First annual report on Québec's buyout and private equity market - More than $1.3 billion in transactions

MONTREAL, Feb. 16, 2012 /CNW Telbec/ - Réseau Capital is presenting today the first annual report on the buyout and private equity market in Québec. This report, produced by Thomson Reuters, provides a look at investment fund activity in this market, vital to the financing of established Québec companies. Buyouts and private equity mainly involve company acquisitions with majority ownership, investments with minority ownership for financing company growth to provide for acquisitions or turnarounds, and mezzanine debt or other quasi-equity investments.

This first report shows that, in 2011, the Québec buyout and private equity market maintained the gains it achieved in 2010, the year that marked a return to growth after the 2008 global market slowdown. The 54 transactions, including acquisitions with majority ownership, investments with minority ownership and other private equity transactions, totalled $1.3 billion¹, or 3% more than in 2010.

"This first annual report illustrates the scope of buyout and private equity activity in Québec," Réseau Capital Co-President Geneviève Morin notes happily. "This is a whole area of capital investment activity that went unnoticed and that now can be revealed. We are very pleased that Thomson Reuters took the effort needed to produce this report, which can only improve over time."

The Québec buyout and private equity market has reflected the trends seen on international markets that returned to growth over the last two years, despite the slowing of investment activity observed in the United States, especially in the second half of 2011.

In Canada, amounts invested in buyout and private equity transactions have reached their highest levels in three years. The 235 transactions recorded show a disclosed amount of $11.5 billion, up 69%². This increase is due in particular to mega-deals of over $1 billion, including the $2.1-billion acquisition by OMERS Private Equity and Berkshire Partners of Husky International, based in Bolton, Ontario, the biggest transaction in Canada since 2008.

Transactions in mid-cap companies dominate the market in Québec
Whereas large-cap transactions heavily influenced market activity in Québec in 2007-2008, transactions ranging between $100 million and $500 million drew 63% of investments in 2011. Transactions of between $25 million and $100 million accounted for 23% of the disclosed dollar flow, whereas those of $25 million or less accounted for 14%. Canadian investors, local or otherwise, financed no fewer than 78% of the deals conducted in Québec, while American and overseas investors funded the rest.

Here are some examples of major transactions in the buyout and private equity market in Québec in 2011:

• $200-million investment by the Caisse de dépôt et placement du Québec in Industrial Alliance, Insurance and Financial Services (Québec City)
• $160-million by the Caisse de dépôt et placement du Québec and the Canada Pension Plan Investment Board in Genivar (Montréal)
• $153-million buyout with majority ownership by Birch Hill Equity Partners for the privatization of GDI Distinction Group  (Montréal)
• $60-million investment by Capital régional et coopératif Desjardins and the Caisse de dépôt et placement du Québec in Le Groupe Telecon (Trois-Rivières)
• $47-million privatization of iWeb Group (Montréal) by an investor group led by Novacap

"Based on disclosed transactions in 2011, Québec received 12% of the amounts invested across Canada," Ms. Morin adds. "This low proportion is due essentially to some mega-deals that occurred elsewhere. We can see that, in terms of the number of transactions, Québec accounted for 23% of the Canadian market, coming closer to its weight in the Canadian economy."

Transactions broadly diversified by sector in Québec
Strong competition and the creation of sectoral funds contributed to a substantial broadening of the range of both traditional and non-traditional sectors in the companies attracting investor interest. Heading the list are companies in the manufacturing and processing sector (33%) followed by distribution and wholesaling (11%), information and media (11%) and mining (7%).

The picture is different, however, when it comes to disclosed amounts. The distribution and wholesaling sector comes out on top, with 22% of the dollars invested, followed by financial services (15 %), due in particular to the significant investment in Industrial Alliance. Companies in the manufacturing and processing sector accounted for 13% of disclosed amounts in Québec in 2011, followed by construction companies at 12% and firms in the information and media sector at 8%.

Minority ownership investments dominate in Québec
Private equity investments with minority ownership account for 44% of the 54 transactions listed in Québec in 2011, while company buyouts with majority ownership rank second at 26%, followed by mezzanine and quasi-equity investments, representing just over one-fifth of transactions.

In dollar terms, investments with minority ownership accounted for 72% of disclosed amounts, while acquisitions with majority ownership of Québec companies stood at 19% of outlays. Direct mezzanine investments amounted to 9% of the dollars invested in 2011.

"Buyout and private equity investments provide valuable support to the Québec economy," Ms. Morin concludes. "They are catalysts for growth and can contribute to the growth of economic leaders and to the establishment of the succession in companies. By publishing statistics on this market on a regular basis from now on, Réseau Capital hopes to make the availability of this form of capital better know to Québec entrepreneurs."

About Réseau Capital
Réseau Capital, founded in 1989, is the only private-equity association that brings together all stakeholders involved in the Québec investment chain. The mission of Réseau Capital is to contribute to the development and efficient operation of the private-equity industry, which plays a major role in the development and financing of businesses in Québec. Réseau Capital has more than 425 members representing private-equity, tax-advantaged and public investment companies, as well as banks and insurance companies, accounting and law firms, angel investors, and many professionals working in the field.

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¹ Of the 54 transactions conducted in Québec in 2011, the dollar amounts were disclosed in 75% of cases.

² Of the 235 transactions conducted in Canada in 2011, the dollars amounts were disclosed in 66% of cases.

Source:       

Réseau Capital
Geneviève Morin
Co-President, Réseau Capital
Head of Investment
Fondaction CSN

Shahir Guindi
Co-President, Réseau Capital
Managing Partner
Osler, Hoskin & Harcourt LLP

Information: 

Josée Massicotte
514 388-0169
[email protected]

Valérie Gonzalo
514 626-6976
[email protected]