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Quebec's Novacap earned more than $2-billion in returns from its investment in payments processing company Nuvei Corp., whose logo is shown here on an electronic sign at the Toronto Stock Exchange on Nov. 5, 2020.

Mark Blinch/Globe and Mail

Quebec private equity stalwart Novacap has raised its largest-ever fund after earning a $2-billion-plus return on its investment in payments processing company Nuvei Corp.

Brossard, Que.-based Novacap announced Wednesday it has raised US$1.865-billion for its sixth fund specializing in technology, media and telecommunications (TMT) companies. That’s more than double the size of its previous record fund, which raised $940-million in 2019 to invest in industrial companies, and its last TMT fund, which raised $840-million in 2017.

Chief executive Pascal Tremblay said 40-year-old Novacap, one of the oldest private equity firms in Canada, significantly upped the size of its latest TMT fund from its predecessor because backers of the 2017 fund invested more than $800-milllion in extra capital alongside Novacap. “The current investment pace we have justifies the [latest] fund size,” he said. “We decided we were going to rightsize our fund for our capital deployment base. It’s not a change of mission, we’re going to do more of the same.”

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With last September’s initial public offering by Nuvei and the subsequent run-up of its share price, Mr. Tremblay said Novacap had generated its biggest return to date in dollar terms with its investment. Novacap invested less than $300-million for its Nuvei stake, which is now worth more than $2.7-billion. The firm also sold Montreal-based medical imaging software firm Intelerad Medical Systems Inc. last year for more than $650-million to London-based HgCapital LLP, while Novacap-backed Eddyfi NDT Inc. became one of Canada’s largest private technology companies in 2020 after acquiring two European companies.

Mr. Tremplay said Novacap, which sold out its latest fund in just three months, attracted investors based on “the consistency of the team and the consistency of our track record” over many years. “Investors are not looking at one-hit wonders.” he said. Novacap’s $375-million fourth TMT fund in 2013 is one of the top performing funds of its vintage globally, generating average returns of more than 20 per cent, according to Pitchbook.

“Their ability to quickly fundraise is a testimony to their performance,” said Didier Leconte, vice president for investments, information technologies and funds management with the Fonds de solidarité FTQ, a long-time Novacap investor.

Novacap plans to invest in 10 to 12 companies, mostly in Canada, typically targeting those with $30-million to $500-million in sales and valued at up to $300-million. Mr. Tremblay pointed out that firms backed by Novacap have tended to buy companies overseas, spending a combined $2-billion on European-based companies in the past two years alone.

Mr. Tremblay said the biggest change with this fund is that more than 70 per cent of backers are from outside Canada, up from half for the last fund.

The new Novacap fund comes amid a prolonged flush period for private equity funds. Deloitte predicted recently that fund managers globally will have US$5.8-trillion in assets under management by 2025, up from US$4.5-billion in 2019. A recent survey by Torys found three-quarters of Canadian institutional investors plan to maintain or increase their investment in private equity funds this year; one-third identified the technology sector as their top choice for investment.

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