PRELIMINARY LOOK: H1 2020 VC & PE Canadian Market Overview
The fear that Canadian VC and PE activity would drastically be impacted by the COVID-19 pandemic was not entirely realized in Q2. The carry forward inertia of deal due diligence cycles that started last year partially explains this. Given the lagging nature in quarterly valuation and reporting in this asset class the remaining half of 2020 may show signs of weakening in the face of this months-long economic disruption. The full analysis of Canadian Q22020 private capital markets will be published on August 26th.
Canadian Venture Capital
According to preliminary data, Q2 VC investment was just slightly north of $1B over 82 deals. This is a 15% increase compared to the $901M invested in the previous quarter but a 23% decline compared to the same quarter last year ($1.4B). This is the eighth time since 2017 that the $1B threshold has been surpassed, a testament to the ongoing strength of Canadian private capital markets. VCs took more defensive positions, writing larger cheques to fewer portfolio companies in Q2 to weather uncertainty; only 82 deals closed in the second quarter, representing a 35% decline compared the average quarterly deal flow since 2017 (126 deals). The YTD VC activity is $1.9B over 201 deals is down from the $2.2B over 267 deals in the first half of 2019.
There were 8 VC-backed exits in Q2 including Canadian life sciences unicorn Repare Therapeutics which completed its IPO on NASDAQ valued at $1.5B CAD.
CVCA members Fonds de solidarité (FTQ), Amplitude Ventures and Versant Ventures were all investors in Repare.
Canadian Private Equity
According to preliminary data, $4B was invested over 72 PE deals in Q2 which was 19% lower than $4.9B in Q1 but 31% higher than the $3B in the same quarter last year. The 72 PE deals that closed in the second quarter was less than half the quarterly average since 2017 (155 deals). Q2 activity was boosted by the $2.7B secondary buyout of New Brunswick-based Xplorenet Communications Inc. from Northleaf Capital Partners by a US private equity firm. In addition to the four Q1 deals between $500M-$1B, deal flow in the larger end of the market ($500M+) accounted for 68% of the $8.8B YTD PE dollars invested. In the smaller end of the market, there were only 120 YTD deals less than $25M that closed this year, which will fall far short of last year’s mark (443 deals) if this pace continues for remainder of the year.
There were 4 PE-backed exits in Q2 bringing the YTD total to 10.