A new player has joined the crush of GPs running secondaries processes to pull assets out of older funds for more time and capital to grow them.
Novacap, based in Montreal, is running a single-asset secondary on its portfolio company Syntax Systems, which provides software, infrastructure and cloud services for businesses.
The deal is among a rush of such processes heading to the market this year as GPs increasingly look for ways to hang on to certain assets longer than allowed under traditional private equity structures. Such single-asset deals have dominated the market since last year, when, after a pause during the health crisis, secondaries came rushing back.
The pandemic convinced some GPs that holding some companies longer than expected, and allowing them to grow, was a better move than deploying fresh capital into the uncertain markets of the reopening.
The Novacap process seeks to move Syntax out of two older Novacap funds where it’s held, Novacap TMT IV and Novacap TMT V, and into a continuation fund. Fund IV closed on $375 million in 2014, and Fund V raised $840 million in 2017.
Existing LPs in the older funds will have the option to cash out of their stakes in the company, or re-invest through the continuation vehicle, sources said.
The firm first invested in Syntax in 2016 and has steadily grown the company through add-ons, including its acquisition in April of Linke, a systems applications and products technology consulting business in April.
Credit Suisse is working as secondaries advisor on the deal. Spokespeople for Novacap and Credit Suisse did not return comment requests Friday.
Novacap, which closed its sixth tech-focused fund earlier this year on $1.86 billion, invests in tech and tech-enabled companies in North America. The firm also has an industrials-focused strategy that sources capital from its own pools of capital, the most recent of which, Fund V, closed on C$940 million in 2019. The firm was formed in 1981 by Marc Beauchamp, who is chairman.
The firm is led by Pascal Tremblay, president and CEO, and chairman Jacques Foisy, who leads the firm’s industrials team.
Firms have moved to focus on their high-growth assets for longer holds, to make sure they are capturing the growth they see ahead for these companies. This is a change from prior years when GP-led secondaries deals often focused on more challenged assets and funds.
Clearlake Capital is a major participant in this market, having created a family of single-asset vehicles to hold portfolio companies out of older funds. The firm so far has created three such vehicles to hold its portfolio companies Ivanti, Precisely and Wheel Pros.
GP-led deals, for the first time, represented the largest portion of overall secondaries volume last year. Single-asset deals were more than a third of all GP-led transactions in 2020, according to Campbell Lutyens’ full-year 2020 volume report.