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EDITORIAL

Challenging Times

These are challenging times. As my colleague and partner Marc Beauchamp commented on the editorial page last November, “the global economic downturn is now in full swing, with no sign of a turnaround in the near future”. During these challenging times where economic recession and financial crisis are intermingled, certain golden rules need to be followed.

Rule #1: Focus on cash management. During economic downturns, you never know when and where cash issues will appear: they may come from customers delaying payments, suppliers delaying deliveries of products, lenders getting cold feet, sales slowing down, inventories building up, costs increasing, etc. Be prepared as it is almost a certainty that cash and currency issues will impact your businesses. In the past, liquidity problems have brought many promising businesses to their knees. Train your staff to be proactive on all cash management issues in order to ensure that you will be the first ones getting access to the limited cash out there.

Rule #2: React quickly. There has been no other period where instilling a sense of urgency within your organisation has been more important. Staying close to your customers and suppliers and keeping an ongoing dialogue will allow you to better assess what they are going through. You may find yourself faced with having to make difficult decisions very quickly. These decisions will have a stronger impact on your business if they are taken with full knowledge of their impacts on your partners.

Rule #3: Measure your performance. As you have certainly heard before, “what is measured gets improved” and, measuring your performance is more important than ever before. Implement the tracking and measuring of relevant key performance indicators (KPIs) to better assess your situation. In doing so, remain focused on things that you control.

Rule #4: Control your costs. Companies that have a culture of tightly controlling costs should outperform their competitors. Spend wisely and cut expenses where you can. In times of recession, keeping old habits developed during prosperous times where “money was no object” can be harmful to your business. Being in denial of what's really happening out there will only hurt your business.

Rule #5: Remain alert to opportunities. If you apply rules #1 to #4, you should outperform the competition. Then, you can look for opportunities which in these uncertain times are likely to be numerous. Competitors facing liquidity issues or even bankruptcy may provide acquisition opportunities at discounted prices or occasions to expand your customer base and your product portfolio.

If you develop strong communications with your customers and suppliers and find ways to support them, they will remain faithful to you when the winds become more favourable. Lenders will support you. Investors will look for you. Nobody can predict when the economy will be more favourable but, one thing is certain: there will be many casualties in the months and maybe years to come and we must do what is necessary to be among the survivors.

As Vince Lombardi, a great football legend once said: “Leave no regrets on the field”. Let's do what needs to be done.

At Novacap, amid the economic turmoil and uncertainty, we believe that our disciplined approach, our operational and financial expertise and close to $600 million in available funds enable us to help our current and future businesses weather the storm and help build them into world-class companies.

New addition to our team

I am pleased to announce that Mr. Frédérick Perreault has joined our team as a General Partner. Frédérick is a Chartered Accountant. He has spent several years in investment banking as well as in corporate finance where over the years, he has worked on more than 200 strategic opportunities and completed several financial transactions, both private and public. His areas of expertise include strategic planning, mergers & acquisitions and operational optimization. Recently, he was in charge of the operations at Europe's Best, as Vice President. Please join me in welcoming Frédérick to our team.

Sincerely,

Jacques Foisy

About NOVACAP

Novacap is one of Canada's leading private equity firms. Since 1981, our partnership approach has helped companies accelerate their growth and maximize their value. With over $785 million under management, our goal is to help leading entrepreneurs build world-class companies. Our highly-experienced, multifunctional team understands the operational and financial challenges faced by today's organizations. We provide active support, deep operational expertise and growth capital to help companies with strategic competitive advantages realize their full potential.

Novacap is organized in two functional groups, each with its own team focused on building a strong portfolio in a given market sector:

• Novacap Industries invests in middle market companies within traditional industries that have the potential to become world leaders by developing their market, technology and operations or through industry consolidation;
• Novacap Technologies invests in companies focusing on growth and market leadership in the Information and Communication Technologies sector. It partners with first-rate management teams and actively works with them to build leading organizations in their markets.

While we believe the success of our portfolio companies speaks for itself, it is always an honor to receive recognition from our peers. Novacap has won the Canadian Venture Capital and Private Equity Association's "Deal of the Year Award" twice in recent years. In 2000, we won for our Venture Capital investment in InnoMediaLogic Inc. Then, in 2005, Novacap won again in the Private Equity category for its investment in Santé Naturelle A.G. Ltd.

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