Canadian private equity deal-making declined for a second year in a row in 2016, with 303 deals (announced and closed) capturing $18 billion in total disclosed values, according to final data released by Thomson Reuters. Deal values were reduced by 19 percent from 2015, while volumes fell by 28 percent. Oil and gas and manufacturing industries accounted for most of the dollar flows last year, securing $5.2 billion and $3.7 billion, respectively. At the same time, Canadian buyout, private equity, infrastructure and other funds raised a substantial $45.4 billion in 2016, much of which went to funds managed by Brookfield Asset Management.
A full PDF report on 2016 Canadian buyout and related private equity market activity by Thomson Reuters is available here.
REPORT SUMMARY (reproduced courtesy of Thomson Reuters)
Canadian Buyout-PE Market Trends
Deal-making activity in Canada’s buyout and related private equity (PE) market showed a marked decline in 2016. With a total of 303 announced and completed transactions collectively valued at $18.0 billion, deal values were down by 19% from 2015, while deal volumes declined by 28%. Canadian private equity reached a peak of $32.0 billion invested in 2014, with investment having fallen 44% in these past two years.
Top deals included CDP Capital’s $2.0 billion investment in Bombardier Transportation, Thoma Bravo’s $1.6 billion investment in Trader Corporation, and CPPIB’s $1.5 billion investment in Oxford Properties Group. As of the end of the year, the six largest transactions sized $1 billion or greater captured 48% of all disclosed disbursements made in the Canadian market.
In addition to a decline in private equity investment in Canadian companies on a year-over-year basis, investment activity also continues to decline as compared to Canadian merger & acquisition activity overall. While the number of private equity deals reached a peak of 28% of the number of traditional merger & acquisition deals in 2015, this declined to only 20% in 2016, a three-year low.
Canadian Market Trends by Sector
Canadian oil & gas companies accounted for the largest share of buyout-PE deal-making this year with 45 transactions, or 15% of the national total. Consumer-related and manufacturing companies came in a close second and third place, with 43 and 42 deals respectively. As measured by disclosed deal values, oil & gas and manufacturing companies continued to lead all other industries, with $5.2 and $3.7 billion of investment respectively.
Canadian Fund Performance
While investment activity was on the wane in 2016, the performance of Canadian buyout, mezzanine, and private equity energy funds showed steady positive performance. Data provided by Cambridge Associates shows Canadian buyout, mezzanine, and private equity energy funds with vintage years of 2000 or greater returned a since inception IRR of 5.1% as of September 30th this year, approximating the performance of Canadian public markets, but lagging far behind their US counterparts.
Canadian Market Trends by Region
The decline in deal volumes was felt nearly nation-wide in 2016; British Columbia was the only province or region to see its private equity deal volumes increase, from 32 in 2015 to 34 in 2016. Dealmaking in Québec took the hardest hit, with deal volumes collapsing by 40% from the year prior, with Ontario down by 25% from 2015. In terms of deal values, however, Ontario suffered a decline of only 11% through capturing most of the largest investments in Canada in 2016.
The cities attracting the most private equity investment in 2016 were Toronto, which attracted $8.5 billion in 79 deals, followed by Calgary, whose companies secured $4.8 billion in 44 transactions.
Canadian Investor Activity in Global Markets
While Canadian buyout and related PE funds were somewhat less active in international investment in 2016, they participated in 106 deals collectively valued at $102.5 billion. While this did fall short of the 132 deals valued at $140 billion which Canadian funds participated in during 2015, the 2016 year was the second best year on record by a very large margin Prior to 2015, the strongest year on record for Canadian investment abroad had been the height of the buyout boom in 2007 when Canadian funds participated in deals valued at $70 billion.
Top investments of the year included ITC Holdings, a Michigan-based utilities company, which was acquired by Fortis and GIC Private Limited for $14.8 billion; and two acquisitions of Australian transportation companies, OMERS $9.6 billion investment in Port of Melbourne Corporation, and CPPIB’s and Brookfield’s $9.1 billion investment in Asciano.
Trends in Canadian buyout-PE fundraising
The fundraising activities of Canadian buyout funds maintained very strong levels in 2016 with a total of $45.4 billion of new capital committed, substantially accounted for by the closings of Brookfield Infrastructure Fund III, Brookfield Strategic Real Estate Partners II, and Brookfield Capital Partners IV.
Photo courtesy of Reuters/Amit Dave