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Venture Capital Investments Hit All-Time High in Canada, Private Equity Activity Slows

December 01, 2016

Venture Capital Investments Hit All-Time High in Canada, Private Equity Activity Slows  

PitchBook releases its 2016 Canada PE & VC Breakdown II


SEATTLE — December 1, 2016 — Mirroring U.S. and global trends across private equity and venture capital, the pace of Canadian private financial market activity continued to contract in 2016, according to recent analysis conducted by PitchBook. On a quarterly basis, however, private equity deal flow grew in the second and third quarters of this year, with the latter coming in at C$13 billion across 71 transactions - a strong quarter during any year. Despite the quarterly uptick, 4Q dealmaking is off to a slow start, and PitchBook analysts expect 2016 to finish in a similar fashion. At the same time, Canada’s burgeoning venture capital market continues to show promise. In the first 10 months of the year, Canadian startups amassed C$2.1 billion, the highest amount of venture capital of any year on record.


Canadian Private Equity Activity

Following a record year for private equity in Canada, 2016 deal activity in the region is set to decline. Through the end of October 2016, 204 private equity transactions were completed with a total value of C$31.4 billion, putting 2016 on pace to record the fewest deals in four years at a lower value than either 2014 or 2015. Some of this decline can be attributed to the region’s struggling energy sector, which has been severely impacted by the low-price oil environment of the last two years. Through October 2016, only 18 deals were completed in the space, compared to 36 in 2015 and 46 in 2014.     


In line with U.S. exit trends, Canadian private equity-backed exits are on pace to decline by 16% from 2015. In the first 10 months of the year, only 65 sponsor-backed exits were completed, compared to 103 in 2015 and 87 in 2014. Despite a decline in the number of liquidity events, exit value has remained elevated. Through October, exit value reached C$26 billion, up from C$18 million exited in all of 2015.


Corporate acquisitions accounted for 74% of Canada’s exit activity through the end of October, while the country saw just one initial public offering. Toronto-based Canada Goose, backed by Bain Capital, is reportedly planning an IPO in 2017. Canada Goose, like other consumer-facing businesses in Canada, has benefited from a weakened Canadian Dollar (CAD) over the last five years. Such companies are able to maintain cost structures in CAD and sell much of their product abroad, which bodes well for profit margins.


“Canadian Public Pensions essentially pioneered the direct investment strategy that is now commonly used by LPs in the United States and around the world,” said Nizar Tarhuni, senior analyst at PitchBook. “What’s more, a favorable tax position currently allows Canadian Public Pensions to invest in U.S. companies without paying capital gains taxes on either side of the border. However, if the incoming U.S. administration successfully renegotiates trade deals with its North American partners, cross-border PE activity could be negatively affected.”


Canadian Venture Activity

As Canada’s overall venture industry continues to develop, 2016 saw more venture capital deployed into Canadian companies than any other year on record. Deal value reached C$2.11 billion through October. This uptick represents a continuation of steady growth over the last few years.However, just 296 deals were completed through October, putting 2016 on pace to reach 75% of 2015’s total. This contraction in deal activity and increase in deployed capital largely mirrors trends evident in VC in the U.S. and the rest of the world.


Exit activity in Canada has remained sparse. Just 37 exits were completed through October 2016, putting 2016 on pace to see the lowest number of exits since 2009. Exit value amounted to C$320 million, putting it on pace for the lowest in the decade and 8x lower than 2015’s total. Similar to broader trends, IPO activity is all but nonexistent - in Canada, mergers and acquisitions made up 92% of exit activity.


Download the full report here.


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