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Cost inflation inevitable as $400m Sagard private equity fund hits targets

“We are looking for companies that are doing well in more difficult times”

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Inflation and a potential recession were not on everyone’s mind when Marie-Claude Boisvert joined Sagard Holdings Inc., the alternative investment arm of Power Corp., in January of last year with a plan to raise $400 million for a new private equity fund to buy stakes in middle-market Canadian companies.

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But such economic challenges cannot be ignored this week, as Sagard Private Equity Canada reaches its fundraising goal and Boisvert considers the five- to seven-year investment thesis for potential targets.

“Right now, we’re absolutely pricing in cost inflation, not just on salaries, but also on purchases and also on capital expenditures,” Boisvert said in an interview on Tuesday.

Despite macro concerns plaguing markets, Boisvert, who has been investing in private equity since 2008 when the credit-fueled financial crisis rocked markets and rattled valuations, said Sagard Private Equity Canada is not closing the door. raising additional funds and that he has already made his first investment in Groupe LOU-TEC Inc. of Quebec.

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The heavy machinery and equipment rental business has been in business since 1979 and, with new financing from Sagard in hand, announced on Monday that it will expand through the acquisition of another business, Rental + access.

Boisvert said LOU-TEC has a decades-long track record and has done particularly well during previous periods of inflation and recession.

Their sales increased when the market went down

Marie-Claude Boisvert

“Their sales went up when the market went down,” she said, explaining that tough economic times cause businesses to rent rather than buy equipment, and that doesn’t tend to come back when economic conditions are improving.

Her fund targets investments in companies with earnings between $10 million and $30 million in manufacturing, corporate outsourced business services and financial services, she said. The focus is on leaders in their field and those who can pass on additional costs such as inflation to customers, rather than being forced to absorb them and squeeze margins.

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Initial investors in the Canadian private equity fund include Caisse de depot et placement du Quebec, BMO Financial Group, CIBC, Export Development Canada and Investissement Quebec, as well as subsidiaries of Power Corp., Canada Life and Sagard Holdings.

Boisvert, who is no stranger to investing in difficult times, acknowledged that past economic downturns, including the 2008 financial crisis and the early days of the COVID-19 pandemic, have been on his mind in recent times. weeks as the conversation swirls around the potential for another recession. .

“We’ll see how they compare,” she said.

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In a report on Tuesday, Fitch Ratings said the global macroeconomic outlook has “deteriorated significantly since the start of the year”, with implications of tighter financial conditions, weaker growth, the Russian war -Ukrainian and continued supply chain disruptions “serving multiple sectors”. .”

The Canadian Chamber of Commerce, meanwhile, said in a June report that a record 39% of businesses plan to raise prices in the next quarter as businesses struggle to recover from pandemic restrictions. are facing a cost crisis as well as difficulties in recruiting and retaining the workforce, and supply chain difficulties “are expected to persist through 2023”.

Boisvert said she is focused on making the right decisions and making the right investments over the next two years to enable Sagard Private Equity Canada to achieve the internally targeted returns despite the challenges.

“Our goal is to deploy that capital diligently but to seize opportunities as they arise and do our job well,” she said.

“We want to make sure we can get through those 18-24 months…so we’re looking for companies that are succeeding in the tougher times.”

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