Canadian PE deal-making slows in first quarter, $3.2 bln invested

Deal-making activity in Canada’s buyout and private equity market showed a marked decline in dollar terms in the first quarter of 2017, according to data released by Thomson Reuters. Led by Restaurant Brands International Inc‘s acquisition of Popeyes Louisiana Kitchen Inc, the domestic market saw transaction values of $3.2 billion, down 43 percent year over year. Deal volumes, on the other hand, increased 25 percent from Q1 2016. Canadian investors were highly active in overseas markets between January and March, joining 28 deals valued at $26 billion. On the fundraising front, 10 Canadian private equity funds collected $2.5 billion this time around.

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 market showed a marked decline in the first quarter of 2017. With a total of 81 transactions valued at $3.2 billion, deal values decreased by 43% from Q1 2016. Deal volumes increased 25% from the same period last year, but still fell 22% short of the levels seen in Q1 2015.

The Canadian top deals list was dominated by Restaurant Brands International’s PE-backed acquisition of Popeye’s Chicken for $2.4 billion. Mid-market highlights included Acasta Enterprises’ acquisition of JemPak for $135 million, Bridge Growth Partners’ $133 million investment in Accedian Networks, and Kineticor Resource Corp, which raised $125 million from OPTrust.

In addition to a decline in private equity deal values in Canadian companies on a year-over-year basis, investment activity also continued to decline as compared to Canadian merger & acquisition activity overall. While the number of private equity deals reached a peak of 31% of the number of traditional merger & acquisition deals in Q4 2014, this percentage had declined to only 19% in  the first quarter of 2017, a three-year low.

Canadian Market Trends by Sector

Canadian business services companies accounted for the largest share of buyout-PE deal-making this quarter with 13 transactions, or 16% of the national total. Consumer-related and manufacturing companies came in a close second and third place, with 12 and 9 deals respectively. As measured by disclosed deal values, consumer-related companies continued led all other industries, with $2.6 billion or 81% of all investment.

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, closely following public market comparators. Preliminary 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 5.8% as of year-end 2016. This did however lag far behind their US counterparts which showed consistent outperformance of public markets.

Canadian Market Trends by Region

The decline in deal volumes was felt across most provinces in the first quarter, but Ontario, with 31 deals, demonstrated a 24% increase quarter-over-quarter, and a 63% increase in Q1 2017 as compared to the same period last year. Québec saw 22 eligible buyout deals in the first quarter, a 21% decline from the previous quarter.

Canadian Investor Activity in Global Markets

Canadian buyout and related PE funds participated in 28 non-Canadian deals in the first quarter collectively valued at $26 billion. La Caisse de dépôt et placement du Québec was particularly active in the quarter, participating in the $8.0 billion acquisition of TeamHealth Holdings, the $5.7 billion investment in insurance company USI Holdings, and the $4.6 billion investment in GE Water & Process Technologies.

While PE activity by Canadian firms investing abroad in Q1 was up by 16% from the same period last year, it still fell 15% short of the lofty investment levels seen in Q1 2015. Deal volumes in the first quarter were also up by 15% as compared to both Q1 2016 and quarter-over-quarter.

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. Fundraising in the first quarter of 2017 did not reach such heights, with a total of ten buyout funds collectively raising $2.5 billion in new capital.

Photo courtesy of pichet_w/iStock/Getty Images