Canadian buyouts slow in Q1

Private equity fundraising and transaction values remained steady year-over-year in Canada, though the number of deals fell sharply during the first quarter of 2013.

Private equity fund managers completed just 47 investments in Canada during the first quarter of the year, down 47 percent compared to the same period in 2012.

Deal values, however, remained roughly flat year-over-year, at C$2.1 billion (€1.6 billion; $2 billion). Roughly half of total deal values during the quarter came from a single buyout, the C$1.1 billion purchase of mining company ArcelorMittal Mines Canada by an investor group including EQ Partners, a Seoul-based private equity firm.

The decrease in deal volume during Q1 does not represent a trend of a slowing private equity market in Canada, Peter van der Velden, president of Canada’s venture capital and private equity association told Private Equity International.

“The first quarter is always a bit of an odd quarter to judge much off of,” he said. “In talking to guys in the sector, I think they’re all pretty bullish. I haven’t heard anyone saying they can’t find good deals or that they’re disappointed with what they’re seeing or that prices are getting out of control.”

On the fundraising front, Canadian general partners raised C$1.1 billion across 10 partnerships, roughly the same amount raised in Q1 2012. Canadian GPs raised a total of C$4.5 billion last year.

Canada’s lower mid-market generated the vast majority of private equity deal activity during the first quarter. Of the 33 buyout transactions with disclosed deal values, about 76 percent were valued at C$25 million or less.

“We do see a lot of transactions in that under $25 million category because we have a lot of guys who play in that [market] and make that their real bread and butter business,” van der Velden said.

Excluding the single mining transaction, Canada’s oil and gas sector generated the most deal activity during the first quarter, accounting for more than C$400 million of the C$1.1 billion of combined deal values.

“Certainly on the resource side it’s continued to be very active,” van der Velden said. “I think that’s a reflection of the fact that the private equity guys can kind of look long term and don’t have to worry about the day to day machinations of the public markets.”

Despite the relatively slow start to the year, Canada’s overall economic environment remains generally healthy for buyout transactions.

“Debt is still very low [and] banks are lending,” van der Velden said.