PE deployments in Canada hit $24 bln in first nine months

Investment in Canada’s buyout and private equity (PE) market continued at a strong pace in the first nine months of 2018, according to final data released by Refinitiv.

PE deployments hit $24 billion at the end of September, down 7 percent from a year ago, but still marking the second most active first nine months in dollar terms on record.

Transaction volumes in this period were more significantly reduced, with 255 PE deals done, the lowest number in five years.

Overall, Canadian PE market activity declined in Q3 2018, with 76 deals securing $5.6 billion.

At the end of September, the information technology and media sector led in deals, taking a 17 percent share, while the oil and gas sector captured the largest share of values, or 28 percent.

A full PDF report of Q3 2018 Canadian buyout and private equity market activity by Refinitiv is available here.

REPORT SUMMARY (reproduced courtesy of Refinitiv)

Canadian Buyout-PE Market Trends

The first nine months of 2018 within Canada’s buyout and related private equity market saw a total of 255 transactions collectively valued at $24.0 billion. Despite deal values declining 7% from 2017 figures, 2018 still remains the second-highest start to the year on record. Deal volumes on the other hand were down 12% from the same period last year and are at their lowest level in five years, indicating more investment dollars flowing into fewer deals.

The $5.0 billion secondary sale of Bolton, Ontario-based Husky Injection Moldings Systems 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. A new addition to the list during the third quarter was the announced sale of Enbridge’s natural gas gathering and processing business to Brookfield Infrastructure Partners for $4.3 billion. Also added during the quarter was a $533 million private placement involving wood products company Stella-Jones and a number of shareholders including British Columbia Investment Management Corporation, Caisse de dépôt et placement du Québec, OMERS Private Equity, Fonds de solidarité FTQ, and GPI Capital.

Canadian Market Trends by Sector

The Information Technology & Media sector remained the most active in the first half, with 43 deals collectively valued at $3.3 billion. The consumer-related sector saw 30 deals in the first nine months, while manufacturing companies saw 28 deals collectively valued at $5.0 billion. The Oil & Gas sector received the largest share of overall dollar values, with 24 deals collectively bringing in $6.7 billion.

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 end of the second 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 5.4% as of the end of Q2. 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

Companies based in Québec received the largest share of investment volumes throughout the first half of 2018, with 36% of all financings. Ontario placed right behind with 35%, a level greater than any of its annual shares since 2007, which saw 41% of total deal volumes.

Canadian Investor Activity in Global Markets

Canadian buyout and related PE funds participated in 105 non-Canadian deals during the first three quarters collectively valued at $67.4 billion. Deal values were up 35% year-over-year but were still down from the recorded highs in the first nine months of 2016 and 2015, which saw total foreign deal values of $77.3 billion and $99.3 billion respectively.

Top deals in non-Canadian companies during the year included Brookfield Asset Management’s $18.9 billion takeover of Chicago-based U.S. mall owner GGP (subsequently renamed Brookfield Property REIT), Chinese online payment platform Ant Financial’s $600 million investment from the Canada Pension Plan Investment Board as part of an $18.2 billion deal, and Calpine Corporation’s $7.2 billion takeover led by Energy Capital Partners which included a $970 million investment by Canada Pension Plan Investment Board.

Trends in Canadian buyout-PE fundraising

Five funds raised $4.3 billion in the third quarter of the year, bringing the overall count up to $8.5 billion raised in the first nine months. During the quarter $2.8 billion was raised by Northleaf Capital Partners, to be split between their Private Equity Investors VII and Secondary Partners II funds, and $1.3 billion was raised by Whitehorse Liquidity Partners for its second fund.