Novacap’s sixth tech buyout fund blows past target, raising $1.86bn

In a sizzling market for software and tech funds, Novacap closed a sixth flagship buyout offering at more than $1.86 billion (C$2.37 billion), almost double its target.

Novacap TMT VI met its goal in no time flat, Pascal Tremblay, Novacap’s president and CEO, and Gordon Hargraves, senior partner, investor relations and strategy, told Buyouts. Launched in September, the fund wrapped up in early December, or just over three months.

The Montreal private equity firm was undeterred by fundraising hurdles erected by the health crisis. “Going virtual” instead expedited the process, Tremblay said. New York-based Hargraves, who joined last year from PA Capital, said Novacap typically made 30 to 40 videoconference calls every week to limited partners located worldwide.

Fund VI was in the end “very significantly oversubscribed,” Tremblay said, with Novacap “more than doubling” the size of its investor base. Returning LPs – many North American and European institutions – combined with about 50 first-time LPs, a number of them based in Europe, the Middle East and other regions of Asia. Credit Suisse was the placement agent.

Disclosed investors include Los Angeles County Employees’ Retirement Association, which committed $100 million. Caisse de dépôt et placement du Québec is likely another, as it usually backs every Novacap fund. The general partner team and its network of executives also kicked in $165 million, Tremblay and Hargraves said.

Fund VI is the largest vehicle raised in Novacap’s 40-year history. It is almost three times the size of Fund V, closed in 2017.

Technology is one of the fundraising market’s hottest strategies. In January, Silver Lake secured $20 billion for a sixth flagship fund, the largest tech PE pool on record. This followed several major closings in 2020, among them the combined $22.8 billion haul by software investor Thoma Bravo.

Staying the course

Fund VI will maintain Novacap’s longstanding strategy, making control investments in mid-market tech and tech-enabled companies in Canada and the US. The lion’s share of an expected 10 or more platform deals will be done locally, where the firm operates with a well-known brand and proprietary sourcing channels. Add-ons for these will mostly be sourced abroad.

“The strategy has worked so well for us, we wanted more of the same,” Tremblay said. “We have never focused on hyper-growth tech businesses. We prefer boring tech companies we can professionalize and globalize to achieve EBITDA multiple expansion. That’s where the returns are.”

The fund’s deeper pool will give Novacap “more means to accomplish our strategy,” Tremblay said, with the upper range of investments averaging $150 million to $200 million. “Our Fund V portfolio companies grew so quickly,” he said, “we often had to raise a lot of co-investment capital.”

This was perhaps evidenced two years ago, when Canadian payment tech provider Nuvei completed a major acquisition of Britain’s SafeCharge for $889 million. CDPQ, which joined the 2017 purchase of Nuvei, also helped finance the add-on deal.

Even with a larger fund, access to sources of co-investment capital remains important to Novacap, especially LPs in new regions, Tremblay said. “It was one of my big goals for Fund VI.”

Powered by exits

Fund VI’s marketing was supported by a string of portfolio exits. They include last year’s $833 million initial public offering by Nuvei, the largest for a tech business in the history of the Toronto Stock Exchange. Novacap, which retains a stake, saw a nearly 10x multiple on its investment, sources told Buyouts. The firm declined to comment.

Novacap also in 2020 sold Intelerad Medical Systems, a medical imaging software maker, to Hg Capital. The deal valued Intelerad at more than $650 million, PE Hub reported. In addition, PKWare, a data security and compression software provider, was sold to Thompson Street Capital Partners.

Fund VI has yet to make its debut investment. Novacap’s latest tech deal, announced in December, was healthcare software maker Logibec, acquired from GI Partners for about C$500 million, according to PE Hub. As Logibec “is essentially a Canadian story,” Tremblay said, the aim will be “to expand it internationally.”

Tremblay leads a 19-person investment team, including senior partners Eric Desrosiers, François Laflamme, David Lewin, Ted Mocarski and Stéphane Tremblay. The group is expected to top 30 professionals later this year with new hires, Tremblay said.

Novacap, which oversees C$6 billion-plus in assets, also has an industries team led by chairman Jacques Foisy. Novacap Industries V in 2019 raised C$940 million. The firm in the same year launched a new financial services strategy led by managing partner Marcel Larochelle, a former asset management executive.