CVCA Intelligence

Q3 2018: VC’s Two‑Year Streak Slows In Q3; Private Equity Debt Flourishing Despite A Slumping Overall Market

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VC: The CVCA anticipates 2018 to close similarly to last year

$652M was invested over 127 deals in Q32018; bringing the year-to-date total venture capital investment to $2.4B (12% lower than Q32017). While the quarter was slower than Q32017, the CVCA anticipates 2018 to close similarly to last year.

The average deal size in Q3 was $5.1M; a 22% decrease from the previous quarter and 3% lower compared to the average deal size between 2013 to 2017 ($5.3M). YTD, the top 10 deals have totalled $724M; representing a 30% share of total dollars invested.

There were two mega-deals ($50M+) in Q3, bringing the number of mega-deals so far in 2018 to nine totalling $0.7B. The two mega-deals in Q3 included Montreal-based Hopper Incorporated’s $129M Series D, led by OMERS Ventures and included participation from BDC IT Venture Fund, Brightspark Ventures and Caisse de dépôt et placement du Québec and, Toronto-based Kira Systems with a $70M minority foreign investment.

Information and communication technology (ICT) companies pulled in 69% of total dollars invested YTD ($1.6B over 280 deals), with life sciences receiving 12% ($285M over 66 deals) and cleantech receiving 10% ($228M over 36 deals).

There have been 20 YTD exits totalling $797M (in many of these transactions, investors did not disclose exit values). Strong corporate balance sheets and access to debt continued to drive the M&A markets and incentive behind the VC exit activity. The largest exit involved the acquisition of a BC Tweed joint venture by Canopy Growth for $347M with participation from Avrio Ventures Management Corporation.

PE: Four out of every 10 deals in the $10M average deal size categorized as private equity debt

$1.9B, the lowest amount since Q32013, was invested over 112 deals in Q32018, bringing the year-to-date total to $16.5B over 415 deals; a 24% decline from the $21.7B invested in the first three quarters last year. The demand from corporations for debt continued this quarter, with four out of every 10 deals in the $10M average deal size categorized as private equity debt.

There were no mega-deals in Q32018. YTD, there have been two mega-deals totalling $10.1B; accounting for 61% of all private equity investment. The two mega-deals included the $5.1B recapitalization of Ontario-based GFL Environmental Incorporated by a consortium that included Ontario Teachers Pension Plan (OTPP), and the stake in Husky Injection Moulding Systems Limited sold by OMERS Private Equity to a U.S.-based PE firm via buyout for $5B.

A little over one fifth of PE deals this year have been closed in the industrial and manufacturing sector. Information and communications technology (ICT) companies received the second largest share of PE deals flow, while both consumer and retail as well as the business products and services sectors pulled in a 10% share each. Of note, PE investment in the life sciences sector has already surpassed the total from last year ($440M over 34 deals).

The pace of private equity exits slowed with only 61 exits – four of which were IPOs – (totalling $10.6B), compared to 2017 which saw 151 exits (totalling $11.3B).

View The Full Q32018 VC & PE Canadian Market Overview Here