Canadian buyouts reach highest level since 2008

Private equity deal flow surged 40% in Q2 2011 compared to the same period last year, while fundraising in the first half of the year more than quadrupled compared to the first half of 2010.

Canadian investment activity during the second quarter of 2011 shot up to levels not seen since late 2008, as the investment environment “clicked into place”, according to Canada’s Venture Capital & Private Equity Association (CVCA) and Thomson Reuters.

The 49 private equity deals in Canada last quarter represented a 40 percent increase compared to the same period last year, and the C$5.7 billion (€4.3 billion; $5.8 billion) put to work exceeds the total amount invested in 2010. During the first six months of 2011, 97 buyout transactions were announced or closed in Canada, with disclosed values totaling C$7.7 billion.

“There seems to be heightened activity on virtually every front,” CVCA executive director Richard Remillard told Private Equity International. “At the very macro level, things are clicking into place for Canada, despite the turmoil in the global economic scene. These would include governments with commitments to fiscal and monetary probity, strong capital levels in financial institutions, careful bank regulation and an economy that is considerably more diversified than in the past and than has generally been recognized. So, the backdrop is positive.”

“At the micro level, several things have clicked into place as well, ranging from attractive valuations and the growing sophistication of the industry itself,” Remillard said. “Importantly, there is increased recognition of the 'value-add' of the Canadian private equity industry on the part of a broader swathe of the business community.”

Domestic investments, investments abroad, mid-market deals and transactions of C$1 billion or larger were all up on the quarter, Remillard said, adding that the CVCA also believes a substantial amount of dry powder – estimated to be around C$1.5 billion by one manager in the region – is still waiting to be put to work.

On the fundraising front, new commitments of C$1.4 billion during the first half of 2011 represent  more than four times the C$346 million raised in the first half of 2010.

Large-cap deals in Canada this year include the C$2.1 billion purchase of injection moldings company Husky International by OMERS Private Equity and Berkshire Partners from Onex Corporation, the largest buyout deal in Canada since the C$3.7 billion take-private of CHC Helicopter by First Reserve in early 2008. To date, buyouts of C$500 million or more have accounted for 68 percent of invested capital.

The volume of Canadian venture Capital deals, meanwhile, recorded a 2 percent drop to $328 million between April and June.

Founded in 1974, the CVCA is comprised of 136 member funds with over C$75 billion in capital under management.