Novacap aims to raise more than $650 million for its fifth mid-market industries fund by expanding its global base of limited partners.
The Montréal private equity firm began raising Novacap Industries V in late 2018, Chairman and Managing Partner Jacques Foisy told PE Hub Canada. He expects to see an initial close by the spring and completion later this year.
If successful, Fund V would secure 38 percent more in capital than its predecessor, which raised $470 million in 2016.
More than $400 million has already been soft-circled for Fund V, primarily from returning investors, Foisy said.
Novacap Industries IV was backed by some 40 North American LPs, including pension funds, family offices and wealthy investors. Among them was Caisse de dépôt et placement du Québec, which has contributed to every Novacap fund.
The firm plans to grow and diversify this investor base by signing up new LPs in Canada, the United States and Europe. Credit Suisse is the placement agent.
Novacap’s industries group, one of two sector-focused groups, acquires North American mid-market companies. These are generally makers of consumer and industrial goods, food processors, business-service providers and distributors with revenue of $30 million to $500 million.
Target opportunities are often Canadian businesses with particular potential to expand abroad.
Novacap specializes as a partner to such companies, investing in cross-border initiatives that can take “a local leader and turn it into a North American leader,” organically and through add-ons, Foisy said.
Bigger war chest for more deals
Fund V will maintain Novacap’s 38-year investment strategy, Foisy said. The boosted war chest will enable more platform deals.
Fund IV, approaching full investment, has backed nine companies to date. Its successor is likely to invest in 12 to 14 opportunities.
More resources will also help Novacap build on the broader market coverage it established in recent years.
In 2013, the firm opened a Toronto office to source additional pan-Canadian deal flow. Since then, Novacap bumped up personnel at this location, supporting increased investing outside its Québec backyard.
This activity was on display in 2018. Examples include the merger of Toronto luxury mattress maker Kingsdown Canada with its U.S. counterpart, restoring the 115-year-old brand to common ownership.
That deal, coupled with last year’s buy of Zedbed, a Shawinigan, Québec, eco-friendly foam-mattress maker, positions Kingsdown for global growth, Foisy said.
Other 2018 acquisitions include Joseph Ribkoff, a Montréal women’s-apparel business, Mailhot Industries, a Saint-Jacques, Québec, hydraulic cylinders producer, and Noble Foods Nutrition, a Pointe-Claire, Québec maker of nutrition and energy bars.
Along with acquiring assets last year, Novacap sold KDC, a Longueuil, Québec, beauty and personal care products maker, to a consortium led by Cornell Capital for more than $1 billion.
Novacap initially invested in 2002. Then a single plant, KDC leveraged outsourcing trends to achieve 20 percent compound annual growth in revenue over 16 years.
Today, the company is an operator of 10 North American facilities and manufacturer to eight of the world’s top 10 brands.
Adding to the team
Foisy oversees some 20 investment pros, split between the firm’s Montréal and Toronto offices. He expects to expand the team, including at the highest ranks.
The industries group’s leadership team currently includes Senior Partners Michel Côté, Domenic Mancini, Marc Paiement, Frédérick Perrault and Michel Toutant.
Founded in 1981, Novacap also has a technology-media-telecom group led by President and Managing Partner Pascal Tremblay. Novacap TMT V raised $840 million in 2017.