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Canadian buyouts shift to smaller deals

Investment activity in Canada was marked by a drop in both deal flow and transaction values during the third quarter, according to Canada's Venture Capital & Private Equity Association.

Canadian investment activity slowed during the third quarter this year, with fewer deals and reduced deal values compared to the same period last year, according to Canada’s Venture Capital & Private Equity Association (CVCA) and Thomson Reuters.

The 39 private equity transactions recorded during Q3 2011 represented a 19 percent decrease year-on-year, while the corresponding C$1.3 billion (€940 million; $1.27 billion) of deal values marked a 40 percent decline.

Still, in the first nine months of the year, the 142 deals worth C$9.1 billion far exceeded the C$6.2 billion and C$4.2 billion recorded in 2009 and 2010, respectively. While a number of large-cap transactions drove up the dollar amount of deals during the first half of 2011, the third quarter was marked by smaller deals of less than C$100 million in value.

“Canadian private equity investment returned to its mid-market roots in the third quarter,” President of the CVCA Greg Smith said in a statement, adding that the levels of activity in the third quarter remained “healthy”.

The 65 deals valued at less than C$100 million represent roughly 76 percent of all Canadian transactions with disclosed deal values through 30 September, according to the report.

Notable deals during the third quarter include the Canada Pension Plan Investment Board and Lime Rock Partners’ $287 million investment in Calgary’s Laricina Energy and The Sterling Group’s completion of a $285 million carve-out of metal components company Stackpole in Ontario. Resource extractive industries accounted for 31 percent of the deals during the quarter, the report said.

Apax Partners, CPPIB and PSP Investments together completed the largest international deal, purchasing Texas-based medical device company Kinetic Concepts for $6.3 billion, including outstanding debt.

On the fundraising front, the C$1.3 billion in new commitments during the quarter was slightly less than the C$1.4 raised during the first half of the year. The C$2.7 billion raised so far this year is on track to exceed the C$3.2 billion raised during 2010.

While acquisitions were down during Q3, the 40 exits completed during the quarter matches or exceeds the total exit activity reported in 2008 and 2009. The largest disclosed deal was Castle Harlan’s exit from Toronto-based Norcast, a company the firm bought for $190 million then sold later the same week for $216 million. Castle Harlan, which invested in Norcast alongside its Australian affiliate CHAMP – Castle Harlan Australian Mezzanine Partners – sold the company to Australian industrial product manufacturer Bradken.

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