2017: Rebound Year for Canadian Private Equity; Increase In Mega Deals Drives Canadian VC

March 6, 2018 | By: Jon Jackson

Canadian venture capital investment grew 11% in 2017 with $3.5B invested over 592 deals compared to the $3.2B invested over 534 deals in 2016. This is the latest increase, following years of steady investment growth for Canadian VC across the entire spectrum of stages in the ecosystem. Canadian venture capital investment is now approximately double the size it was just five years ago.

The record number of 15 mega deals ($50M+) included three deals over $100M. Building on the 10 mega deals in 2016, investors continued to scale high quality maturing Canadian startups. The three deals in 2017 over $100M were in Quebec-based companies and included the $207M Series D in Montreal-based Lightspeed POS Incorporated from a syndicate including Caisse de dépôt et placement du Québec (CDPQ), iNovia Capital and Teralys Capital; the $141M Series A financing of Montreal-based Element AI with participation from Real Ventures; and, the $128M Series C of Quebec City-based LeddarTech with participation from Fonds de solidarité FTQ.

Activity in the smaller end of the deal spectrum also saw healthy growth, showcasing strong support for entrepreneurs at very early stages. There were 162 small deals (<$500k), a 33% increase compared to 2016 (122 deals); there was a 6% year-over-year increase in deals between $1M-$5M.

“The excitement many of us are feeling in the Canadian venture capital ecosystem is being validated by the data,” said Mike Woollatt, CEO, CVCA. “We’re seeing historic investment in cutting-edge businesses across the country underlining the confidence in Canadian innovation.”

Information communications technology (ICT) companies received the majority (71%) of total VC dollars invested ($2.5B over 375 deals) while life science companies received a fifth of the dollars invested ($696M over 105 deals).

2017 also saw a rebound from last year’s exit slump with 39 exits totalling $1.7B (compared to only 33 exits totalling $0.6B in 2016).

Total PE investment in 2017 saw a dramatic year-over-year rise to $26.3B (compared to $13.8B in 2016) over 603 deals (compared to 542 deals in 2016); an incredible 90% year-over-year surge and results in a return to historically high levels seen in 2014 and 2015.

There were 14 deals in the $500M+ category (totalling $15.7B), doubling the seven large deals (totalling $7.1B) in 2016. Notable $1B+ deals this year included the $4.8B privatization of Toronto-based DH Corporation in Q2, the $2.2B acquisition of Montreal-based Garda World Security Corporation in Q1 and the $1.1B private placement in Montreal-based Osisko Gold Royalties Limited by La Caisse de dépôt et placement du Québec (CDPQ) and Fonds de solidarité FTQ in Q3.

“We continue to see increasing Canadian private equity investment in the industrial and manufacturing and ICT sectors,” said Mike Woollatt, CEO, CVCA. “The increase represents the continued evolution of the global economy and 2017 levels are a testament to Canada’s healthy investment climate.”

Almost a fifth (19%) of all PE deal deals in 2017 were closed in the industrial and manufacturing sector with information communications technology (ICT) companies receiving the second largest share at 16%. Since 2013, both these sectors have seen a dramatic increase in deal flow, with the industrial and manufacturing sector seeing a 216% increase while ICT experiencing a 263% increase in deal activity.

89 deals totalling $6.7B (15%) of all PE deals in 2017 were made in Montreal-based companies, while both Calgary-based (54 deals totalling $3.1B) and Montérègie-based (53 deals totalling $0.5B) companies each receiving a 9% share.

Fuelled by a high valuation environment, the exit floodgates opened in 2017. There have been more than twice the number of PE exits (149) compared to only 65 last year. There were six IPOs, including the $445M dual listing of the iconic Canada Goose on (TSE/NYSE: GOOS), the $300M TSX-debut of Jamieson Laboratories Ltd (TSE: JWEL), the $200M IPO of Neo Performance Materials (TSE: NEO) and the $200M IPO of Roots Corp (TSE: ROOT)

Canadian Private Equity Highlights:

  • Private equity activity climbed 12% compared to the same quarter last year ($4.2B to $4.7B).
  • This brings the total PE dollars invested in 2017 to $26.3B over 603 deals, a 90% spike compared to the $13.8B over 542 deals last year and a 15% increase over the 2015 total of $22.9B over 425 deals.
  • The number of $500M+ deals almost doubled to $15.7B (14 deals) accounting for 60% of total dollars invested in 2017 (compared to only $7.1B (7 deals) in 2016). These included the following three $1B+ mega-deals:
    • The $4.8B privatization of Toronto-based DH Corporation, the $2.2B acquisition of Montreal-based Garda World Security Corp. and the $1.1B private placement in Montreal-based Osisko Gold Royalties Ltd. by Caisse de dépôt et placement du Québec (CDPQ) and Fonds de solidarité FTQ.
    • Deal activity in all small-to-mid market segments have exceeded last year’s totals:
    • 66 deals between $25M-$100M have surpassed the 2016 total (49) by 35% with a total value of $3.2B.
    • 28 deals between $100M-$500M have doubled the 2016 total (14) with a total value of $5.9B.
  • 15% (89 deals totalling $6.7B) of all PE deals went to Montreal-based companies, with Calgary- and Montérègie-based companies each receiving a 9% share (54 deals totalling $3.1B and 53 deals totalling $0.5B respectively). Toronto-based companies received a 7% share of deal flow (44 deals totaling $5.4B).
  • Almost a fifth (19%) of PE deals this year have been closed in the industrial & manufacturing sector with ICT companies receiving the second largest share (16%); both these sectors have been receiving a steadily increasing share of PE deal flow since 2013 when industrial & manufacturing captured only a 14% share and ICT a 10% share. Inversely, the oil and gas sector deal flow share has dropped from 19% in 2013 to 7% in 2017.
  • Six IPOs including the $445M dual listing of the iconic Canada Goose on (TSE/NYSE: GOOS), the $300M TSX-debut of Jamieson Laboratories Ltd (TSE: JWEL), the $200M IPO of Neo Performance Materials (TSE: NEO) and the $200M IPO of Roots Corp (TSE: ROOT).
  • There have been more than twice the number of PE exits (149) compared to 65 last year.
    • Secondary buyouts have contributed to almost half (46%) of the $7.4B in total exit value.

Canadian Venture Capital Highlights

  • $739M was invested over 153 deals in the fourth quarter. This brings the total invested in 2017 to $3.5B over 592 deals, surpassing both last year’s deal count (534) and total invested ($3.2B) by 11%.
  • The average deal size ($5.98M) remains unchanged from last year’s high-water mark since 2013 ($5.19M).
  • The top 10 VC deals accounted for 27% of total dollars disbursed in 2017, slightly below the 31% share of 2016 dollars invested.
  • Building on the 10 $50M+ mega-deals (including four $100M+ deals) from the previous year, the ecosystem is continuing to attract larger rounds in later stages, underlining the quality of maturing Canadian start-ups. In 2017, there were a record number of $50M+ mega-deals (15), including 3 deals over $100M in the following Quebec-based companies:
    • Montreal-based Lightspeed POS Inc. raised a record $207M Series D round from a syndicate including CVCA members Caisse de dépôt et placement du Québec (CDPQ), iNovia Capital Inc. and Teralys Capital.
    • Real Ventures participated in Montreal-based Element AI’s $141M Series A round
    • Quebec City-based LeddarTech closed its $128M series C round from Fonds de solidarité FTQ.
  • Activity in the smaller end of the deal spectrum was robust, illustrating strong support for entrepreneurs at very early stages:
    • There were 162 small deals (<$500k), 33% more than last year (122). These deals averaged $200K.
    • There were 183 deals between $1M-$5M (totalling $468M), 6% more than the 172 deals (totalling $362M) in 2016. The average deal size in this category increased 22% from $2.1M to $2.6M.
  • $1.4B or 40% of dollars invested this year were in Ontario-based companies with 37% ($1.3B) going to Quebec-based companies and 18% ($646M) to BC-based companies.
  • Montreal-based companies received 28% ($983M over 132 deals) of total dollars disbursed, with Toronto-based companies receiving a 26% share ($907M over 146 deals) and Vancouver-based companies a 14% share ($513M over 77 deals).
  • ICT companies grabbed the lion’s share (71%) of total dollars invested in 2017 ($2.5B over 375 deals); this compares to a 61% share in 2016, 58% in 2015, 64% in 2014 and 56% in 2013.
  • Life sciences companies received a fifth of dollars invested ($696M over 105 deals) which is only just below the 23% share from 2016 ($733M over 104 deals).
  • The market for exits rebounded from last year’s slump with 39 exits totalling $1.7B (compared to only 33 exits totalling $0.6B in 2016). Exits greater than $100M included:

THE FULL 2017 VC & PE CANADIAN MARKET OVERVIEW

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