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Canadian PE deal-making up in third quarter, but 2013 continues to lag 2012

In the third quarter of 2013, both deals and dollars invested in Canada’s buyout and related private equity (PE) market showed growth, according to data provided by Thomson Reuters (publisher of peHUB Canada). Control-stake acquisitions, minority investments and other PE transactions totaled 68, up slightly from one year ago. Disclosed values totaled $4.0 billion, which is more than double the $1.5 billion of Q3 2012, and the highest level reached so far this year. However, to date in 2013, Canadian deal-making continues to lag activity in 2012, with 212 transactions absorbing $7.4 billion at the end of September, down 17% year over year. Click here for the complete Q3 2013 Canadian buyout-PE market report.

(Also available in French)

Canadian buyout-PE market trends

In the third quarter of 2013, both deals and disbursements in Canada’s buyout and related private equity (PE) market showed year-over-year growth. Control-stake acquisitions, minority investments and other PE transactions (announced and completed) totaled 68 in this period, up slightly from one year ago. Disclosed values for these transactions totaled $4.0 billion, which is more than double the $1.5 billion of Q3 2012, and the highest level reached so far this year.

However, due to slower trends in earlier quarters, Canadian buyout-PE market activity in 2013 continues to lag activity of the year before. At the end of September, a total of 212 deals have been done, down moderately from the same time in 2012, while disclosed dollars flows, totaling $7.4 billion at this juncture, are 17% below the previously reported $8.9 billion.

The largest transaction of Q3 2013 saw NRDC-backed Hudson’s Bay Co. undertake a major add-on acquisition of New York-based Saks Inc., announced at a price of US$2.9 billion. Other major deals in this period included the $315 million equity financing of Saguaro Resources Ltd. of Calgary, in a deal led by Pine Brook Partners; the $170 million equity investment made in Calgary-based TORC Oil & Gas Ltd. by Canada Pension Plan Investment Board, and; the $110 million add-on transaction announced by Apax-backed Garda World Security Corp. of Montréal, which involved G4S Cash Solutions (Canada).

As of September 30th, two transactions sized greater than $1 billion have garnered over half of all disclosed disbursements made in the Canadian market.2 Deals sized between $100 million and $500 million accounted for the second largest share of the total, or 27%, while deals sized less than $100 million accounted for the balance.

Trends in the US buyout-PE market

In the first nine months of 2013, deal-making in the American buyout-PE market showed growth compared to the year before. At the end of September, disclosed dollar flows in the United States totaled US$98.4 billion, which is 34% more than the amount recorded during the same nine-month period in 2012.

Canadian market trends by sector

Oil and gas businesses accounted for the largest number of buyout-PE deals done in the first nine months of 2013, or 15% of the total. In second spot was activity involving mining companies, which accounted for a 12% share of all reported transactions, followed by manufacturing-related activity, which accounted for a 10% share.

The picture of domestic market activity was quite different vis-à-vis disclosed deal values. To date this year, deal-making has been led in retail sectors, which took 41% of total dollars invested, chiefly because of the Hudson’s Bay add-on acquisition. Oil and gas transactions secured the second largest amount (17% of the total), a share that was matched by mining transactions.

Canadian market trends by region

Most buyout-PE deals done in Canada in the first nine months of 2013 engaged businesses that were located in Québec (37%) and Ontario (26%). A substantial number of transactions were also reported in Alberta, which accounted for 19% of the total, and British Columbia, which reflected a 12% market share.

In large part due to the Hudson’s Bay add-on acquisition, Ontario led deal-making in dollar terms, taking half of the total disclosed amount at the end of September. Québec took second spot with a one-quarter share of all disbursements, followed by Alberta with a 21% share.

Canadian investor activity in global markets

Canadian buyout-PE deal-making abroad continued to occur at higher levels in the third quarter of 2013, with disclosed transaction values totaling nearly $4.0 billion, or only moderately below the $4.7 billion of Q2 2013. On a year-over-year basis, international activity between July and September was up 28%.

However, to date in 2013, Canadian fund activity in global transactions was still moving at a slower pace vis-à-vis the especially strong activity shown in years since 2010. For example, as of September 30th, Canadian funds have led or participated in a total of 40 deals valued at approximately $10 billion, compared to the 55 deals valued at $21 billion that was reported in the first nine months of 2012.

Canadian buyout-PE exit activity

While buyout-PE fund realizations of Canadian portfolio companies continued to take place at post-slowdown levels in the first nine months of 2013, activity nonetheless suggested moderation relative to 2012. Exits from Canadian assets by domestic and foreign funds totaled 53 in this period, down 16% from the number of exits reported at the same time last year.

Strategic acquisitions continued to drive exits, accounting for 60% of the total number as of September 30th, followed by financial acquisitions, which obtained a 23% share. Domestic market activity in Q3 2013 featured the announced sale of Ainsworth Lumber Co. Ltd. of Vancouver to Louisiana-Pacific Corp. for US$1.1 billion, which will give an exit to Brookfield Capital Partners, and; the completed sale of Pivot Data Centres Inc. of Calgary to Rogers Communications Inc. for $155 million, giving an exit to Sverica International.

Canadian buyout-PE fund-raising activity

In the first nine months of 2013, Canadian buyout, mezzanine and other PE fund-raising activity had already surpassed activity reported for the whole of both 2012 and 2011, and was approaching levels reached in 2010. New capital commitments totaling $6.1 billion went to 25 partnerships and other funds in this period, which is 27% more than the amount committed during all of last year.

A number of major partnership closings in Q3 2013 contributed substantially to the year-over-year growth in fund-raising. Examples include the US$1.5 billion final close of Drug Royalty Fund III, managed by DRI Capital; the US$1.2 billion first close of Onex Partners IV, managed by Onex Corp.; the $535 million final close of TorQuest Partners Fund III, managed by TorQuest Partners, and the $250 million raised to date by Imperial Capital Acquisition Fund V, managed by Imperial Capital Group. All of the firms cited here have headquarters in Toronto.

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