Q4 2018: Canadian VC Investment Propelled by Two $1B Quarters in 2018; Two PE Mega‑Deals in Q4 Brings 2018 Total to $22.3B
Canadian VC funded more new and later stage companies in 2018, indicating robust ecosystem; Private equity investors support four IPOs in 2018
Canadian Venture Capital
Canadian venture capital investment continued its momentum in 2018 following years of steady investment growth across the entire spectrum of stages in the ecosystem. $1.3B was invested over 165 deals in Q42018, bringing the year-end total VC investment to $3.7B — only 2% lower than 2017. There was a total of 15 mega-deals ($50M+) which accounted for a 30% share of total dollars invested. The average deal size in 2018 was $6.1M, a 3% decrease from last year but a 16% increase compared to the $5.3M between 2013 – 2017.
Included in the 15 mega-deals in 2018 was Ottawa-based Assent Compliance’s $161M growth equity infusion from Warburg Pincus with previous investors including First Ascent Ventures, Montreal-based Hopper Inc.’s $129M series D round from a syndicate of investors which included BDC IT Fund, Brightspark Ventures, Caisse de dépôt et placement du Québec (CDPQ) and OMERS Ventures Management Inc, and Montreal-based Milestone Pharmaceuticals Inc.’s $103M series D round from an investor syndicate that included BDC Healthcare Fund and Fonds de solidarité FTQ.
“We are seeing more VC flowing into more Canadian companies at all stages which is an important metric for the health of the sector,” says Kim Furlong, Chief Executive Officer, Canadian Venture Capital and Private Equity Association. “A healthy mix of new growth funds, increased interest from international investors and government support through VCCI is helping to fuel the momentum.”
There were no surprises with sector distribution in 2018, with investment falling in line with historical trending. Information and communications technologies (ICT) companies secured a little over two-thirds of total dollars invested in 2018 ($2.6B over 386 deals), with life sciences receiving a 17% share ($630M over 101 deals). Cleantech companies received a 7% share ($264M over 47 deals).
The number of M&A exits in 2018 kept pace with 2017 (34 compared to 35), but the average exit value dropped by a third to $24.4M. CVCA member, Avrio Ventures Management Corporation, was an integral player in the largest VC exit in 2018, the $347M acquisition of the BC Tweed joint venture by Canopy Growth.
Canadian Private Equity
Private equity investment in Canada bounced back in Q4 with dollars invested tripling from Q3 to $6B. This brings the 2018 year-end total to $22.3B over 543 deals — down 15% from the $26.4B invested in 2017 but 62% higher than the $13.8B invested in 2016.
There were two mega-deals ($1B+) in Q4 which brought the year-end tally to four deals worth $14.4B; 65% of total PE investment— a share that has doubled compared to the last three years. The combined value of mega-deals in 2018 exceeded the sum of all other PE deals. This hasn’t been seen since 2014 with the $11.8B acquisition of Tim Hortons.
The largest disclosed mega-deals in 2018 included the $5.1B recapitalization of GFL Environmental Inc. by a syndicate that included Ontario Teachers’ Pension Plan (OTPP), the $5B secondary sale of Husky Injection Molding Systems Ltd. by OMERS Private Equity Inc., and the $2.7B privatization of Mitel Networks Corp. by an investor group led by US-based Searchlight Capital Partners.
“Canada continues to be an attractive source of investment opportunities for both domestic and international investors,” says Kim Furlong, Chief Executive Officer, Canadian Venture Capital and Private Equity Association. “We will watch to see if the mega-deal trend in Canadian PE experienced last year will continue in 2019 or if we see a return to more conservative sizing.”
Just over one-fifth (22% or 118 deals) of PE deals in 2018 were in the industrial and manufacturing sector with information and communications technologies (ICT) companies receiving the second largest share (16% or 88 deals). The consumer and retail sector took an 11% share of deal flow (59 deals).
PE exits slowed in 2018 with only 82 exits including four IPO exits (worth $11.1B) compared to 2017 with 149 exits (totalling $11.6B). The companies that exited through IPO include Tilray, based in BC, with a market cap of $2.1B, Quebec-based IPL Inc., backed by Caisse de dépôt et placement du Québec (CDPQ) and Fonds de solidarité (FTQ) with a market cap of $709M, Ontario-Based MAV Beauty Brands with a market cap of $571M, and ONCAP-backed, BC-based Pinnacle Renewable Energy Inc. with a market cap of $370M.
