Canadian private equity market on track for biggest year since 2007, venture capital continues to grow

Tim Hortons, Burger King merger, oil and gas deals drive PE activity

TORONTO, Nov. 27, 2014 /CNW/ - Canada's private capital industry is poised to have its best year for deal activity in buyout and related private equity (PE) markets since 2007. That is the main finding from the Canadian Venture Capital and Private Equity Association's (CVCA) Q3, 2014 report released today. This is largely due to the $12.5 billion merger of Tim Hortons Inc. with Burger King Worldwide Inc.

According to Q3 data, Canadian venture capital also continues to grow in terms of money invested and number of deals done. However, new capital commitments to Canadian VC funds continued to decline in the third quarter which is concerning.

"Investments made by the Canadian private capital industry as a whole have increased significantly, which helps drive economic growth and innovation," said Mike Woollatt, CEO, CVCA. "An area of concern is VC fundraising which continues to decline and may adversely affect future investment levels. One way to help reverse this trend is to point to the many successes in this asset class, which the CVCA is seized with doing."

PRIVATE EQUITY:
Deal-making in Canada's buyout and PE market rose sharply in both dollar amounts and number of transactions in Q3. Disclosed amounts totaled $19.8 billion in this period fueled largely by the $12.5 billion investment in the merger of Tim Hortons Inc. with 3G Capital-backed Burger King Worldwide Inc. However, even without this transaction, disclosed dollars invested still totaled $7.3 billion in Q3, 2014, which is well above the $1.2 billion in values recorded in the same time period last year. As of September 30^th, PE deals secured a disclosed $26.4 billion invested – more than twice the amount made during the whole of 2013 ($10.2 billion).

The number of deals also grew substantially – by more than 40% year-over year. Between July and September there were 94 deals, bringing the total to 289 for the first nine months of 2014.

Highlights:

• $2 billion sale of Encana Corporation's Big Horn assets to Jupiter Resources Inc. – a portfolio company of Apollo Capital Management was closed
• Riverstone Holdings led a $675 million investment in Canadian Non-Operated Resources LP
• Advent International's $927 million investment in Lululemon Athletica
• Top sector - Oil and gas companies lead share of buyout-PE transactions accounting for 14 per cent of the total number for the first nine months of 2014
• Top regions – Quebec currently has the largest share of domestic buyout-PE transactions for the first nine months of 2014, accounting for almost half (45 per cent of all transactions. Ontario accounts for 23 per cent, and Alberta for 19 per cent of the market share
• The market is on pace to surpass 2013's total number of buyout-PE exits, which is currently at 65 for the first nine months

VENTURE CAPITAL:
VC funds invested a total of $734 million in financing rounds during Q3, up 26 per cent (from $581 million) year-over-year. Disbursement also grew by as much as 45 per cent from Q2, 2014.

Canadian VC market activity continues to track ahead of activity from last year. Over the first nine months, VC funds have invested more than $1.6 billion in total – a 16 per cent increase (from $1.4 billion). The number of VC deals has also grown by six per cent year-over-year, with a total of 361 financings counted at the end of September 30^th.

Highlights:

• Several large-sized VC deals drove up dollars invested in Q3, 2014: Desire2Learn (Kitchener, ON), Hootsuite Media (Vancouver, BC), LightSpeed Retail (Montreal, QC), and FreshBooks (Toronto, ON)
• Top sectors: IT and Life Sciences. Computer software, Internet-focused activity, semiconductors, and other IT sectors captured more than $ 1 billion Biopharmaceuticals, medical devices and other life science sectors captured $299 million
• Cleantech has experienced a drastic reduction in investment in 2014, with only $56 million invested as of September 30^th – down from $263 million over the same time in 2013
• Top regions: Ontario continues to lead with $580 million invested during the first nine months of 2014 – up 66 per cent from the same time in 2013, and making up 36 per cent of the total disbursements share. Quebec accounted for 24 per cent of total VC invested ($397 million), and British Columbia came in third with 21 per cent of market share ($339 million)
• In fact, ON (9^th), QC (12^th), and BC (15^th) all place within the top 15 for VC investments in North America
• Canadian companies' public exits are overtaking merger and acquisition exits in size in 2014

The challenge for the VC market is to grow fund raising which has seen steady declines. While fund raising grew by 41 per cent from Q2 to Q3, 2014; fundraising has dropped markedly since last year. There is a 39 per cent decrease when comparing Q3, 2013 and Q3, 2014 (from $258 million to $158 million), and overall fund raising is down 29 per cent year-over-year (drop from $1.1 billion to $801 million).

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About the CVCA
The CVCA is the voice of Canada's venture capital and private equity industry. We are focused on improving the private capital ecosystem by broadening industry awareness and providing market research, networking, and professional development opportunities. We also advocate on behalf of the industry to ensure sound public policy that encourages a favourable investment environment. The CVCA works alongside its members, who represent the vast majority of private capital firms in Canada, to improve the industry and drive innovation and growth. 

SOURCE: Canadian Venture Capital and Private Equity Association

For further information, or to arrange an interview, please contact: Kieran Lawler, Director of Communications, Direct: 416-487-0519 x204, Mobile: [phone], [email protected]; Ashley Smith, Communications Associate, 416-487-0519 x201, [email protected]