Canadian PE Buyout-backed Companies Receive $2.3 Billion in Q2

Deal  activity in the Canadian buyout and related private equity (PE) market continued to moderate in the second quarter compared with activity last year, according to data from Canada’s Venture Capital & Private Equity Association and Thomson Reuters. Control-stake acquisitions, minority investments and other PE transactions (announced and completed) totaled 72 in this period, down 27% year over year. In 2013 so far, a total of 142 deals have been done, a full 24% below the number reported in the first half of 2012.

(Click here for a PDF of the full report: English version or French version.)

Disclosed buyout-PE deal values in the Canadian market totaled $2.3 billion between April and June, down 42% from Q2 2012, according to Thomson Reuters. Disbursement levels stood at $4.6 billion at the end of the first half, 25% below levels reported in the year-earlier period.

The largest deal to be completed in Q2 2013 saw Toronto-based LifeLabs Medical Laboratory Services Inc., a portfolio company of OMERS’ Borealis Infrastructure, acquire CML Healthcare Inc. of Mississauga for $1.2 billion. Other notable deals included the $412 million take-private buyout of Toronto’s Softchoice Corp. by Birch Hill Equity Partners; the $225 million purchase of solar power assets by Calgary’s BlueEarth Renewables Inc., a portfolio company of ARC Financial Corp. and Teachers’ Private Capital; and the $30 million financing of Saint-Laurent’s AJW Technique Inc., which was backed by the Fonds de solidarité des travailleurs du Québec FTQ.

As of June 30, two transactions sized at more than $1 billion absorbed half of the disclosed dollars invested in the domestic market. Deals sized between $100 million and $500 million accounted for the second-largest share, or 31%, while deals sized between $25 million and $100 million took 7%. The balance was assumed by transactions sized at less than $25 million.

PRESS RELEASE

CANADA’S BUYOUT-PRIVATE EQUITY & VENTURE CAPITAL MARKETS IN Q2 2013: VENTURE CAPITAL INVESTMENT STEADY, BUYOUT-PE DEAL-MAKING CONTINUES TO MODERATE

Toronto, September 4, 2013: The pace of Canadian venture capital investment was slightly slower in Q2 2013, but reflected net growth at the end of the year’s first half, while Canadian buyout and related private equity deal-making showed continued moderation in both periods. These were among the key findings from data released today by CVCA – Canada’s Venture Capital & Private Equity Association and research partner Thomson Reuters.

VENTURE CAPITAL

Investing Highlights: Investment Size and Clean Tech Investing Both Up

Dollars invested in Canada’s venture capital (VC) market declined slightly in Q2 2013, with $485 million invested in total, down 3% from the same time last year. However, VC investments over the first half of 2013 of $886 million were up 17% vs. the first half of 2012. The number of deals was lower in both periods as a result of more capital being committed on a per deal basis. In fact the size of the average financing round increased from $3.5 million in Q2 2012 to $4.4 million in Q2 2013. The results were in part skewed by several large financings, such as the $50 million financing of Montréal-based clean-tech company Enerkem Inc. in June.

“Some of Canada’s highest-growth technology companies have been able to secure the financing they require in order to turbo charge their growth” said Peter van der Velden, President of the CVCA and Managing General Partner of Lumira Capital Corp. “However the average financing transaction for Canada’s innovative companies is still only 53% of that for innovative companies in the United States. Some of this is of course a function of financing stage, but our goal is to continue to close the gap, something that will only happen as a result of continued improvements in the domestic supply of venture capital in Canada.”

In terms of sector activity in the Canadian VC market, information technology (IT) led in the second quarter of 2013, with $171 million invested, or 35% of the total (this occurred despite a 45% year-over-year drop in IT-related activity).

In contrast, dollar flows to clean technology sector were up almost three fold compared to the prior year and accounted for 28% of investment activity and $136 million of investments in Q2, 2013. In third position was life sciences which garnered $69 million of investments, down 23% from Q2 2012.

Fund-raising Highlights: VC’s Raise Less Money – A Danger Signal

The data for Q2, 2013 Canadian VC fund-raising activity continued to highlight a disturbing trend that was first evident in Q4, 2012. New capital committed VC funds totaled $297 million in Q2 2013, down 62%. At the end of the first half of 2013, domestic VC funds formation totaled $678 million which is less than half of $1.5 billion that was raised at the same time last year. Of the capital raised to date in 2013 more than 53% has been by retail venture capital funds and a further 17% has come from individual versus institutional investors.

“If you look at the sources of capital deployed in the first half of 2013 it is clear that domestic funds formed in the last three years have  played a very significant role” said Mr. van der Velden. “As a result, the sharp decline in new capital commitments going to domestic funds in the first six months of the year is extremely concerning.” he added. “To ensure the future prospects of thousands of promising Canadian entrepreneurs and technology companies, we must redouble our efforts to strengthen fund-raising conditions for Canadian venture capital firm s. Programs such as the federal government’s Venture Capital Action Plan should be one key leg of a multi-tiered strategy for the increasing domestic venture capital. But, in light of global competition with respect to building innovation centric economies, we would encourage domestic governments (both provincial and federal) to leave no stone unturned when it comes to working with the industry in securing stable, long term sources of capital from individual, institutional and corporate sources both domestic and foreign.”

Exit Highlights: Positive Developments

VC fund realizations of Canadian portfolio assets continued to show strong momentum in Q2 2013. At the end of the first half of 2013, liquidity events totaled 22, which is well on track to exceed the 30 events that were reported for the whole of 2012. Strategic acquisitions accounted for over 80% of total exits, though initial public offerings also made small gains.

BUYOUT & PRIVATE EQUITY

Deal-making in Canada’s buyout and related private equity (PE) market continued to moderate in Q2 2013, with reported transactions totaling 72, down 27% year over year. Disclosed deal values in Q2, 2013 totaled $2.3 billion, down 42%. For the first half of 2013,
disclosed dollar flows in the Canadian market reached $4.6 billion, which was 25% lower than in the prior year.

“While it is difficult to draw too many conclusions from year to date data it would appear that most of the decline is attributable to a lack of “big deals” as the midmarket buyout and growth-equity deals are still getting done at levels consistent with what we have seen for the past 2-3 years.” said Mr. van der Velden.

In terms of deal volume, Canadian buyout-PE market activity continued to be led by natural resource sectors, which captured 30% of total transactions completed over the first half of 2013. With respect to disclosed disbursements, trends in this period were led by healthcare and other sciences sectors, which took a 28% share, primarily because of $1.2 billion acquisition of CML Healthcare Inc. by PE-backed LifeLabs Medical Laboratory Services Inc. Mining-related deals obtained the second largest share of dollars invested, or 26%.

Fund-raising Highlights: A Bright Spot

The report found that in the first half of the 2013 Canadian buyout, mezzanine and other PE fund-raising activity was tracking well ahead of activity in 2012. New capital commitments totaling $3.7 billion went to 19 funds in this period, which is close to double the amount committed in the prior period and certainly lays the foundation to exceed the $4.8 billion raised in all of 2012.

“The fund-raising environment for buyout and private equity funds has been challenging one in recent years. As a result, the pace of fund raising activities in the first half of 2013 is very encouraging. With fund-raising activity in the domestic market on the verge of exceeding activity in 2011, and well ahead of the pace for 2012 this has been viewed as good news for traditional small and medium-sized businesses in Canada that are seeking value-added risk capital.” said Mr. van der Velden.

Exit Highlights: A Slight Dip

Along with deal activity, buyout-PE fund realizations of Canadian portfolio companies appeared to moderate in the first half of 2013. Exits from Canadian assets totaled 33 in this period, down 11% from the number of exits reported at the same time last year. Strategic acquisitions continued to drive exit trends, accounting for 61% of the total.

Buyout Activity Abroad: A Spurt of Activity

According to the data, Canadian buyout-PE deal-making abroad accelerated in the second quarter of 2013, with transaction values, totaling $4.7 billion, representing the second largest deployment by funds over the past twelve months. For this reason, activity in Q2 2013 was up 87% year over year. As of June 30th , Canadian funds have led or participated in a total of 28 international deals
valued at approximately $6 billion.

CVCA

The CVCA – Canada’s Venture Capital & Private Equity Association, was founded in 1974 and is the association that represents Canada’s venture capital and private equity industry. Its over 2000 members are firms and organizations which manage the majority of Canada’s pools of capital designated to be committed to venture capital and private equity investments. The CVCA fosters professional development, networking, communication, research and education within the venture capital and private equity sector and represen
ts the industry in public policy matters. www.cvca.ca

Thomson Reuters

Thomson Reuters is the world’s leading source of intelligent information for businesses and professionals. They combine industry expertise with innovative technology to deliver critical information to leading decision-makers in the financial, legal, tax and accounting, scientific, healthcare and media markets, powered by the world’s most trusted news organization. With headquarters in New York and major operations in Eagan, Minnesota, Thomson employs more than 50,000 people in 93 countries. www.thomsonreuters.com

To arrange an interview with Peter van der Velden, President of the CVCA and Managing General Partner of Lumira Capital Corp, or Richard Rémillard, CVCA’s Executive Director, please contact Lauren Linton, Director of Marketing, llinton@cvca.ca

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