Canadian private equity hit records in 2006(2)

Canadian private equity deal volume doubled to $10.9bn, while fundraising quadruples to $5.4bn, according to a new CVCA report.

New private equity records have been reached in Canada, where investments into Canadian companies reached $10.9 billion (€8.4 billion) over 90 deals, while Canadian investors invested $13.4 billion in the global private equity market in 70 deals.

In 2005, Canadian companies received $4.5 billion of private equity funds, while Canadian private equity investors invested $5.4 billion globally. 

The report, issued by Canada’s Venture Capital and Private Equity Association and Thomson Financial, also found that fundraising by Canadian buyout funds reached a record C$6.4 billion ($5.4 billion, €4.9 billion) in new commitments, more than four times the C$1.4 billion total raised in 2005.

Fully C$8.6 billion was raised across all funds – buyout, venture capital and mezzanine debt. Only $1.69 billion of this total went to venture capital, matching the $1.68 billion invested in 2005.

In comparison, C$3.9 billion was raised in 2005 across all funds.

A large portion of this growth was driven by non-US foreign investors. For the first time, they pumped in $3.9 billion, comprising one third of the total buyout funds raised. US funds contributed a further $4.1 billion; since 2004, US investors have been the biggest investors in private equity in Canada.

“In Canada, we are growing as fast as we can, but we are just barely keeping up with the global market,” said Rick Nathan, president of CVCA and managing director of Kensington Capital Partners, in a statement.

“In spite of these generally flat results across the market as a whole, three significant underlying trends are clearly visible,” said Nathan. “First, there has been a substantial regional shift away from Ontario and into Quebec and British Columbia. Second, we are seeing a significant increase in the share of venture capital investment into Canadian companies by foreign investors, principally from the US, and third, there is a decline in the total number of companies receiving venture funding, with a corresponding increase in the average amount of capital invested per company.”

Foreign venture capital investments increased 19 percent to $549 million, reaching 32 percent of all venture capital investments in Canadian companies.

Average venture capital investment size increased 40 percent to $4.2 million, led by US funds that invest an average $10.1 million per company, or 2.4 times the Canadian average.

Fifty-two percent of venture capital investment went into information technology firms, followed by biopharmaceutical and other life sciences. Within the IT sector, software, communications and networking, and electronics and semiconductor companies received the most investments.

Venture investment in environment “clean” technologies reached $119 million in 2006, up 83 percent from the previous year.

CVCA was founded in 1974 and has over 1,100 members associated with the venture capital and private equity industries.