Q1 2018: Single PE Mega-Deal Dominates Quarter With All Other Segments Slowing; Robust VC Investment In Q1 Follows Two Back-To-Back $1B Quarters In 2017
The $5B buyout of Husky Injection Molding Systems Ltd. accounted for three-quarters of total PE investment in Q1 2018
Canadian private equity investment activity experienced a slower quarter in Q1 2018 with $6.5B invested over 137 deals. $5B of that total was from the buyout of Husky Injection Molding Systems Limited with participation from CVCA member OMERS Private Equity Incorporated. This deal aside, there is a significant cooling in activity in the first quarter of 2018, with no deals between $500M-$1B and only 4 deals between $100M-$500M.
61% of all deals in the first quarter of the year were in the small end of the market segment (deals less than $25M) which was equal to last year’s share. Only a 7% share of deals were closed in the small-to-mid market ($25M-$100M), compared to the 11% share in 2017.
21% of private equity deals in Q1 2018 were closed in the industrial and manufacturing sector, with 15% in the information and communications technology (ICT) sector.
“With valuations continuing to climb, the larger buyout side of Canada’s private equity activity is experiencing a slowdown,” said Mike Woollatt, CEO, CVCA. “While there is still a lot of activity on the growth equity side, many buyout firms appear focused on selling versus buying in the Canadian market.”
The pace of private equity exits also slowed, with only 24 exits in the first quarter of the year (totalling $8.7B) compared to 2017 with 152 exits (totalling $10.8B).
$690M invested over 139 VC deals in Q1; 6% higher than Q1 2017
2017 was even better than previously reported due to a few material last-minute deals that were only reported in early 2018. These deals included the $280M Enertech and $51M Wattpad mega-deals. Following two consecutive billion-dollar quarters in Q3 and Q4 2017 venture capital investment in Canada experienced another strong quarter with $690M was invested over 139 deals — a 6% increase compared to the $649M invested in Q1 2017. The last three quarters are evidence of a thriving VC investment climate and the CVCA expects the momentum to continue through 2018.
There were three $50M+ mega-deals in Q1 2018 which accounted for a 34% share of the total investment this quarter. Toronto-based ecobee Incoporated closed a $100M series C from an investor syndicate that included participation from Relay Ventures; Toronto-based WealthSimple Financial Incorporated raised $67M in a new round of financing from Montreal-based Power Financial Corporation; and, Vancouver-based Hootsuite Media closed a $65M financing from CIBC Innovation Banking.
“The Canadian venture capital ecosystem continues to capitalize on Canada’s strategic advantage in a number of areas, resulting in very competitive returns in many sectors,” said Mike Woollatt, CEO, CVCA. “In order for this trend to continue, we will be working hard with government and other stakeholders to ensure Canadian regulation and taxes are competitive to help foster an ongoing competitive edge.”
The exit environment for venture capital in Canada continued to rebound from last year with 11 undisclosed exits in the first quarter of the year.
Information and communication technology (ICT) companies captured the majority of Q1 2018 investment with 61% of total dollars invested ($423M over 87 deals) with cleantech companies receiving a 19% share ($132M over 16 deals).