New PitchBook Report Shows Cross-Border Investments Bolstered Canadian PE and VC Activity in 2018
March 27, 2019
SEATTLE, March 27, 2019 -- PitchBook, the premier data provider for the private and public equity markets, released a new report entitled, 2018 Annual Canadian PE & VC Factbook, which provides insight into the trends shaping the Canadian Private Equity (PE) and Venture Capital (VC) landscape. PE activity remained robust in 2018, notching the second-highest aggregate deal value of the decade. Healthy Canadian PE activity in 2018 has been significantly bolstered by the popularity of the add-on strategy. The typical PE stalwart, B2B, accounted for a plurality of add-ons made last year, but tech companies remained an active arena of interest for PE buyers as well. PE-backed exit volume achieved the second-highest tally in 2018, as sellers remained quite active for the past five years straight. After a record year in Canadian fundraising in 2017, only two funds closed in 2018. Canadian VC activity reached record highs last year and investment with US participation soared to an all-time high. Software remains far and away the largest component of Canadian venture activity by sector, mirroring trends seen in the US and Europe. On the exit front, VC-backed exit activity held steady in volume, although aggregate exit value remained more variable as has been the case historically. VC fundraising stalled in 2018, with only three vehicles raised.
"Canada saw healthy PE and VC activity in 2018, despite the slump in fundraising compared to previous years," said Garrett Black, Senior Manager at PitchBook. "It was a strong-year for cross border activity which highlights a maturing startup ecosystem and continued interest in Canadian companies."
Canadian PE Activity
Canadian PE deal flow remained robust in 2018, achieving the second-highest aggregate deal value of the decade at C$52.0 billion across 324 transactions. Healthy Canadian PE activity has been significantly bolstered by the popularity of the add-on strategy in 2018, which accounted for a record proportion of all buyout activity last year (63%).
PE-backed exit value hit C$35.2 billion in 2018, the second-highest tally ever. PE sellers remained quite active for the past five years, nearly hitting 100 completed transactions.
On the fundraising side, after a record tally of C$11.6 billion in 2017, only two funds closed in 2018 totaling C$1.2 billion. However, given the aggregate of C$30.1 billion raised since 2014's start and the increase in cross-border investment activity, the local fundraising cycle is likely resetting.
Canadian VC Activity
Canadian VC deal value hit a record high of C$3.8 billion in 2018, despite completing fewer than 500 transactions. The decline in volume is due primarily to diminishing angel & seed activity, while more mature Canadian startup ecosystems have been able to produce companies capable of raking in C$25 million+ rounds.
VC-backed exits in Canada held steady in terms of volume in 2018 (C$1.1 billion), although aggregate exit value remained more variable as has been the case historically. Although down slightly in count from last year, there's been a steady stream of liquidity achieved by Canadian venture-backed sellers in the past five years – C$8.7 billionacross 300+ transactions have been observed.
Venture fundraising stalled, with only three vehicles amassing nearly C$220 million last year. What's more intriguing about the venture tally is how low it is relative to historical totals; the fundraising cycle in Canada is likely resetting.
Spotlight: Foreign Investment
VC investment with US participation soared to an all-time high in 2018, accounting for 186 of the 273 cross-border transactions completed. Key drivers of increasing US-based investor participation include potentially lower costs of living (relative to US coastal epicenters of VC like the Bay Area), burgeoning tech ecosystems in Vancouver, Montreal, Toronto, and Quebec, and a surplus of capital to dispense.
Cross-border PE activity remained highly dynamic in 2018. Of the C$52.0 billion worth of deals closed last year, a clear majority of almost C$39 billion involved outside investors. Even more strikingly, PE activity with no domestic investor involvement soared to a new high of 180 transactions in 2018, for C$29.9 billion total.
Given the prevalence of outside investor interest, domestic fundraising on its own does not convey an accurate depiction of capital availability; the slump in activity last year could be due to timing over other factors.
PitchBook is a financial data and software company that provides transparency into the capital markets to help professionals discover and execute opportunities with confidence and efficiency. PitchBook collects and analyzes detailed data on the entire venture capital, private equity and M&A landscape—including public and private companies, investors, funds, investments, exits and people. The company's data and analysis are available through the PitchBook Platform, industry news and in-depth reports. Founded in 2007, PitchBook has offices in Seattle, San Francisco, New York and London and serves more than 24,000 professionals around the world. In 2016, Morningstar acquired PitchBook, which now operates as an independent subsidiary.