Novacap eyes $600 mln target in launch of fifth tech-buyout fund

Novacap set a $600 million target for its fifth mid-market technology fund, which would be the largest in the private equity firm’s 35-year history.

The Montréal investor began fundraising for Novacap TMT V in January, President and Managing Partner Pascal Tremblay told PE Hub Canada. He says he’s feeling “very confident” about meeting the fund’s goal later this year.

Closing on $600 million would give Fund V about 58 percent more in committed capital than its predecessor, which raised $380 million in 2014.

Tremblay says the fund received a strong response from existing limited partners, mostly Canadian, U.S. and European institutional investors and wealthy individuals. Returning LPs are likely to include Caisse de dépôt et placement du Québec, which has committed to every Novacap fund.

Novacap also plans to expand and diversify the investor base by signing up new global institutions, especially in the United States. It hired Credit Suisse as a placement agent.

The firm’s tech group, one of its two sector-focused groups, is unique in Canada’s PE industry. It makes control investments in mature Canadian and U.S. technology, media and telecom companies with sales ranging from $30 million to $500 million.

“We don’t provide growth capital for the shooting stars,” Tremblay said. “We’re there for that layer of patiently built technology businesses that have become very profitable and want to monetize.”

Such criteria fit the mould of Silver Lake, Vista Equity Partners and other buyout firms that specialize in tech investing. In Novacap’s case, the domain strategy is centred primarily on the local market, where more than 80 percent of platform deals are done.

Tremblay says specialization, coupled with Novacap’s “stable team” of investment pros, has attracted international LPs looking to enhance exposure to differentiated mid-market opportunities. “You can’t be more niche than us,” he said.

Along with boosting the war chest, additional LPs recruited abroad would give Novacap greater access to co-investment resources, Tremblay said.

They would also help increase Novacap’s visibility beyond Canadian shores, which supports sourcing of add-on acquisitions, he added. More than 80 percent of the tech portfolio’s add-ons have come from outside the country.

Staying the course

Fund V will maintain Novacap’s longstanding tech strategy, Tremblay said. Sourcing deal flow on a proprietary basis, the firm has typically found quality opportunities in small, often opaque local sectors by cultivating direct relationships with founders.

With a deeper capital pool, the fund will undertake more investments, Tremblay said. Novacap TMT IV, which is about 70 percent invested, has backed eight companies. Its successor is likely to target a dozen or so.

Fund IV’s latest deals include Firmex, a virtual-data-room platform that secured an investment last July. In the same month, the fund acquired Syntax, a provider of enterprise-resource-planning software.

Exit momentum

Along with acquiring assets, Novacap’s tech funds have been shedding them of late. For example, earlier this year Oxford Networks, a telecom and IT solutions business bought in 2014, was sold to Oak Hill Capital Partners.

Other recent liquidity events include the sale of fibre-optic connectivity provider Fibrenoire to Vidéotron for $125 million. Novacap also won an award in 2016 for its exit from music-services company Stingray Digital, which went public the year before. The investor realized 8.4x its money and a return of 33.8 percent.

Tremblay declined to share broader performance results, but calls Novacap’s track record consistent. “Our returns never depend on one or two big wins,” he said.

Novacap’s tech group added to its bench strength last year. New hires included entrepreneur Étienne Veilleux, who came on board as a senior partner. He joined Senior Partners François Laflamme, Ted Mocarski and Stéphane Tremblay and Partner Yong Kwon.

Investment pros operate from the Montréal headquarters and Novacap’s office in Toronto, opened four years ago to expand pan-Canadian investing.

Prior to Novacap TMT V’s launch, the firm’s largest fundraising initiative was led by its industries group. Novacap Industries IV closed last year at $470 million, bringing total capital managed to $1.6 billion.

Photo of Pascal Tremblay, president and managing partner of Novacap, courtesy of the firm.