Canadian PE activity reaches $24 bln in 2017’s first nine months

Deal-making in Canada’s buyout and private equity market continued to grow at a strong pace in the third quarter of 2017, according to final data released by Thomson Reuters. Additionally, at the end of September, 261 deals took $23.8 billion in disclosed values, up 73 percent year over year, which is the highest nine-month level on record. Deal volumes increased at a more moderate 8 percent from the same time last year, pointing to the key influence of large-cap transactions. Canadian investors were active in 88 global deals in the first nine months of 2017, up 7 percent from the same time in 2016, though disclosed values for these fell 32 percent.

A full PDF report on third quarter and year-to-date 2017 Canadian buyout and 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 market continued at a very strong pace in the third quarter. With a total of 261 transactions collectively valued at $23.8 billion during the first three quarters of the year, deal values increased by 73% from the same period last year and saw the strongest first three quarters in history. Despite the huge increase in dollars invested, the actual number of deals that took place in the first nine months of 2017 only increased by 8% over the previous year to 261.

Two additional deals joined the $1 billion or greater club during the third quarter of 2017. Caisse de dépôt et placement du Québec (CDPQ) helped fund SNC-Lavalin’s $3.6 billion acquisition of British engineering and design company WS Atkins plc, which closed in July. CDPQ was again involved in Intact Financial’s announced plan to acquire OneBeacon Insurance Group for $2.3 billion, this time joined by Canada Pension Plan Investment Board (CPPIB) and Ontario Teachers’ Pension Plan (OTPP).

Although the number of Canadian Buyout-PE deals increased slightly over the same period last year, the rate of overall Canadian M&A largely outpaced them. With 1,918 Canadian M&A targets in the first three quarters of 2017 marking a 66% increased from the 1,157 a year previously, PE deals as a percentage of M&A dropped from 21% to 14%.

Canadian Market Trends by Sector

Business Service, Consumer Related, and Financing companies were involved in 93, or 36%, of all deals in the first three quarters of 2017. However, due to a number of mega-deals, these three sectors alone managed to receive 72% of all financing dollars during the period.

Canadian Fund Performance

The performance of Canadian buyout, mezzanine, and private equity energy funds continued to show slight underperformance to public market comparators in the first half of 2017. Final 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 5.2% as of the end of Q2. This lags far behind their US counterparts which showed
consistent outperformance of public markets and a since inception IRR of 12.7%.

Canadian Market Trends by Region

Companies outside of Ontario or Quebec are beginning to see a gradual increase in the number of deals they’re involved in, making up 36% of all investments in the first three quarters of 2017, a five year high. However, it’s clear that the two most populated provinces are still receiving the bulk of the dollars invested at 88% of disclosed deal values. In terms of the mega-deals, of the five deals that broke the $1 billion mark in 2017, four of these companies were based in Ontario.

Canadian Investor Activity in Global Markets

Canadian buyout and related PE funds participated in 25 non-Canadian deals in the third quarter collectively valued at $15.8 billion. This brought the total number of non-Canadian deals to 88 for the first three quarters of the year, a 7% increase from the same period in 2016.

La Caisse de dépôt et placement du Québec was involved in the $8.0 billion acquisition of Tennessee-based TeamHealth Holdings as well as the $5.9 billion investment in New York-based USI Holdings. Canada Pension Plan Investment Board invested $750 million in the $5.6 billion Calpine Corporation acquisition led by Energy Capital Partners. CPPIB also partnered up with Baring Private Equity Asia to take Hong Kong school organization Nord Anglia Education private for $5.8 billion.

Trends in Canadian buyout-PE fundraising

In July, Onex Corp completed the first closing of its new flagship fund, Onex Partners V, raising $6.5 billion or 80% of its target. This represented the lion’s share of the $7.5 billion PE fundraising that occurred during Q3, bumping the total funds raised so far in 2017 up to $12.7 billion.

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