Private equity shrinks in 2016
CANADA SAW PLUNGE IN ENERGY DEALS AND ONLY A SINGLE IPO, PITCHBOOK SAYS
Canadian private- equity activity is on pace for a major contraction in 2016, with a 24- per- cent year- over- year decrease in value and a 19- per- cent drop in the number of transactions, according to a new report.
Capital markets research firm Pitchbook says the decrease — private- equity deals in 2016 currently stand at $31 billion in total value, as opposed to $ 49 billion last year — follows similar decreases in other regions.
At the same time, the much smaller venture capital market hit a Canadian record high this year, with the $ 2.11 billion deployed in deals to the end of October already topping the total output for 2015.
Private equity was hit hard in large part due to continued volatility in the energy sector: Only 18 energy deals closed through the end of October for a total of $ 3.1 billion, which is a shadow of 2015, when 36 transactions totalled $7.1 billion.
The most active private- equity investors in Canada in 2016 were Hellman & Friedman LLC, PennanrPark Investment Corp. and Thomas H. Lee Partners LP, which each i nvested in three deals.
Private-equity deal flow did see growth in the second and third quarters of this year, as the third quarter saw $ 13 billion across 71 transactions, but deal- making has slowed to start in the fourth quarter, and PitchBook’s analysts said they expect 2016 to finish at the lesser pace.
Canada this year has mirrored U. S. exit trends, as private-equitybacked exits are set to decline 16 per cent compared to 2015.
Through the first 10 months of the year, only 65 sponsor- backed exits were completed, significantly less than the 103 completed in 2015 and the 87 completed in 2014.
However, the limited number of exits has not diminished the total value of activity in Canada, which reached $ 26 billion at the end of October. That’s more than the $ 18 billion in exit transactions through all of 2015.
While the overwhelming majority, 74 per cent, of privateequity activity this year has occurred through corporate acquisitions, Canada saw only a single initial public offering.
Toronto- based apparel manufacturer Canada Goose Inc., with backing from Bain Capital, is said to be planning an IPO for next year after making gains from a weakened Canadian dollar.
Many retail companies, particularly l uxury brands, have been able to maintain cost structures under the l oonie while selling their products abroad in stronger currency markets, which bumps up their bottom lines.
Going into 2017, Playbook says one concern for Canada is how the Trump administration will handle relationships with its allies abroad.
“Canadian public pensions essentially pioneered the direct investment strategy that is now commonly used by LPs in the United States and around the world,” said Nizar Tarhuni, a Pitchbook senior analyst. “What’s more, a favourable tax position currently allows Canadian public pensions to invest in U. S. companies without paying capital gains taxes on either side of the border.
“However, if the incoming U. S. administration successfully renegotiates trade deals with its North American partners, crossborder PE activity could be negatively affected.”