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Canadian PE activity ramps up in first half with $14.9 invested

Deal values in Canada’s buyout and private equity (PE) market regained steam in Q2 2019 following a slow first quarter, according to final data released by Refinitiv.

PE investing reflected values of $9.3 billion in the second quarter, up 66 percent from Q1 2019 and up 9 percent from Q2 2018. Dollar flows backed some 103 deals.

On balance, PE investment stood at $14.9 billion in the first half of 2019. While this is down 19 percent from a year earlier, H1 2019 was the second most dollars-intensive first half on record. Deal volumes were up 8 percent year over year.

Transportation sectors captured the largest share of disbursements in the first half, at 34 percent, while manufacturing and software sectors tied for the largest share of deals, at 14 percent apiece.

A full PDF report of H1 2019 Canadian buyout and private equity market activity by Refinitiv is available here.

REPORT SUMMARY (reproduced courtesy of Refinitiv)

Canadian Buyout-PE Market Trends

Canadian buyout and related private equity deal values rebounded from a sluggish first quarter in Q2, with $9.3 billion invested across 103 deals. This figure was up 66% from the previous quarter’s deal values, and 9% year-over-year. However, the $14.9 billion figure over the full six months was still down 19% from H1 2018. Deal volumes in the half of 196 were up 8% during the same period.

Buyout and related exit volumes remained low through the second quarter, with only 17 exits occurring throughout the three months. Despite this decline in volumes, a number of these were sizeable transactions, with three exits crossing the $1 billion threshold.

Canadian Market Trends by Sector & Stage

Landing in the top deal spot for the first half was the announced $5 billion acquisition of airline operator WestJet by Onex in May, with an expected close in the second half of 2019 or early 2020. Ranking second was the $1.7 billion formation of midstream infrastructure platform SemCAMS with investment by backers SemGroup and KKR. Coming in third was Brookfield’s sale of its facilities management division, BGIS, to CCMP Capital Advisors for $1.3 billion, which was announced in March.

Private Investment in Public Equities (PIPE) transactions fell to only 7% of all deals in H1, half of their 14% share throughout 2018. Mezzanine/Bridge Loan transactions were up to 14% in the period, from 10% in 2018 and nearly triple their 5% share from three years ago.

United States-based firm involvement dipped slightly in the first half of 2019, down to 29% from 30% throughout the entirety of 2018. Canadian investors participated in just 72% of all Canadian PE buyout deals in H1 2019, down from an 80% participation rate just five years ago.

Canadian Fund Performance

The performance of Canadian buyout, private equity energy, and subordinated capital funds continued to show slight underperformance to public market comparators through to the first quarter of 2019. Published data provided by Cambridge Associates shows Canadian buyout, private equity energy, and subordinated capital funds with vintage years of 2000 or greater returning a since inception IRR of 4.9% as of the end of Q1. This lags far behind their U.S. counterparts which showed consistent outperformance of public markets and a since inception IRR of 13.0%.

Canadian Market Trends by Region

Calgary-based companies dominated the city rankings in the first half of 2019, with half of the top 10 occurring within its borders and 58% of overall deal values thank to these mega-deals, including the $5 billion WestJet takeover. While Montréal-area companies did not take in the most capital, they did see 46 investments during the half, the most active among all Canadian cities. Québec, with 88 deals overall, saw the largest proportion of any province, at 45% of all PE dealmaking. This mostly came at the expense of Ontario, which had a 27% share of dealmaking in H1, well below its recent averages.

Canadian Investor Activity in Global Markets

Canada Pension Plan Investment Board, as usual, participated in many of the largest deals located outside of Canada but featuring Canadian investors, including the top four deals in the first half. These included the $14.8 billion deal to acquire Ultimate Software of Weston, FL, along with the $9.8 billion deal to purchase entertainment attractions operator Merlin Entertainments. They were also involved in the sale of Williams Cos pipeline assets in the Marcellus and Utica shale basins of Tulsa, OK, in a $5.1 billion deal; as well as in London, UK-based provider of inflight broadband, Inmarsat, which secured $4.5 billion.