Canadian PE values slow to $4.9 bln in 2019’s first three months

Deal values in Canada’s buyout and private equity (PE) market slowed in the first three months of 2019 following a record-breaking 2018, according to final data released by Refinitiv.

PE investing reflected values of $4.9 billion in Q1 2019, down 50 percent from Q1 2018, and marking the slowest first quarter in dollar terms in five years. Transaction volumes, however, were up 8 percent year over year.

Oil and gas companies captured the largest share of dollar flows between January and March, at 39 percent, while manufacturing companies took the largest share of deals, at 19 percent.

The global deal-making by Canadian PE funds sustained a rapid pace in Q1 2019, as investors joined 45 transactions valued at $32 billion, the largest first-quarter amount on record.

A full PDF report of Q1 2019 Canadian buyout and private equity market activity by Refinitiv is available here.

REPORT SUMMARY (reproduced courtesy of Refinitiv)

Canadian Buyout-PE Market Trends

Despite Canada seeing a record-breaking 2018 in terms of investment from buyout and related private equity investors thanks to a number of large-scale deals, the first quarter of 2019 saw few such large transactions. With $4.9 billion in deals completed from January to March, collective deal values were a fraction of what they had been in previous quarters, down 50% from the same period last year. There were, however, a total of 90 transactions over the period, up 8% over the first quarter of 2018.

Canadian Market Trends by Sector & Stage

The largest private equity deals were confined to the Oil & Gas and the Business Services sectors, which took $1.9 and $1.4 billion dollars respectively.  Brookfield’s BGIS was sold to CCMP Capital Advisors for $1.3 billion in the largest deal of the quarter, and the formation of SemCAMS Midstream with equity invested by SemGroup and KKR ranked second. Third, Cogeco Peer 1, an IT solutions company, was acquired by Digital Colony for $720 million.

In an unusual move, private investment in public equities transactions fell to only 6% of all deals in Q1, far below their usual share. Add-on acquisition deals continued to see an increase in popularity, comprising 36% of all PE deal-making in Q1 2019.

Continuing another recent trend, United States firms became even more active in participating in Canadian deals. Canadian investors participated in just 59% of all Canadian PE buyout deals in Q1 2019, down from a 77% participation rate just five years ago. Participation by United States investors came to 40% of all deals in Q1 2019, an all-time high.

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 nine months of 2018. 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 5.7% as of the end of Q3. This lags far behind their US counterparts which showed consistent outperformance of public markets and a since inception IRR of 13.0%.

Canadian Market Trends by Region

Calgary-based companies received the most investment in Q1 for our city rankings, with $2.1 billion, or 42% of the national total. While Montréal-area companies did not take in the most capital, they did see 19 investments in the quarter, the most active among all Canadian cities. Québec, with 38 deals overall, saw the largest proportion of any province, at 42% of all PE dealmaking. This mostly came at the expense of Ontario, which had a 27% share of Dealmaking in Q1, far below its recent averages.

Canadian Investor Activity in Global Markets

Canada Pension Plan Investment Board, as usual, participated in many of the largest deals of the quarter outside of Canada but featuring Canadian investors, including the top three. CPPIB invested in the $14.4 billion deal to acquire Ultimate Software of Weston, FL, a provider of human capital management software. 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.