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Large caps lift Canadian PE disbursements to $18.3 bln in H1

Dealmaking in Canada’s buyout and private equity market continued at a strong clip in the first half of 2018, according to final data released by Thomson Reuters.

Some 173 transactions, led by the $4.95 billion acquisition of Husky IMS International Ltd by Platinum Equity, captured $18.3 billion in total disclosed values in this period, up 26 percent on a dollar basis from a year ago.

However, deal volumes saw a year-over-year decrease of 14 percent at the end of June, resulting in an above average disclosed value of $232 million.

In terms of deal volume, Canadian information technology and media and consumer-related sectors were the most active in the first half, accounting for 36 and 21 transactions, respectively.

A full PDF report of H1 2018 Canadian buyout and private equity market activity by Thomson Reuters is available here.

Canadian Buyout-PE Market Trends

The first half of 2018 within Canada’s buyout and related private equity market saw a total of 173 transactions collectively valued at $18.3 billion. Deal values reached a new all time high for the first half of the year, surpassing by 26% the previous highs of $14.5 billion set in both  the first half of 2007 and the first half of 2017. Deal volumes saw a year-over-year decrease of 14%, resulting in an average disclosed deal value of $232 million.

The March closing of the $5 billion secondary sale of Bolton, Ontario-based Husky Injection Moldings Systems, originally announced last December, by OMERS Private Equity and Berkshire Hathaway to US private equity firm Platinum Equity, has retained the number one spot in both Canada’s top deals list and top exits list. Other top deals during the quarter were the announced $3.8 billion acquisition of industrial properties portfolio operator Pure Industrial Real Estate Trust by Blackstone Group as well as Mitel Networks’ $2.6 billion sale to Searchlight Capital Partners.

Although the number of PE deals during the first half dropped 14% from the previous year, Canadian private equity deals as a percentage of traditional M&A increased to 16.3% in the second quarter, a two-year high, though still far below the 30% share seen as recently as 2015.

Canadian Market Trends by Sector

The Information Technology & Media sector remained the most active in the first half, with 36 deals collectively valued at $3.3 billion. The consumer-related sector saw 21 deals in the first six months, while manufacturing companies saw 17 deals collectively valued at $5.0 billion.

Canadian Fund Performance

The performance of Canadian buyout, mezzanine, and private equity energy funds continued to show slight underperformance to public market comparators through to the end of the first quarter 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 5.3% as of the end of Q1. This lags far behind their US counterparts which showed consistent outperformance of public markets and a since inception IRR of 12.8%.

Canadian Market Trends by Region

Companies based in Québec received the largest share of investment volumes throughout the first half of 2018, with 39% of all financings. Ontario’s portion increased slightly from 33% of volumes over the course of 2017 to 36% during the first six months. British Columbia saw only 9% of all deals, showing declines from 2016 and 2017 when the province saw shares of 11% and 13% respectively.

Canadian Investor Activity in Global Markets

Canadian buyout and related PE funds participated in 70 non-Canadian deals during Q1 collectively valued at $84.2 billion. While this reflected an increase in deal volumes of 9% from the same period a year earlier, recorded deal values were collectively 2.5 times what they had been in the first half of 2017. This comes as a result of a number of mega deals occurring during the quarter.

Thomson Reuters announced the sale of a 55% stake of its Financial & Risk business, Refinitiv, to a consortium led by Blackstone Group in a deal valued at $21.0 billion. Other investment partners involved in the deal included Canada Pension Plan Investment Board and Singapore sovereign wealth fund GIC. Ant Financial, a Chinese online payment platform, received $600 million from the Canada Pension Plan Investment Board as part of an $18.2 billion deal. Brookfield Asset Management also agreed to a takeover of Chicago-based U.S. mall owner GGP for a cash consideration of $11.9 billion.

Trends in Canadian buyout-PE fundraising

Leading Canadian fundraising in the first half was Waterous Energy Fund, which closed its initial fund in the second quarter at $1.4 billion and will invest in distressed oil & gas companies. The Canadian Business Growth Fund announced that it has raised $545 million to date and will invest in Canadian mid-market companies.