Large caps push Canadian PE invested to $13.3 bln in Q1

Dealmaking in Canada’s buyout and private equity market continued at a strong clip in the first quarter of 2018, according to final data released by Thomson Reuters. Some 81 deals, led by the $4.95 billion buy of Husky IMS International Ltd, captured $13.3 billion in total disclosed values in this period, up 98 percent on a dollar basis from a year ago. However, deal volumes saw a year-over-year decrease of 15 percent, resulting in an average disclosed deal value of $349 million, the highest ever reported. Canada’s manufacturing and business-service sectors were the most active in Q1 2018, accounting for a respective 38 percent and 34 percent of disbursements.

A full PDF report of Q1 2018 Canadian buyout and private equity market activity by Thomson Reuters is available here.

REPORT SUMMARY (reproduced courtesy of Thomson Reuters)

Canadian Buyout-PE Market Trends

The first quarter of 2018 within Canada’s buyout and related private equity market saw a total of 81 transactions collectively valued at $13.3 billion. Deal values increased by 98% from the same period of the previous year and reached the highest level ever recorded for any Q1. Deal volumes saw a year-over-year decrease of 15%, resulting in an average disclosed deal value of $349 million, also the highest ever reported.

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 the $1.6 billion agreement by Wolf Midstream to acquire MEG’s 50% ownership interested in Access Pipeline, financed by Canada Pension Plan Investment Board.

Although the number of PE deals during the quarter dropped 15% from the previous year, the rate of overall Canadian M&A fell an even further 19%. With 597 Canadian M&A targets in Q1 2018 versus 738 in Q1 2017, PE deals as a percentage of M&A increased from 12.9% to 13.6%.

Canadian Market Trends by Sector

The Manufacturing and Business Service sectors remained the most active during Q1 2018, with total deal values of $5.0 billion and $4.5 billion respectively, or 38% and 34% of the overall dollar values during the term.

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 2017. Preliminary 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 5.5% as of the end of Q4. This lags far behind their US counterparts which showed consistent outperformance of public markets and a since inception IRR of 13.5%.

Canadian Market Trends by Region

Companies based in Québec received the largest share of investment volumes throughout the first quarter of 2018, with 38% of all financings. Ontario’s portion dropped slightly from 33% of volumes over the course of 2017 to 30% during the first three months. British Columbia saw 14% of all deals, showing a steady state of improvement since 2015 when it held a six-year low of 8%.

Canadian Investor Activity in Global Markets

Canadian buyout and related PE funds participated in 25 non-Canadian deals during Q1 collectively valued at $48 billion. Consequently, despite deal volumes remaining flat year-over-year, deal values were up 229%. This deal value figure 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 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. Brookfield Asset Management also agreed to a takeover of Chicago-based U.S. mall owner GGP for a cash consideration of $11.9 billion. An investor group led by US-based energy infrastructure firm Energy Capital Partners and including Canada Pension Plan Investment Board also completed the acquisition of Houston-based power generation company Calpine Corporation for $7.2 billion.

Trends in Canadian buyout-PE fundraising

In a February closing Whitehorse Liquidity Partners raised $920 million for its second fund focusing on the secondary market, less than a year after the final close of its first fund at $400 million. Brookfield Asset Management also had the final close of their Infrastructure Debt Fund in the beginning of the year at $1.1 billion.

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