Early this week, Novacap announced that it has acquired a minority interest in AGA Financial Group. The firm’s financial services division and its fund Novacap Financial Services I also became majority shareholders of the managing general underwriter Optiom and the general insurance wholesaler GroupAssur in mid-September.

Marcel Larochelle, managing partner, financial services at Novacap, told the Insurance Portal that these three companies were selected after the firm weighed nearly 100 potential transactions.

“What we particularly liked about them is that they are resilient companies in an environment of economic uncertainty. They’ve done well. Of course, other financial services sectors are being hindered by the current environment. So we're being cautious and moving more slowly. It's no surprise that our transactions are in three subsectors of the insurance industry,” Larochelle explains.

Pandemic and acquisitions

Larochelle notes that the acquisitions of the holdings in the three companies were not delayed by the COVID-19 pandemic.

All the same, “there are some companies that we were looking at in 2020 and working on during the lockdown period in March, April and May, but we decided to shelve those plans and not invest” because of the resilience of their business model, he continues.

Why financial services?

Novacap launched its specialized private equity fund in November 2019, but had already been preparing to invest in the financial services sector for several months.

“Novacap has been investing in the technology and industry sectors for 40 years. We focus on sectors in which we have expertise,” says Larochelle.

Each investment fund matures after ten years. Thus, Novacap is on its fifth fund for the two other sectors in which it invests.

As managing partner, Larochelle is responsible for one of the firm’s sectors of predilection. “Novacap saw that there were more and more potential transactions in financial services, and opportunities in several sectors in that sphere,” he explains.

The company, which invests mainly in mid-sized companies, realized that there were no private equity funds in Canada dedicated to financial services. Larochelle says this is why foreign companies are investing in Canada.

“The financial services team arose from a need and an opportunity for Novacap to expand its services, and because we had investors who like to invest in this type of business. That's why I was hired in 2018 and we launched the fund in 2019,” he explains.

More acquisitions on the horizon

Novacap's managing partner told the Insurance Portal that similar acquisitions will be announced in the coming months.

“Not next month, though. We just announced three of them, we need some time to catch our breath,” he said with a laugh.