Q3 2019 YTD VC & PE Canadian Market Overviews: Venture Capital Surpasses CAD $2B Mark; Canadian Private Equity Investment Continues Downward Trend
CANADIAN VENTURE CAPITAL
CORRECTION NOTICE: CVCA’s Q3 2019 YTD VC Canadian Market Overview was published on November 21, 2019. The CVCA has corrected an error in which BDC IT Ventures was attributed to Verafin Inc.’s CAD $515 growth financing round. The involvement was actually from BDC Co-Investments. CVCA apologies for this error and links to the report are have been replaced.
Q3 Venture Capital Surpasses CAD $2B Mark; Largest Quarter On Record
2019 YTD VC investment reaches CAD $4.7B driven by record-breaking number of mega-deals
A stunning CAD $2.4B was invested in Q3 — the highest amount since 2013 and almost 80% higher than the CAD $1.3B in the second quarter of 2019.
A record-breaking increase in mega-deals ($50M+) drove the investment performance so far in 2019. There were 12 mega-deals in Q3, bringing the YTD total to 23, accounting for more than half of all dollars invested.
Of the 23 mega-deals, nine deals exceeded CAD $100M and three surpassed CAD $200M which included:
- John’s, Newfoundland-based Verafin Inc.’s CAD $515M growth financing with involvement from BDC Co-Investments, Information Venture Partners, Northleaf Capital Partners and Teralys Capital;
- Vancouver-based Clio’s $332M series D round from US investors; and
- Montreal-based Element AI’s $200M series B round from a syndicated which included Caisse de dépôt et placement du Québec (CDPQ), BDC Capital Co-Investments and Real Ventures.
“In the past nine months, Canadian venture capital investment has surpassed all previous milestones,” said Kim Furlong, Chief Executive Officer, Canadian Venture Capital and Private Equity Association. “The focus on growing Canadian companies has never been more evident than what we are currently seeing in the market.”
So far this year, the top three sectors receiving VC dollars information and communications technology (ICT) taking 66% of total VC dollars invested (CAD $3.1B over 223 deals), followed by life sciences receiving a 19% share (CAD $886M over 77 deals) and cleantech companies taking a 6% portion (CAD $262M over 23 deals).
VC-backed exits are tracking towards exceeding 2018’s performance (35 exits totalling CAD $978M). So far in 2019, there have been 32 completed exits totalling CAD $3B which included two VC-backed Montreal-based companies:
- Lightspeed POS Inc. (TSE: LSPD) completed the largest IPO exit since 2017, listing with a market cap of $1.1B; and
- Milestone Pharmaceuticals Inc. (NASDAQ: MIST) closed its IPO with a market cap of $468M.
CANADIAN PRIVATE EQUITY
Canadian Private Equity Investment Continues Downward Trend
Public market volatility pushing companies private
CAD $1.8B was invested over 94 deals in the third quarter of 2019.
The majority of PE activity at 66% remains in the mid market, with deals of CAD $25M and under. There has been one single CAD $1.4B mega-deal (CAD $1B+) so far in 2019 and one deal at CAD $653M with the remainder of PE deals (with disclosed values) below CAD $500M. The largest disclosed private equity deals included:
- The $1.4B mega-buyout by Thomas Bravo LLC of privately held London-based Autodata Solutions Inc.;
- The $653M recapitalization of Montérégie-based McInnis Cement Inc. by Caisse de dépôt et placement du Québec (CDPQ); and
- The $445M acquisition of Toronto-based Gluskin Sheff + Associates Inc. by ONEX Corporation.
“While the middle market remains traditionally strong for Canadian PE, the valuation climate continues to be apparent in performance numbers,” said Kim Furlong, Chief Executive Officer, Canadian Venture Capital and Private Equity Association. “We are, however, noticing an underwhelming public market environment and an increase of companies being taken private (such as WestJet and HBC). These conditions are providing opportunities for public companies to refocus on business imperatives.”
A record proportion of deal flow (25%) went into companies in the industrial and manufacturing sector – three per cent higher than 2017 and five per cent higher than last year. The information and communications technology (ICT) sector maintained its pace with a 17% share.
The pace of PE exits also slowed with only 23 exits (all M&A) which totaled CAD $1.1B. By comparison, there were 87 exits totaling CAD $12.2B in 2018. Included in the 23 exits so far this year:
- The $753M corporate acquisition of Toronto-based Intelex Technologies Inc. from HarbourVest Partners, LLC and JMI Equity; and
- The $260M acquisition of Langley-based 4Refuel Canada LP by Finning International Inc.