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Latest Private Equity News Canada: Key Developments and Trends

One of the factors influencing the private equity market in Canada is the regulatory environment. In recent years, there have been changes in regulations that have impacted the industry, including the adoption of the Investment Industry Regulatory Organization of Canada (IIROC) rules, which require private equity firms to register with IIROC as dealer members.

Additionally, the Canadian Securities Administrators have introduced new rules for reporting exempt distributions, which has increased transparency in the industry.

These regulatory changes have had an impact on the private equity market in Canada, and investors and businesses need to stay informed about them.

Key Takeaways

• The private equity market in Canada remains strong, despite a decline in deals announced in the first half of 2022.

• Regulatory changes have impacted the industry, and investors and businesses need to stay informed about them.

• Transparency and ESG considerations are becoming increasingly important in private equity investments.

Overview of Private Equity in Canada

Private equity investment in Canada has been on the rise in recent years. According to the Canadian Venture Capital and Private Equity Association (CVCA), the Canadian private equity market saw $18B invested across 799 deals in 2021, returning to levels on par with pre-pandemic and the 5-year average.

This trend continued in Q3 2022, with CAD $ 2.4 B invested into 199 deals, bringing the year-to-date (YTD) total to CAD $ 6.5 B across 622 deals.

PE deal count is up by 9% YTD from the same period last year, already surpassing 2021's total annual deal count.

Despite the macroeconomic pressures, PE investors continue to focus on smaller deals and add-ons, resulting in a record high number of Canadian PE deals in 2022. The CVCA reports that Canadian PE deals reached a record high in 2022, with CAD $ 2.3 B invested over 194 deals.

It is worth noting that some mega deals, those worth over $500 million, accounted for a significant portion of the total investment value.

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The Canadian private equity market is diverse, with a range of sectors attracting investment. In 2022, the top sectors for PE investment in Canada were healthcare, technology, and consumer products.

The CVCA reports that healthcare was the top sector for PE investment in 2022, with CAD $ 1.2 B invested across 29 deals. Technology followed closely, with CAD $ 1.1 B invested across 55 deals, and consumer products saw CAD $ 514 M invested across 21 deals.

In terms of fundraising, Canadian private equity firms raised CAD $ 5.5 B in Q3 2022, bringing the YTD total to CAD $ 15.6 B across 58 funds.

This represents a significant increase from the same period last year, with YTD fundraising up by 54%. The majority of funds raised were focused on growth and buyout strategies.

Overall, the Canadian private equity market is robust, with a diverse range of sectors attracting investment and a growing number of funds being raised.

Despite macroeconomic pressures, the market continues to see strong deal flow, with PE investors focusing on smaller deals and add-ons.

Investment Landscape

Private equity investment in Canada has seen a steady increase in recent years.

According to a report by BDC, global investment rose from US$200 billion in 2017 to US$621 billion in 2021, with investors seeking higher returns in private asset classes due to the low-interest environment of recent years.

Venture Capital

The Canadian Venture Capital & Private Equity Association (CVCA) reports that venture capital (VC) investment in Canada has been on the rise since 2013, with over CAD $44B invested across more than 6,340 Canadian companies.

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In the Q3 2022 VC & PE Canadian Market Overview, the CVCA reported that VC investment reached CAD $6.5B in the first nine months of 2022, with deal volumes only slightly down from 2021 and still well above the five-year average.

Private Debt

Private debt has emerged as a popular investment opportunity for institutional investors and pension funds in Canada. In a recent report, the CVCA noted that private debt funds have raised over CAD $6.5B in commitments since 2015. Private debt offers higher yields than public debt, and it is less volatile than equities. This asset class is also attractive to investors who are looking for a way to diversify their portfolios.

Private Credit

Private credit is another area that has seen significant growth in Canada. Private credit funds have raised over CAD $7B in commitments since 2015, according to the CVCA. Private credit provides financing to companies that are unable to access traditional bank financing. This asset class is also attractive to investors who are looking for yield and are willing to take on more risk.

Overall, private equity investment in Canada continues to attract interest from investors, including institutional investors, pension funds, and LPs. Co-investment opportunities are also available for investors who want to participate in private equity deals alongside experienced fund managers.

With a diverse range of investment opportunities available, private equity investment in Canada is expected to continue to grow in the coming years.

Economic Factors Influencing the PE Market

Private equity (PE) is a type of investment that involves buying and selling companies. Economic factors play a crucial role in the PE market. This section will discuss some of the economic factors that influence the PE market in Canada.

Private Equity News Canada: Interest Rates and Inflation

Interest rates are a key economic factor that affects the PE market. When interest rates are low, it is easier for companies to borrow money to finance their operations, which can make them more attractive to PE investors.

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Conversely, rising interest rates can make it more difficult for companies to borrow money, which can reduce their attractiveness to PE investors.

Inflation is another economic factor that can affect the PE market. Inflation can erode the value of investments and reduce the purchasing power of investors.

PE investors must take inflation into account when conducting due diligence on potential investments and when assessing the risks associated with their investments.

Wages

Wages are an important economic factor that can affect the PE market. Rising wages can increase the cost of doing business, which can reduce the profitability of companies and make them less attractive to PE investors. Conversely, falling wages can reduce the cost of doing business, which can increase the profitability of companies and make them more attractive to PE investors.

Volatility

Volatility is an economic factor that can affect the PE market. Economic uncertainty and market volatility can create risks for PE investors. PE investors must be able to assess the risks associated with their investments and take steps to mitigate those risks. This may involve diversifying their portfolios, investing in companies that are less sensitive to economic volatility, or investing in companies that are well-positioned to weather economic downturns.

In conclusion, economic factors play a crucial role in the PE market in Canada. PE investors must be able to assess the risks associated with their investments and take steps to mitigate those risks. By carefully considering economic factors such as interest rates, inflation, wages, and volatility, PE investors can make informed investment decisions that are well-suited to their investment objectives.

Regulatory Environment

Policy and Advocacy

Private equity in Canada is subject to various laws and regulations, including securities laws, competition laws, and tax laws. The regulatory environment for private equity in Canada is generally favourable, with the government and industry associations working together to promote growth and innovation in the sector.

The Canadian Venture Capital and Private Equity Association (CVCA) is a key industry group that advocates for private equity in Canada. The CVCA works to promote the interests of its members and to foster a favourable business environment for private equity in Canada. The CVCA also provides research and analysis on the private equity industry in Canada.

In addition to the CVCA, private equity firms in Canada are subject to various securities laws and regulations. Private equity firms must register with securities regulators in the provinces where they operate, and must comply with various disclosure and reporting requirements. The securities regulators in Canada work to protect investors and to promote fair and efficient capital markets.

Tax

Private equity firms in Canada are also subject to various tax laws and regulations. The tax treatment of private equity in Canada is generally favourable, with the government offering various tax incentives to promote investment in the sector.

One key tax incentive for private equity in Canada is the flow-through share program. This program allows investors in mining, oil and gas, and renewable energy projects to deduct the full cost of their investment from their taxable income in the year of investment. This program has been extended to include certain clean technology investments.

In addition to the flow-through share program, private equity firms in Canada may also benefit from various other tax incentives, such as the small business deduction and the scientific research and experimental development (SR&ED) tax credit.

Overall, the regulatory environment for private equity in Canada is generally favourable, with the government and industry associations working together to promote growth and innovation in the sector. Private equity firms in Canada are subject to various securities laws and regulations, as well as tax laws and regulations, but the tax treatment of private equity in Canada is generally favourable, with the government offering various tax incentives to promote investment in the sector.

ESG Considerations in Private Equity

Private equity firms are increasingly considering environmental, social, and governance (ESG) factors when making investment decisions. This is due to growing pressure from investors, regulators, and the public to consider the long-term sustainability of their portfolio companies and their impact on society.

ESG considerations can have a significant impact on the financial performance of portfolio companies. A study by Bain & Company found that companies with strong ESG performance outperformed their peers in terms of revenue growth, return on equity, and stock price performance. Private equity firms are recognizing this and are incorporating ESG factors into their investment decision-making process.

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Environmental considerations involve assessing a company's impact on the environment, including its carbon footprint, energy use, and waste management.

Social considerations involve assessing a company's impact on society, including its treatment of employees, customers, and suppliers. Governance considerations involve assessing a company's management structure, board composition, and policies related to ethical and responsible business practices.

Private equity firms are taking a variety of approaches to incorporate ESG considerations into their investment process. Some firms are developing their own ESG frameworks and metrics to evaluate potential investments, while others are relying on third-party ESG ratings and data providers.

Some firms are also engaging with portfolio companies to improve their ESG performance and reporting.

Overall, ESG considerations are becoming an increasingly important factor in private equity investment decisions. Firms that are able to effectively incorporate ESG factors into their investment process are likely to see improved financial performance and increased investor interest.

Fundraising and Capital Availability

Private equity fundraising and capital availability in Canada have been affected by the pandemic, with some firms struggling to raise funds due to economic uncertainty. However, the market has been showing signs of recovery, with several firms successfully raising capital in the first half of 2022.

According to Private Equity International, capital raised by private equity funds in Canada dropped to $337 billion as of June 2022, from $459 billion in the same period last year. This includes closed-end funds, co-investments, separately managed accounts, and joint venture vehicles. Despite the decline, several firms have been successful in raising capital, including Brookfield Asset Management, which raised $12 billion for its latest infrastructure fund.

The Canadian Venture Capital and Private Equity Association (CVCA) reports that Canadian private equity and venture capital firms raised $5.3 billion in Q2 2022, up from $4.3 billion in Q1 2022. The report also highlights that the number of deals and the amount of capital invested in Canadian private equity have been increasing over the past few years.

The availability of capital for private equity firms in Canada has also been affected by the pandemic. However, firms with strong track records and a good reputation in the market have been able to secure funding. The CVCA reports that there has been a shift towards larger deals, with the average deal size increasing to $38 million in Q2 2022, up from $23 million in Q1 2022.

Despite the challenges posed by the pandemic, private equity firms in Canada remain optimistic about the future. The CVCA reports that the industry has been showing signs of recovery, with firms actively seeking new investment opportunities and investors showing interest in private equity.

In summary, private equity fundraising and capital availability in Canada have been impacted by the pandemic, but the market has been showing signs of recovery.

While some firms have struggled to raise funds, others have been successful in securing capital. Firms with a strong track record and reputation in the market have been able to secure funding, and there has been a shift towards larger deals. Despite the challenges, private equity firms in Canada remain optimistic about the future.

Private Equity News Canada Overview: Market Competition and Valuations

Private equity firms in Canada are facing increasing competition in the market. This is due to a number of factors, including a growing number of players in the industry, as well as a rise in the amount of capital available for investment.

As a result, firms are finding it more challenging to find attractive investment opportunities at reasonable valuations.

In addition to increased competition, valuations have also been a concern for private equity firms in Canada. High valuations have made it more difficult for firms to generate attractive returns on their investments.

This has led to a shift in focus towards smaller deals and add-ons, as well as a greater emphasis on operational improvements and cost-cutting measures to boost returns.

Despite these challenges, private equity activity in Canada remains strong. In 2022, Canadian PE deals reached a record high of CAD $36 billion, with the total value of deals by financial investors representing a 28% increase over 2020 levels.

Private equity firms are also continuing to raise significant amounts of capital, with fundraising reaching CAD $8.5 billion in 2022.

To stay competitive in the market, private equity firms are adopting a range of strategies.

These include targeting niche industries and geographies, as well as leveraging technology and data analytics to identify attractive investment opportunities.

Firms are also increasingly partnering with other investors, including family offices and sovereign wealth funds, to pool resources and share risk.

Overall, the private equity market in Canada is expected to remain competitive in the coming years, with valuations likely to remain a key concern for firms. However, firms that are able to adapt to the changing market conditions and adopt innovative strategies are likely to continue to generate attractive returns for their investors.

Private Equity Deals

Private equity deals in Canada have been experiencing a slowdown in recent times, with a drop in values but a rise in volumes. In Q1 2021, Canada's buyout and private equity market saw C$6 billion deployed to 145 deals, according to final data from Refinitiv. This trend is expected to continue into the future.

Mergers and Acquisitions

Mergers and acquisitions (M&A) have been a popular avenue for private equity firms to expand their portfolios. One notable example is the acquisition of the Canadian company, Care Bears, by IVEST Consumer Partners. IVEST bought the rights to the iconic children's brand in 2022, adding it to their growing portfolio of consumer goods companies.

Exits

Exits are another important aspect of private equity deals. Private equity firms aim to exit their investments at a profit, and there are several ways to do this. One common exit strategy is through an initial public offering (IPO), where the portfolio company goes public and the private equity firm sells its shares. Another exit strategy is through a sale to another company, either strategic or financial.

One recent example of an exit is the sale of Canadian company, A&W Food Services of Canada Inc., by its private equity owners. In 2023, the company was sold to a strategic buyer, Inspire Brands, for an undisclosed amount. This sale allowed the private equity owners to exit their investment, realizing a profit.

In conclusion, private equity deals in Canada are experiencing a slowdown in values but a rise in volumes. M&A and exits are important aspects of private equity dealmaking, and private equity firms use various strategies to exit their investments at a profit.

Role of Financial Institutions and Family Offices

Financial institutions and family offices play a significant role in private equity in Canada. They provide various services that help private equity firms grow and succeed. Financial institutions offer a range of services, including financing, investment banking, and advisory services. They also provide capital to private equity firms, enabling them to invest in companies and grow their portfolios.

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Family offices, on the other hand, are private wealth management firms that manage the assets of high-net-worth families.

They invest in private equity as a way to diversify their portfolios and generate higher returns. Family offices typically invest in private equity funds or co-invest alongside private equity firms.

Both financial institutions and family offices are essential to the growth of private equity in Canada. Financial institutions provide the necessary capital and services that private equity firms need to succeed, while family offices provide a stable source of capital and diversification for their clients.

Private equity firms in Canada also rely on financial institutions and family offices for their expertise. Financial institutions have a wealth of knowledge and experience in the financial industry, which they can share with private equity firms. Family offices, on the other hand, have a deep understanding of their clients' needs and investment goals, which they can use to guide their investments in private equity.

In recent years, there has been a growing trend of family offices investing directly in private companies, bypassing private equity firms altogether. This trend has been driven by a desire for greater control over investments and a desire to avoid the fees associated with investing in private equity funds. However, many family offices still prefer to invest in private equity funds, as they provide access to a broader range of investments and expertise.

Overall, financial institutions and family offices play a critical role in private equity in Canada. They provide the necessary capital, expertise, and services that private equity firms need to succeed, while also providing diversification and stable sources of capital for family offices.

Impact of the Pandemic on Canadian PE

The COVID-19 pandemic has had a significant impact on the private equity (PE) industry in Canada. The disruption caused by the pandemic has resulted in a slowdown in deal activity, as investors and companies alike have become more cautious. Face-to-face meetings with investors and management teams have been impeded, and market volatility has increased, making it more difficult to execute deals.

According to a report by the Canadian Venture Capital and Private Equity Association (CVCA), Canadian VC and PE markets returned to pre-pandemic levels in the first half of 2022, with PE investment almost doubling. However, the report also noted that the pandemic has created new risks for the industry, including supply chain disruptions, changes in consumer behaviour, and increased regulatory scrutiny.

PE firms are seeing two key developments as business plummets amid the COVID-19 pandemic. First, funds are working more closely with their portfolio companies to manage the business. Second, the economic fallout is disrupting the deal pipeline throughout the market. In reality, not all business is plummeting.

The pandemic has also led to changes in the types of deals that are being done. For example, there has been a shift towards healthcare and technology investments, as these sectors have been less affected by the pandemic than others. On the other hand, sectors such as hospitality, travel, and retail have been hit hard, and deals in these areas have become riskier.

Overall, the pandemic has created a challenging environment for the Canadian PE industry. However, firms that are able to navigate these risks and adapt to the changing landscape may be well-positioned to take advantage of new opportunities as the economy recovers.

The Future of Private Equity in Canada

Private equity (PE) in Canada is expected to continue its growth trajectory, with a focus on innovation and new technologies. According to a report by the Canadian Venture Capital and Private Equity Association (CVCA), PE deal count is up by 9% year-to-date from the same period last year, already surpassing 2021's total annual deal count while 86% of all disclosed PE transactions were in the private markets.

The Canadian private equity industry is also expected to benefit from the country's strong innovation ecosystem. A report by PwC Canada highlights that Canadian private companies are optimistic about the future, with two-thirds of family businesses expecting to see growth in 2021, increasing to 9 out of 10 when looking at 2022. This optimism reflects, at least in part, the successes of many private companies during a time of uncertainty.

However, there are also risks associated with PE investments in Canada. The EY Canada Private Equity Pulse report notes that PE activity has declined from last year's record highs but remains above its pre-pandemic average. PE firms announced deals valued at US$486b in the first half of 2022, representing a decline of 18% from the same period a year ago, and a decline of 9% from the second half of 2021. It's worth noting, however, that 2021 was a record year for PE investments in Canada.

To stay competitive in the global market, Canadian private equity firms will need to continue to focus on innovation and new technologies. The CVCA report highlights that the top sectors for PE investments in Canada in Q3 2022 were information technology, healthcare, and energy. Private equity firms will need to stay up to date with the latest trends and developments in these sectors to remain competitive.

In conclusion, the future of private equity in Canada looks bright, with continued growth expected in the coming years. However, there are also risks associated with PE investments, and firms will need to stay up to date with the latest trends and developments in order to remain competitive. The Canadian innovation ecosystem is a key advantage for the country's private equity industry, and firms that focus on innovation and new technologies are likely to be the most successful in the years to come.

Frequently Asked Questions

What is the current state of the private equity industry in Canada?

The private equity industry in Canada is mature and closely integrated with that of the US. According to a report from Refinitiv, some C$12.2 billion worth of private equity buyout and related investments were announced in the first three quarters of 2022, down 65% from the same period in 2021. However, the industry remains active, and there are plenty of opportunities for private equity firms to invest in Canada.

What are the latest trends and developments in Canadian private equity?

The Canadian private equity industry is constantly evolving, and there are several trends and developments to watch out for. One trend is the increasing focus on environmental, social, and governance (ESG) factors. Another trend is the rise of technology-focused investments, particularly in the fintech and healthcare sectors.

How has the Canadian venture capital landscape evolved in recent years?

The Canadian venture capital landscape has evolved significantly in recent years. According to the Canadian Venture Capital and Private Equity Association, venture capital investment in Canada reached a record high of C$6.2 billion in 2021, up from C$4.7 billion in 2020. The industry is also becoming more diverse, with a growing number of female and minority entrepreneurs receiving funding.

What are some of the top private equity firms operating in Toronto?

There are several top private equity firms operating in Toronto, including Brookfield Asset Management, Onex Corporation, and Birch Hill Equity Partners. These firms have a strong track record of investing in a range of industries, from real estate and infrastructure to healthcare and technology.

What are the key takeaways from the Canadian Private Equity Summit?

The Canadian Private Equity Summit is an annual event that brings together industry leaders to discuss the latest trends and developments in Canadian private equity. Some key takeaways from the 2022 summit include the importance of ESG factors in investment decisions, the growing role of technology in the industry, and the need for private equity firms to adapt to changing market conditions.

How do Canadian private equity firms compare to their international counterparts in terms of performance and ranking?

Canadian private equity firms are generally regarded as being on par with their international counterparts in terms of performance and ranking. According to a report from Preqin, Canadian private equity funds have consistently outperformed global benchmarks over the past decade. However, there is always room for improvement, and Canadian firms are constantly looking for ways to stay competitive in the global market.

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