African country – one that is at the cusp of a developmental inflection point. Along with a fellow Rotman MBA student and four other Canadians, I was working for a non-profit organization located in Kumasi. The organization (SMIDO) dealt with supporting close to 80,000 people - a community of artisans, auto mechanics and metal workers in Suame Magazine (sector of densely populated metal workshops) – to gain market access and facilitate an ecosystem required for businesses to compete with the formal sector.

I arrived in Kumasi with a hazy idea in my mind about the place – drawing pictures and parallels with my home state Kerala, located in southern India. Those ideas were redrawn in the first few hours after I reached there. More than anything else, my first impression of Kumasi was that of a highly dense, busy, loud urban community trying to make ends meet. Beyond that first impression, however, the environment has a noisy vibrancy colored with great optimism about a better future.

Here are a few highlights from my visit there:

Industry and Client Site Visits: My tryst with Ghanaian business began with an introduction to Ghana's gold mining sector. After meetings with gold miner Central African Gold, who was once our client, I got a chance to tour their gold mine pits and extraction plants to see their operations first hand – this was quite an interesting piece of the visit. In another meeting with Red Back Mining, a Canadian gold miner, what was memorable was hearing the head of the firm’s social responsibility group talk at length about Red Back Mining's efforts to establish lasting relationships with the mine’s displaced community. Red Back has invested considerable resources in helping the local community in which it operates and asked our expertise in partnering with them to design skill development and training programs for apprentices from those displaced communities.

Economic Growth Prospects: Apart from mining, another key growth prospect in Ghana is information communication technology (ICT). Most high school children in urban centers have a Facebook account and there is an increasing trend toward being connected to the world - through mobile phones or the internet. Along with the addition of the focus on energy resulting from the recent discovery of sizeable oil reserves off the coast of Ghana, the country also has a Green Revolution going on where local farmers are getting more yields and income from their crops.

Talks with Ministers and Entrepreneurs: Some of the chats with Ghana’s politicians such as the Minister of State for Environment revealed a message of prudence concerning the potential perils of newfound natural resources and a desire to expand unions with other West African countries. A chance conversation with social entrepreneurs like Ashley Murray (Waste Enterprises) gave me a sense of profound optimism of the future of the private sector. The fact that Ghana enjoys a reverse brain-drain, wherein internationally educated Ghanaians and foreign nationals are increasingly returning home from North America and Europe to begin careers that will design enterprise development seems to support this growing optimism.

Despite the different rendezvous with entrepreneurs, business people and ministers, the time spent with the people within the non-profit was perhaps the best part of my summer. The long bus rides and trips were memorable as they included time to talk about our cultural experiences. Created by the common bond of intense cultural experiences – with visits to the beaches of Cape Coast, Elmina Castle slave trading post, Kakum and Mole National Parks and the countless soccer games we watched together - the personal connections forged during the trip will no doubt be more valuable to me and a true measure of my impact.

I departed Ghana very impressed by the hospitality of the Ghanaian people, the immense potential of the country and the depth of the challenges that will present themselves along this nation's path to growth.

[Rotman Series: 1, 2, 3, 4, 5]

Flying out for Exchange, London Business School

I think it's finally hit me. I'm flying to London. I'm sitting in Pearson airport taking advantage of the free wifi, wrapping up a few things and my excitement level is steadily increasing. Geoff Wylde, the other Rotman student going on exchange to LBS has been busy, having left last week. I've been getting emails from the international exchange students who are already there and their social plans for their time in the UK.

I'm really looking forward to being at a new school and meeting new people. As with Rotman, it will be another opportunity to meet likeminded individuals and participate in various events (I would be severely disappointed if my participation in events like case competitions dips even a little bit).

MBA Games was fun, with Rotman winning the Spirit Q&A awards. The Rotman organizing team did a phenomenal job planning our participation this year, only our second year participating. It occurs to me that this is the largest student event I’ve ever been to; even CFES Congress and CEC were only about 220 students, whereas the MBA games were 662 from 20 MBA schools across Canada. I also met some old friends from the FEI case comp, RIM and even junior high! Small world.

The winning team was University of Alberta, so it seems that next year’s team will have an interesting trek to the next games assuming they can get funding support. The host of the games is the previous year’s winner, unlike the CEC which uses a bidding system.

[Rotman] India, US, Canada, and Africa

[Rotman Series: 1, 2, 3, 4, 5]

Harmanpreet is an international student from India and holds a Bachelor of Computer Science and Engineering degree from the National Institute of Technology in Jalandhar, India and will be joining Deloitte’s technology consulting practice once he is finished his MBA at Rotman.

Harman had the interesting experience this past summer of working in Ghana, Africa and I’ve asked him to provide a short reflection of the experience which follows:

Before joining Rotman School of Management I was working as a technology consultant in one of the leading investment banks in New York.

To fast pace my career I decided to pursue MBA and because of some personal reasons chose Canada as place for that. I chose Rotman because of its excellent faculty and its location proximity to finance and consulting industry. I must say it has been an eye opening experience. The people I met, their vast experience, the work they have been doing in past amazes me.

I decided to take a bit different route to enrich my MBA experience. While working full-time in professional world it is very difficult to get an option of doing something completely different.

During summer break, I went to Ghana to work for Suame Magazine Industrial Development Organization (SMIDO). It is an industrial development organization of the biggest industrial cluster in sub Saharan Africa. SMIDO is an umbrella organization of various businesses in Suame Magazine area and is committed to ensuring the development of Suame Magazine into a technologically advanced industrial estate and representing the various economic groups that operate within the area.

Working in a under developed economy is a real challenge. But the satisfaction that I got from work that changes someone’s life is incomparable and this feeling kept pushing me to put more and more efforts into whatever I was trying to achieve.

My most important contribution while there was to approach a gold mining company with a proposal to sponsor apprenticeships for people displaced by their mining operations. It was ecstatic when the mining company accepted the proposal.

After summer experience my whole approach to business has changed. I used to think that business means making more money for you and for your shareholders. Now I believe that purpose of business should be to benefit human society rather than to accumulate wealth to satisfy egos.

It was an experience that I will cherish for rest of my life.
-Harman Singh

[Rotman Series: 1, 2, 3, 4, 5]