US drives Canadian buyout and VC markets

Deals in Canadian PE and VC markets were driven by US investors in 2007, creating ‘serious concern’ over the strength of the domestic Canadian market, according to the CVCA.

Canadian buyout activity and venture capital investment experienced strong growth in 2007 due largely to US investment, according to data released today by Canada’s Venture Capital and Private Equity Association (CVCA).

Venture capital investment in Canadian companies totaled $2.1 billion last year, which is a 21 percent year-over-year increase, and was entirely driven by foreign investment, which has reached record highs. The US alone represented 41 percent of investment dollars throughout Canada, a 53 percent increase from 2006 in absolute dollars. In contrast, investment by Canadian VC firms showed no increase from 2006.

The fundraising trend for Canadian VC firms is a serious concern.

Rick Nathan

Canadian VC firms also experienced a continuing decline in fundraising, a trend that has occurred for five of the past six years. Capital raised in 2007 was $1.19 billion, down from $1.64 billion the previous year. . 

Rick Nathan, CVCA president and Kensington Capital Partners managing director, said in a statement that “the fundraising trend for Canadian VC firms is a serious concern as a shortage of domestic capital may continue to drive the growth of our most innovative emerging companies away from home, and into the US where venture capital is more readily available”.

In 2007, the value of announced Canadian buyouts reached an historic high of $65.5 billion, driven by the pending $46.8 billion buyout of BCE, which is led by the Ontario Teachers’ Pension Plan in partnership with Madison Dearborn Partners and Providence Equity Partners. This is in relation to 2006 when PE buyouts totaled $8.2 billion. The quantity of transactions also rose from 105 to 181.

A closer look at the Canadian PE industry in 2007 shows the quantity of Canadian buyouts conducted by Canadian versus US firms was roughly equal. There is still a demonstrated need to build up the domestic PE market in Canada which remains small relative to the US and other international markets, according to Nathan.

The CVCA was founded in 1974. Its 1500 plus member firms and organizations manage the majority of the Canadian pool of capital earmarked for VC and PE investments.