The establishment of a buyout fund in Halifax is a nice addition to the growing number of investment groups in the region, and could help with one problem facing the Atlantic Canada – succession in prosperous businesses.

SeaFort Capital Inc. announced Monday that it will set up shop under the leadership of president Rob Nomandeau. The chairman will be MP Scott Brison and the board and investors include Scott McCain, Donald Sobey and Rob Sobey.

Without having spoken to anyone involved in the company (I’m out of town), what I do find interesting is that the principals have chosen to establish a buyout fund rather than a venture capital fund.

The difference? VC funds make small, minority investments in young innovative companies that have yet to book a profit, often increasing their bet over a succession of rounds. Buyout funds, or private equity funds usually buy all or most of an established company. Usually they will borrow heavily to finance the investment, thereby leveraging their bet, and cashing in after they have improved the company’s performance.

SeaFort plans to target majority stakes in companies across Canada with profits of $2 million to $10 million. If we estimate it will invest at 6 to 8 times earnings, it’s probably going to be looking at purchases worth $10 million to $80 million, which would mean SeaFort will start out as one of the smaller buyout funds in Canada.

The buyout industry in Canada has been healthy in the past decade, far healthier than the VC segment, however it is dominated by smaller boutiques rather than the massive funds that rule the industry in the U.S. And they have made investments in this region, such as Birch Hill Equity Partners’ recent purchase of Secunda Marine of Dartmouth.

Not all SeaFort’s investments will be in Atlantic Canada, but it makes sense to think many of them will be, simply because the firm’s base here will allow it to be the first to learn about attractive opportunities. The best opportunities may prove to be some of the thousands of family-owned businesses whose owners are ready to retire and whose heirs don’t want to be involved. The fact there are so many businesses with aging owners is a potential economic problem for the region.

SeaFort hasn’t said it will be targeting such businesses, but it may prove to be a great fit. The new fund’s sterling list of principals would help it find sources of funds, and the timing is good for borrowing at low interest rates. It could bring in new management to the companies it buys and help them to attack new markets.

Along with the Region VC Funding, which I’m told is inching its way toward fruition, SeaFort will expand the scope of funding bodies in the region and benefit our economic growth.