Goldman Sachs Asset Management has participated in a buyout of Montreal information technology services outsourcer Syntax Systems Group Inc. led by private equity firm Novacap for roughly US$800-million.
The buyout is being done through a new US$1.1-billion special-purpose “continuation” fund raised and managed by the Montreal-area private-equity firm, in which Goldman is the lead investor.
The transaction will see the continuation fund, which is partly funded by Novacap’s US$1.9-billion sixth core technology, media and telecommunications-focused fund, buy out two of the private-equity firm’s earlier funds that had invested in Syntax over the past five years. The remaining US$300-million of the continuation fund will be set aside to fund Syntax’s continued growth.
Novacap president and chief executive officer Pascal Tremblay said in an interview that in order to avoid a conflict of interest for his firm, Goldman came in as the lead investor and set the price and terms for the deal. Investment bank Jefferies Group provided an external valuation opinion on the transaction.
He said his firm chose to remain a shareholder because Syntax is “a fantastic company you want to keep longer,” but that Novacap also wanted to give earlier investors a chance to cash out and realize gains on the investment.
Novacap is the latest in a string of private-capital firms to raise opportunity, or continuation funds, to allow their backers to continue investing and benefiting from value growth by their best-performing portfolio companies. In the past, funds such as Novacap have typically disposed of, or stopped funding companies, leaving it to new investors to benefit from continued gains.
Now, they can participate in further value creation by remaining investors longer than in the past through these funds. Several Canadian private-capital financiers have done the same, including venture-capital firms Version One Ventures, Golden Ventures and Georgian Partner.
Syntax manages enterprise resource planning systems provided by software giants including SAP, Oracle and JD Edwards on behalf of 800 large corporations on cloud-based data hosting services. Novacap acquired control of the company, founded in 1972 by Michael Etinson, for less than $50-million, and funded a global acquisition strategy. That expanded the company’s revenue to nearly $500-million, about 85 per cent of which is recurring, Mr. Tremblay said. “It’s a very significant business now compared to what it was when we bought it,” he said.
Syntax CEO Christian Primeau said in a statement, “This new investment will provide the capital needed to further cement Syntax’s position as a world-leading technology solutions provider and enable us to continue assisting our customers on their journey to the cloud.”
Mr. Tremblay said the two earlier Novacap funds had made back more than three times their invested capital in the past five years. He further estimated the new investor group could make “an easy 2½ to three times our money in four to five years that we’ll build the business,” at which point he estimated Syntax could go public or sell to another private-equity buyer.
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