To make it easier for you to read this article, we suggest downloading it in PDF Format.
What are the origins of Novadvice? How has it evolved over the last 15 years?
Novadvice was born out of a desire to do things differently. After working for about 10 years in the financial sector at a company providing services to large banks and financial institutions in Spain and Europe, where we advised them based on mathematical models and algorithms, our analyses were primarily based on price. I did not find satisfaction with these methods, so I started to take an interest in everything related to alternative management, meaning investments that are penalized by liquidity but allow for working with a bit more peace of mind. Novadvice was thus born from this desire to seek innovation and excellence, this famous “philosopher’s stone,” and with Maria Pardo, my partner, we laid the foundations of the project in Santiago de Chile in 2008.
Today, Novadvice is an independent alternative investment boutique dedicated to increasing client wealth while generating a positive social impact through exclusive, innovative, and responsible investments. We truly believe in what we do, and that is why we co-invest with our clients. We are an investment firm, managing both our own money (branch family of Côte d’Or) and our clients’. We have more than €200M under management.
This is the result of more than 20 years working together with asset managers, fund service providers, real estate experts, entrepreneurs, special partners, and colleagues who help us select a wide range of investment opportunities in a fair and effective way. We strive to ensure our products are tailored to our client’s best interests, and we manage all aspects of the investment process, always driven by the ambition to provide excellent service to our peers.
Currently, your business is divided into three main branches: real estate, private equity, and venture capital. Can you briefly explain your investment strategy for each of these branches?
Our investment strategy is founded on niche expertise partnerships and local presence, based on proven backgrounds and know-how, with an investment horizon of approximately 4-5 years. We concentrate our investments in 3 main areas: Real Estate, Private Equity, and Venture Capital (with an impact approach), mainly in Europe and the USA.
In real estate, we focus on hospitality, primarily in Florida, where we buy 2-star hotels, upgrade them to 3 stars. We also invest in US Multifamily Communities, where we built 300-400 apartments per deal (US$100M with approximately 25% equity) and operate them with a local partner. Our third activity in the real estate sector is secondary residences, where we are active in Spain, mostly in the Balearic Islands and Costa del Sol.
In the VC segment, we focus on impact investing, targeting verticals with attractive trends to generate higher returns for investors such as climate-tech, prop-tech, agri-tech, health-tech, wellness, and others. We believe there is no trade off between returns and environmental and social responsibility.
Our private equity incursion started in Chile in 2010, where we acquired a stake in a local real estate manager, exiting 5 years later at a 4x MOIC. Nowadays, this division focuses on Search Funds, which we find to be an extremely efficient model that brings together entrepreneurs, SMEs, and investors to “de-risk” traditional private equity. Most of our clients already have exposure to PE through big players such as KKR, CVC, etc., and the SF model offers a qualified deal flow for small deals, between €10M and €30M enterprise value. Additionally, we have another vehicle named Marea, with a long-term value investment strategy focused on supply chain imbalances, longstanding US-Mexico commercial links, and nearshoring opportunities.
3 years ago, you decided to launch NovEtA. What attracted you to the search fund model?
Our NovEtA strategy started a few years ago. We loved the idea of financing future entrepreneurs, professionals who want to buy and run a company, preserving the legacy of SMEs. One of the biggest advantages of investing in SFs is participating in a consortium of investors. We enjoy this collaborative approach, where a dozen different experts participate in the strategy, helping the managers grow the company. Unlike the US approach, where they sometimes finance very young professionals doing an MBA, we prefer to support managers with at least 10 years of proven experience who really want to be operators. We like to control risk, and we think the SF model is perfect for aligning the interests of all parties involved. You always have the right to participate or not in a deal; you have 12-18 months to get to know the searcher and for them to gain your trust. In most transactions, the sellers reinvest in the new operation, giving confidence to the buyers.
One precision: as I mentioned, our investment horizon is generally 5 years. To reduce risk for our clients, we have decided to finance all the searchers directly from Novadvice and present the opportunity to the family offices we advise when the searchers have found the deal, allowing them to commit capital only for the 5 year management period.
What is your assessment of these 3 years of investment in SFs? Currently, you are in the process of raising a new fund; what will be your investment strategy?
We invest in companies with a turnover between €10M and €50M, with at least 15% EBITDA growth in the past 3 years, and a typical enterprise value around €20M. We focus on 2 main regions with two vehicles: one for North America (USA & Canada) and one for Europe, and we have deployed around €40M in the past few years. We directly back searchers we select ourselves and also participate in selected deals brought by partners like Novastone Capital Advisors. Currently, we have invested in about 60 searchers and participated in a dozen deals, most of them in Europe, in countries such as Poland, Spain, Holland, Switzerland, France, Hungary, and Italy, including Forza, Foo Seng, and Green Logistic, to name a few. We are now raising a new fund of €20M-€25M for a second vintage investment in Europe, aiming to grow our portfolio to 40 acquisitions in the next few years between the North America and Europe. Generally, we participate in the board with a hands-on approach.
Do you plan to explore other geographic areas in the future, such as Latin America, Asia, or Africa? How do you see the evolution of the search fund market on a global scale?
Undeniably, the SF market is booming all over the world. This requires us to be vigilant and more selective, willing to abandon some searchers during the process. The search phase is like a laboratory; it allows you to evaluate the candidate perfectly and see if they could be a great manager in the future. There is a significant difference between the North America and Europe. In the US, everything moves quicker, and Americans find deals faster than Europeans. For now, we have no plans to expand our activities to other parts of the world in the near future. However, we might start investing in the future in Latin America, as we know the region very well, and possibly in Australia, where it is easy to buy companies at low multiples.
For now, the profitability of search funds in the United States is much higher than in Europe; however, the number of exits remains very limited in Europe. Do you think Europe can close this gap? What are your expectations in terms of internal rate of return (IRR)? As a family office, are you interested in long-term holds?
We believe the profitability of SFs should equalize in the future, but as mentioned, North America operates on a different level. They have a strong M&A culture, and it’s easier and quicker to sell a company. Europe is much slower, and we haven’t seen enough exits to consolidate statistics. Our portfolio is still very young, but we are extremely satisfied with its performance.
In NovEtA, we are not interested in long-term holds because it’s not our philosophy. However, we anticipate seeing secondary operations and investors including liquidity windows in agreement terms when entering a company.
