Caisse de dépôt Anchors Two Novacap Funds

Firm: Novacap

Funds: Novacap Industries III LP and Novacap Technologies Buyout III LP

Targets: C$440M for Industries III; C$250M for Technologies Buyout III

Amounts Raised: C$400M for Industries III; C$160M for Technologies Buyout III

Novacap, a Canadian firm that decided to raise two funds instead of one to better appeal to large backers, is confident it will hit its combined target of C$690 million ($714 million) when it wraps up fundraising, according to a source close to the firm.

The 27-year-old Novacap, based in Longueuil, Quebec, and investing largely in Canada and the United States, is one of several indigenous firms, including Imperial Capital and Onex Corp., expected to make a big jump in assets under management with their next funds.

Novacap this spring held a first closing of C$400 million on Novacap Industries III LP, earmarked for mid-sized industrial companies, our source said. The target is a nearby C$440 million. At the same time, the firm held a first closing of C$160 million on Novacap Technologies Buyout III LP, earmarked for late-stage venture, growth equity and buyouts of technology companies generating positive EBITDA. The target is a comparatively farther off C$250 million. Our source said the firm hopes to close the pair of funds by year-end.

Caisse de dépôt et placement du Québec is the lead investor in both funds, good for 25 percent of the capital, our source said. Other backers in both funds include The AXA Group, Oak Hill Capital Partners and Solidarity Fund QFL (FSTQ); investors in the industrial fund include Crédit Agricole, Manulife Financial and Sun Life Financial, while first-time Novacap backers Rho Fund Investors and TD Capital have made commitments to the technology fund, according to our source.

Novacap, which aims to generate at least a 25 percent net IRR for its backers, last raised a single industrial and technology fund of C$210 million in 2000. It went on to buy nine industrial companies and to make nine investments in technology companies—largely a mix of early-stage and later-round venture investments, according to our source. It has scored two exits from that fund, both Canadian companies: Santé Naturelle, a maker of vitamins, supplements and other health products, and SNOC, a maker of outdoor lighting fixtures. The firm requires its portfolio companies to have their headquarters within a three-hour travel distance of Montreal, but it considers making add-on investments in the United States and elsewhere.

The firm decided to split the latest fund into two partnerships to cater to the large U.S. and European investors it hoped to attract this time out; several told the firm they preferred to control how much money they allocated to Novacap’s two investment strategies. With Fund III, Novacap also decided to downplay early-stage deals for later-stage venture, growth equity and technology buyouts—closer to the strategy it followed with the evergreen fund it managed from its launch in 1981 to 1999. Doing so takes advantage of the backgrounds of the five-partner technology team led by Managing Partner Marc Beauchamp; all of them have experience helping to run mature technology companies. Novacap’s industrial team includes four partners led by Managing Partner Jean-Pierre Chartrand.

The firm has seven active industrial companies in its portfolio, including Demers Ambulances, a maker of ambulances, and LEK Inc., a maker of antiperspirant, deodorant, hair and skin care products. Both companies are based in Canada. The six still-active technology companies in its portfolio include ViXS Systems, a Canadian fabless semiconductor company. Reach Novacap at 450-651-5000.—D.T.