With the support of the Novacap Financial Services fund, AGA Group Insurance is furthering its expansion outside Quebec. On Tuesday, Oct. 5, the Montreal-based firm announced the purchase of PPI Benefits and its subsidiaries Agile Benefits and BenefitsMyWay.

Novacap launched its first ever private equity fund specializing in financial services in December 2019, and closed the fund in Canada in late September. To date, the fund has invested in four platform companies. The fund has also made seven add-on investments within those companies.

Two investments are yet to be announced. The first, confirmed on Oct. 5, concerns AGA Financial Group. The other transaction was closed on Oct. 1, but the official announcement will be made after Thanksgiving, Marcel Larochelle, managing partner of Novacap Financial Services, told Insurance Portal. 

Back in October 2020, Novacap Financial Services acquired a minority holding in AGA Financial Group. In April 2021, AGA announced a merger with Evolution Insurance to increase its market share in large commercial accounts. 

AGA also recently merged with a competitor in the Quebec City area. 

On Oct. 5, AGA announced the acquisition of PPI Benefits. This subsidiary of PPI specializes in group insurance. PPI is an MGA focused on individual insurance marketing. It was acquired by iA Financial Group in February 2018. 

“This is an extremely interesting acquisition because it gives us resources across the country. It adds a dimension to AGA,” Marcel Larochelle says. The firm will now have 180 employees in offices in Quebec City, Montreal, Kitchener, Edmonton, Calgary and St. John, N.B. 

“This is excellent news for AGA, but also for the team and customers of PPI Benefits, who will be supported even further by our resources in all areas of expertise,” says Martin Papillon, President and CEO of AGA. He is also pleased to welcome Ed Hofstede, who will lead AGA’s operations outside of Quebec as Vice-President, as well as PPI Benefits’ staff. 

“This acquisition cements our leadership position in the Quebec market while making major strides in the rest of Canada by giving thousands of customers access to our combined portfolio of products and services,” Papillon adds. 

Jim Virtue, President and COO of PPI Management, says “this sale allows us at PPI to focus on our core business of life and health insurance and provide better support to independent advisors.” 

Pandemic to blame 

The closing of the Novacap Financial Services Fund was confirmed on Sept. 30. A total of $417 million was raised from various institutional investors, wealth management firms and high net worth investors. Novacap names Trans-Canada Capital as the lead investor in the fund. The firm manages the portfolio of Air Canada retirees’ assets. 

Novacap announced its ambitions in the financial services sector almost two years ago. At that time, it aimed to raise $500 million.

In the announcement made in December 2019, Novacap said it was targeting four segments: 1) specialty insurance and distribution, 2) asset and wealth management, 3) alternative lending, and 4) financial infrastructure.

Larochelle mentions that Novacap generally finds its partners abroad, in the United States, Europe and Asia. For example, 50 per cent of the investors in the Industries V Fund are not Canadian. For the fund specializing in technology, media and telecommunications (TMT VI Fund), this proportion is 70 per cent. 

“We haven't been able to raise funds overseas since February 2020. We all know what happened next. We were limited to virtual meetings, which is much easier with Canadian investors who already knew us,” explains Larochelle. All the same, the partners of the financial services fund include two investors from the United States. 

Larochelle says Novacap was “spurred by strong demand from Canadian entrepreneurs seeking growth capital and specialized expertise in the financial services sector.” The fund’s debut investment was in GroupAsssur in September 2020.

Optiom 

Also in September 2020, Novacap acquired a majority interest in Optiom, a managing general underwriter (MGU) that offers vehicle replacement coverage products. Founded in 2004, the firm is headquartered in Calgary. 

Marcel Larochelle says that although Optiom is based in Alberta, its business volume is mainly in British Columbia. For now, the company is not thinking of expanding into Quebec, he adds.

Firms that offer vehicle replacement insurance must submit the FPQ-5 form issued by Quebec regulator, the Autorité des marchés financiers. This form isstandardized among all insurers.

“Optiom's product stands out. We are not allowed to offer it in Quebec unless we make it similar to the FPQ-5, which we have no intention of doing,” says Larochelle.

At the same time, some industry watchers are questioning whether dealerships should be allowed to sell this type of replacement insurance in the first place.

Real estate appraisal 

Novacap Financial Services' previous investment, announced on Sept. 2, involves Accurate Group, a Cleveland-based firm specializing in the digitization of real estate appraisals.

Accurate Group provides financial institutions with analytics services related to mortgage line of credit applications. “The entire appraisal process is mostly digitized. Accurate has established relationships with all the major banks in the United States that issue these lines of credit, and offers them software solutions that allow them to manage the entire appraisal process efficiently,” Larochelle explains. 

“There is no equivalent firm in the Canadian market. It still has a lot of potential for development in the United States. This will happen through organic growth, and through mergers and acquisitions in the US. Eventually, it could enter Canada as well. The expertise developed in the US does not exist here,” he says.