Barriers to Private Equity Investment in Small and Medium-Sized Businesses Summary of Discussions

Barriers to Private Equity Investment in Small and Medium-sized Businesses Summary of discussions

April 2019 Table of contents

1. Context 2 A strong increase in the number of ownership transitions 3 Is there a shortage of capital for small private equity deals? 6 Questions discussed at the roundtables 7

2. Summaries of roundtable discussions 8 To what extent is there a shortage of institutional capital for small PE funds? 8 Is demand for small PE investments rising due to ownership transitions? 8 Are there unmet needs at the lower end of the PE market? 9 Are pledge funds and search funds a default solution or the right answer? 9 How important are investment readiness and matchmaking? 11 Could minority investments be part of the solution? 11 Are there different needs for capital between regions? 11

Appendix 1: Roundtables participants 12 1. Context

In the summer of 2018, BDC partnered with the Canadian Venture Capital & Private Equity Association (CVCA) to organize three industry roundtables to assess unmet needs for private equity (PE) investments among small and medium-sized businesses and how BDC might help to address these needs. The meetings in Calgary, Toronto and Montreal were held in the context of demographic and industry trends that may be leading to a shortage of PE for small to medium-sized businesses.

Over the last two decades, the Canadian private equity (PE) market for growth capital and buyouts has grown appreciably in terms of number of deals, amounts invested and the number of active Canadian and foreign funds (See Graph 1). Returns from this asset class have been very positive,1 leading to a steady increase in fund size and number of funds raised.

Graph 1: PE investment activity in Canada, 2001–2017 Graphique 1 : Activité du marché canadien $ in billions, number of PE deals du capital-investissement (CI), 2001-2017 en milliards de $, nombre de transactions de CI 35 Deal value 33.7 31.1 Deal count 500 450 35 Valeur de la transaction 33,7 31,1 Nombre de 500 30 28.2 transactions 400 450 30 28,2 25 24.2 350 400 24,2 300 25 350 20 18.6 15.9 17.7 300 250 20 18,6 15,9 15 12.8 17,7 12.8 200 250 10.0 11.8 10.9 10.5 15 12,8 12,8 200 10 150 10,0 11,8 7.9 10,9 10,5 6.0 100 150 5.3 10 7,9 5 3.4 50 5,3 6,0 100 5 3,4 0 0 50 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 0 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Note: Canadian PE includes the following types of deals: control stake, minority stake, add-on, mezzanine, private investment in public equity, restructuring and other. The number of PE deals Remarque : Le capital-investissement (CI) canadien comprend notamment les types de transaction suivants : includes disclosed and undisclosed deals. participation de contrôle, participation minoritaire, acquisition, mezzanine, investissement privé dans des Source: Thomson Reuters. sociétés ouvertes, restructuration. Le nombre de transactions de CI comprend les transactions divulguées et les transactions non divulguées. Source : Thomson Reuters. While the global financial crisis of 2008–10 badly hurt the PE market, it has recovered well in recent years with the numberGraph of deals 2: Age and distribution amounts invested of SME increasing owners insignificantly Canada, 2014 between 2013 andGraphique 2017. 2 : Répartition par âge des propriétaires Despite this strengthening,% of survey some respondents observers believe there continues to be unmet needs for PEde at PMEthe au Canada, 2014 lower end of the market due to the following factors. % des répondants au sondage 47.5% >>An expected strong increase in ownership transitions should raise demand for growth equity and 47,5 % buyout investments, especially among small businesses. >>Institutional investors appear to be withdrawing 26.1%from smaller PE funds because these investments 26,1 % are not large enough to meet their requirements. This may be reducing the supply of capital for 12.7% 11.8% smaller deals. 12,7 % 11,8 % 1.9% 1,9 % <30 30-39 40-49 50-64 ≥65 <30 30-39 40-49 50-64 ≥65 Source: Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises (Ottawa: Statistics Canada, 2014). Source : Statistique Canada, Enquête sur le financement et la croissance des petites et moyennes entreprises (Ottawa : Statistique Canada, 2014). 1 According to the latest available data from Thomson Reuters, as of June 30, 2013, the 10-year horizon return was 14.8% for Canadian private independent buyout and mezzanine funds, and 10.9% for U.S. buyout and mezzanine funds. 2

49,3 % 49,3 % 37,7 % +11.6% 37,7 % +11,6 %

2011 2017 2011 2017

Graph 4: Intention of Canadian SME owners to sell Graphique 4 : Intention des propriétaires canadiens de PME their business to non-family members, 2004–2017 de vendre leur entreprise à des personnes extérieures % of survey respondents à leur famille, 2011-2017 % des répondants au sondage

52,2 % 48,1 % +4.1% 52,2 % 48,1 % +4,1 %

2011 2017

8.3% 8,3 %

33.1% 33,1 % 32.3% 32,3 %

20.8% 20,8 %

59.4% 59,4 % 46.1% 46,1 %

<5 ≥5 <5 ≥5 employees employees employés employés Wind down/sell assets Fermeture/vente des actifs Family succession Relève familiale Sale/transfer outside family Vente/transfert à l’extérieur de la famille Sources: BDC, The Coming Wave of Business Transitions in Canada (Montreal: BDC, 2017); and BDC, Sources : BDC, Vague de transferts d’entreprise en vue au Canada (Montréal : BDC, 2017); What Do BuyersLook for When Purchasing a Business? (Montreal: BDC, 2017). BDC, Que recherchent les acheteurs de PME canadiennes? (Montréal : BDC, 2017).

55.7% 59.7% 65.0% 55,7 % 62.7% 59,7 % 49.1% 65,0 % 62,7 % 49,1 %

38.5% 32.7% 24.0% 21.0% 25.0% 38,5 % 32,7 % 24,0 % 21,0 % 25,0 % <30 30-39 40-49 50-64 ≥65 High growth (≥ 20%) <30 30-39 40-49 50-64 ≥65 Sustained growth (19% to 1%) Croissance élevée (≥20 %) Weak growth (<1% or negative) Croissance soutenue (de 1 % à 19 %) Note: The growth rate shown is the average annual revenue growth rate over the preceding three-year period. Faible croissance (<1 % ou négative) Source: Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises Remarque : Le taux de croissance indiqué est le taux de croissance annuel moyen du chiffre d’affaires (Ottawa: Statistics Canada, 2014). par rapport à la période précédente de trois ans. Source : Statistique Canada, Enquête sur le financement et la croissance des petites et moyennes entreprises (Ottawa : Statistique Canada, 2014).

Graph 8: Participation rate, Canadian PE deals,1 Graphique 8 : Taux de participation, transactions de CI by investor type, 2014–17 canadiennes1 par type d’investisseur, 2014-2017 % = normalized participation rate2 % = taux de participation normalisé2

8% 8 %

8% 8 % 27% 27% 27 % 27 %

42% 46% 42 % 46 %

20% 20 % 47% 47 %

42% 42 % 22% 22 % 18% 18 % 24% 24 % 3% 3 % 2% 2 % 16% 9% 2% 16 % 9 % 2 % 6% 6% 27% 6 % 6 % 27 % 13% 13 % 10% 15% 15% 10 % 15 % 15 % 3% 3 % 1% 1 % 3% 7% 1% 3 % 7 % 1 % 5% 5 % 6% 4% 8% 2% 6% 6 % 4 % 8 % 2 % 6 % Canada5 B.C. Prairies Ontario Quebec Canada5 C.-B. Prairies Ontario Québec Foreign investors Strategics Investisseurs étrangers Investisseurs stratégiques Canadian PE firms High net worth/family offices Sociétés canadiennes de CI Particuliers fortunés/ Government/labour funds Undisclosed4 Fonds publics/fonds de travailleurs gestionnaires de grande fortune Institutional investors3 Investisseurs institutionnels3 Investisseurs inconnus4

1 Canadian PE deals include buyout, add-on, growth, debt, privatization and follow-on deals 1 Comprennent les rachats, les acquisitions, les transactions de croissance, de dette et de privatisation (excluding infrastructure and other deals). ainsi que les réinvestissements (follow-on investments), mais ne comprennent pas les transactions 2 Participation rate is the number of deals with a specific investor type/(normalized) number of PE deals; en infrastructure et les autres transactions. data include disclosed and undisclosed deals. 2 Nombre de transactions avec un type d’investisseur particulier par rapport au nombre total (normalisé) 3 Institutional investors are Canadian asset managers, pension funds, banks, insurance/brokerage de transactions de CI; transactions divulguées ou non. companies, funds of funds, LPs and credit unions. 3 Gestionnaires d’actifs, caisses de retraite, banques, compagnies d'assurance/de courtage, 4 Undisclosed includes undisclosed deals made by Canadian and other investors. fonds de fonds, commanditaires et coopératives de crédit canadiens. 4 Transactions effectuées par des investisseurs canadiens non connus et d’autres investisseurs. 5 Participation rates for Canada include all provinces. Due to lack of data and small sample size, 5 Les taux de participation pour le Canada comprennent toutes les provinces. En raison du manque no separate analysis was done for the Atlantic region. de données et de la petite taille de l’échantillon, la région de l’Atlantique n’a pas fait l’objet Source: CVCA Infobase, team analysis. d’une analyse distincte. Source : Base de données de la CVCA, analyse d'équipe. Graph 1: PE investment activity in Canada, 2001–2017 Graphique 1 : Activité du marché canadien $ in billions, number of PE deals du capital-investissement (CI), 2001-2017 Graph 1: PE investment activity in Canada, 2001–2017 Graphiqueen milliards de 1 $,: Activité nombre de du transactions marché canadien de CI 35 Deal value 33.7 31.1 Deal count 500 $ in billions, number of PE deals du capital-investissement (CI), 2001-2017 450 35 Valeur de la transaction 33,7 31,1 Nombre de 500 30 transactions 28.2 en milliards de $, nombre de transactions de CI 450 35 Deal value 33.7 31.1 Deal count 500400 30 28,2 24.2 25 450350 35 Valeur de la transaction 33,7 31,1 Nombre de 500400 30 28.2 24,2transactions A strong increase in the number of ownership transitions 400300 25 450350 20 18.6 15.9 30 28,2 25 24.2 17.7 400300 A key concern for policymakers and economic development agencies is to create a350250 financial environment20 18,6 15,9 15 12.8 25 24,2 17,7 that supports business ownership transitions so the value12.8 created over the course300200 of entrepreneurs’ 350250 20 10.0 18.6 15.9 11.8 10.9 10.5 17.7 15 12,8 12,8 200 careers can be preserved. 250150 15,9 11,8 300 10 7.9 20 10,0 18,6 10,9 15 12.8 10,5 17,7 5.3 6.0 12.8 200100 10 250150 10.0 11.8 7,9 Currently, the number 5of 3.4ownership transitions that will10.9 likely require10.5 external financing is rising15 for the 12,8 5,3 6,0 12,8 200100 10 15050 10,0 11,8 following reasons. 7.9 5 3,4 10,9 10,5 0 5.3 6.0 1000 10 15050 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 7,9 5 3.4 >>The baby-boom generation of entrepreneurs is reaching retirement age. According50 to Statistics0 5,3 6,0 1000 5 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Canada, 60% of ownersNote: Canadian of PECanadian includes the followingsmall typesand of medium-sized deals: control stake, minority enterprises stake, add-on, (SMEs) were 50 or older3,4 50 mezzanine,0 private investment in public equity, restructuring and other. The number of PE deals 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Remarque : Le capital-investissement (CI) canadien comprend notamment les types de transaction suivants : includes disclosed and undisclosed deals. in 2014, and 12% of them were at least 65. (See Graph 2.) participation0 de contrôle, participation minoritaire, acquisition, mezzanine, investissement privé dans0 des 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source:Note: Canadian Thomson PE Reuters. includes the following types of deals: control stake, minority stake, add-on, sociétés ouvertes, restructuration. Le nombre de transactions de CI comprend les transactions divulguées >>As a result, the numbermezzanine, of private business investment owners in public equity, planning restructuring to and retire other. Theis increasingnumber of PE deals rapidly. Accordinget lesto transactions similar non divulguées. Remarque : Le capital-investissement (CI) canadien comprend notamment les types de transaction suivants : includes disclosed and undisclosed deals. surveys by the Business Development Bank of Canada (BDC) and the Canadian Federation ofparticipationSource Indepen : Thomson de -contrôle, Reuters. participation minoritaire, acquisition, mezzanine, investissement privé dans des Source: Thomson Reuters. sociétés ouvertes, restructuration. Le nombre de transactions de CI comprend les transactions divulguées dent Business (CFIB), the percentage of owners planning to exit their business within five yearset les transactions grew non divulguées. from 37% in 2011 Graphto 49% 2: in Age 2017. distribution (See Graph of 3.) SME owners in Canada, 2014 GraphiqueSource : Thomson 2Reuters. : Répartition par âge des propriétaires % of survey respondents de PME au Canada, 2014 Graph 2: Age distribution of SME owners in Canada, 2014 Graphique% des répondants 2 : Répartition au sondage par âge des propriétaires % of survey respondents 47.5% de PME au Canada, 2014 % des répondants au sondage 47,5 % 47.5% 26.1% 47,5 % 26,1 %

12.7% 11.8% 26.1% 12,7 % 11,8 % 1.9% 26,1 % 12.7% 11.8% 1,9 % <30 30-39 40-49 50-64 ≥65 12,7 % 11,8 % 1.9% <30 30-39 40-49 50-64 ≥65 Source: Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises (Ottawa: Statistics Canada, 2014). 1,9 % <30 30-39 40-49 50-64 ≥65 Source : Statistique Canada, Enquête sur le financement et la croissance des petites et moyennes entreprises (Ottawa : Statistique<30 Canada, 30-392014). 40-49 50-64 ≥65 Source: Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises (Ottawa: Statistics Canada, 2014). Source : Statistique Canada, Enquête sur le financement et la croissance des petites et moyennes entreprises (Ottawa : Statistique Canada, 2014).

Graph 3: Intention of Canadian SME owners Graphique 3 : Intention des propriétaires canadiens to exit their business within 5 years, 2004–2017 de PME de quitter leur entreprise d’ici 5 ans, 2011-2017 Graph% of survey 3: Intention respondents of Canadian SME owners Graphique% des répondants 3 : Intention au sondage des propriétaires canadiens to exit their business within 5 years, 2004–2017 de PME de quitter leur entreprise d’ici 5 ans, 2011-2017 % of survey respondents 49,3 % % des répondants au sondage 49,3 % 37,7 % +11.6% 37,7 % +11,6 %

49,3 % 49,3 % 37,7 % +11.6% 37,7 % +11,6 %

2011 2017 2011 2017

Note: Exit is defined as selling, transferring or winding down a business. Remarque : « Quitter » signifie vendre, transférer ou fermer l’entreprise. Sources: CFIB, Passing on the 2011Business to the Next Generation (Ottawa:2017 CFIB, November 2012); Sources : FCEI, Transfert de l’entreprise2011 à la prochaine génération (Ottawa2017 : FCEI, novembre 2012); BDC, The Coming Wave of Business Transitions in Canada (Montreal: BDC, 2017); and BDC, What Do Buyers BDC, Vague de transferts d’entreprise en vue au Canada (Montréal : BDC, 2017); BDC, Que recherchent les LookNote: for Exit When is defined Purchasing as selling, a Business? transferring (Montreal: or winding BDC, down2017). a business. acheteursRemarque de : « Quitter » PME canadiennes? signifie vendre, (Montréal transférer : BDC, ou 2017). fermer l’entreprise. Sources: CFIB, Passing on the Business to the Next Generation (Ottawa: CFIB, November 2012); Sources : FCEI, Transfert de l’entreprise à la prochaine génération (Ottawa : FCEI, novembre 2012); BDC, The Coming Wave of Business Transitions in Canada (Montreal: BDC, 2017); and BDC, What Do Buyers BDC, Vague de transferts d’entreprise en vue au Canada (Montréal : BDC, 2017); BDC, Que recherchent les Look for When Purchasing a Business? (Montreal: BDC, 2017). acheteurs de PME canadiennes? (Montréal : BDC, 2017).

3 Graph 4: Intention of Canadian SME owners to sell Graphique 4 : Intention des propriétaires canadiens de PME their business to non-family members, 2004–2017 de vendre leur entreprise à des personnes extérieures Graph% of survey 4: Intention respondents of Canadian SME owners to sell Graphiqueà leur famille, 4 : Intention2011-2017 des propriétaires canadiens de PME their business to non-family members, 2004–2017 de% des vendre répondants leur entrepriseau sondage à des personnes extérieures % of survey respondents à leur famille, 2011-2017 48,1 % 52,2 % +4.1% % des répondants au sondage 52,2 % 48,1 % +4,1 % 52,2 % 48,1 % +4.1% 52,2 % 48,1 % +4,1 %

2011 2017

Sources: CIBC, Are Canadian Entrepreneurs Ready for Retirement? (Toronto: CIBC World Markets, 2005); 2011 2017 CFIB, Passing on the Business to the Next Generation (Ottawa: CFIB, November 2012); BDC, The Coming Wave of Business Transitions in2011 Canada (Montreal: BDC, 2017); and BDC,2017 What Do Buyers Look for When Sources : CIBC, Are Canadian Entrepreneurs Ready for Retirement? (Toronto : CIBC World Markets, 2005); Purchasing a Business? (Montreal: BDC, 2017). FCEI, Transfert de l’entreprise à la prochaine génération (Ottawa : FCEI, novembre 2012); BDC, Vague de Sources: CIBC, Are Canadian Entrepreneurs Ready for Retirement? (Toronto: CIBC World Markets, 2005); transferts d’entreprise en vue au2011 Canada (Montréal : BDC, 2017); BDC,2017 Que recherchent les acheteurs CFIB, Passing on the Business to the Next Generation (Ottawa: CFIB, November 2012); BDC, The Coming de PME canadiennes? (Montréal : BDC, 2017). Wave of Business Transitions in Canada (Montreal: BDC, 2017); and BDC, What Do Buyers Look for When Sources : CIBC, Are Canadian Entrepreneurs Ready for Retirement? (Toronto : CIBC World Markets, 2005); Purchasing a Business? (Montreal: BDC, 2017). FCEI, Transfert de l’entreprise à la prochaine génération (Ottawa : FCEI, novembre 2012); BDC, Vague de transferts d’entreprise en vue au Canada (Montréal : BDC, 2017); BDC, Que recherchent les acheteurs de PME canadiennes? (Montréal : BDC, 2017). Graph 5: Business transition strategies of Canadian Graphique 5 : Stratégies de transfert d’entreprise SME owners, 2017 des propriétaires canadiens de PME, 2017 Graph% of survey 5: Business respondents transition strategies of Canadian Graphique% des répondants 5 : Stratégies au sondage de transfert d’entreprise SME owners, 2017 des propriétaires canadiens de PME, 2017 8.3% 8,3 % % of survey respondents % des répondants au sondage 33.1% 33,1 % 32.3% 32,3 % 8.3% 8,3 %

33.1% 33,1 % 20.8% 32.3% 20,8 % 32,3 %

20.8% 20,8 % 59.4% 59,4 % 46.1% 46,1 %

59.4% 59,4 % 46.1% 46,1 % <5 ≥5 <5 ≥5 employees employees employés employés

Wind down/sell assets<5 ≥5 Fermeture/vente des<5 actifs ≥5 Family successionemployees employees Relève familiale employés employés Sale/transfer outside family Vente/transfert à l’extérieur de la famille Wind down/sell assets Fermeture/vente des actifs Sources: BDC, The Coming Wave of Business Transitions in Canada (Montreal: BDC, 2017); and BDC, Sources : BDC, Vague de transferts d’entreprise en vue au Canada (Montréal : BDC, 2017); WhatFamily Do BuyersLook succession for When Purchasing a Business? (Montreal: BDC, 2017). BDC,Relève Que recherchent familiale les acheteurs de PME canadiennes? (Montréal : BDC, 2017). Sale/transfer outside family Vente/transfert à l’extérieur de la famille Sources: BDC, The Coming Wave of Business Transitions in Canada (Montreal: BDC, 2017); and BDC, Sources : BDC, Vague de transferts d’entreprise en vue au Canada (Montréal : BDC, 2017); What Do BuyersLook for When Purchasing a Business? (Montreal: BDC, 2017). BDC, Que recherchent les acheteurs de PME canadiennes? (Montréal : BDC, 2017). Graph 6: Average yearly growth in sales/revenues Graphique 6 : Augmentation annuelle moyenne for Canadian SMEs, by age of owner, 2014 du chiffre d’affaires des PME canadiennes, selon l’âge Graph% of survey 6: Average respondents yearly growth in sales/revenues Graphiquedu propriétaire, 6 : Augmentation 2014 annuelle moyenne for Canadian SMEs, by age of owner, 2014 du% des chiffre répondants d’affaires au sondage des PME canadiennes, selon l’âge 10.0% 7.7% 5.8% % of survey respondents16.3% du propriétaire, 2014 26.8% 10,0 % 7,7 % 5,8 % % des répondants au sondage16,3 % 26,8 % 10.0% 7.7% 5.8% 16.3% 26.8% 55.7% 59.7% 10,0 % 7,7 % 5,8 % 16,3 % 65.0% 26,8 % 55,7 % 62.7% 59,7 % 49.1% 55.7% 65,0 % 59.7% 62,7 % 65.0% 49,1 % 55,7 % 62.7% 59,7 % 49.1% 65,0 % 62,7 % 38.5% 32.7% 49,1 % 24.0% 21.0% 25.0% 38,5 % 32,7 % 24,0 % 25,0 % 38.5% 21,0 % 32.7% 24.0%<30 30-39 40-49 50-64 ≥65 21.0% 25.0% 38,5 % <30 30-39 40-49 50-6432,7 % ≥65 High growth (≥ 20%) 24,0 % 21,0 % 25,0 % Sustained<30 growth (19%30-39 to 1%) 40-49 50-64 ≥65 Croissance élevée (≥20 %) Weak growth (<1% or negative) High growth (≥ 20%) Croissance<30 soutenue30-39 (de 1 % à 1940-49 %) 50-64 ≥65 Note: The growth rate shown is the average annual revenue growth rate over the preceding three-year period. Faible croissance (<1 % ou négative) Sustained growth (19% to 1%) Croissance élevée (≥20 %) Source:Weak Statistics growth Canada, (<1% Survey or onnegative) Financing and Growth of Small and Medium Enterprises Remarque : Le taux de croissance indiqué est le taux de croissance annuel moyen du chiffre d’affaires (Ottawa: Statistics Canada, 2014). par Croissancerapport à la période soutenue précédente (dede trois 1 %ans. à 19 %) Note: The growth rate shown is the average annual revenue growth rate over the preceding three-year period. Faible croissance (<1 % ou négative) Source : Statistique Canada, Enquête sur le financement et la croissance des petites et moyennes entreprises Source: Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises Remarque(Ottawa : Statistique : Le taux de Canada, croissance 2014). indiqué est le taux de croissance annuel moyen du chiffre d’affaires (Ottawa: Statistics Canada, 2014). par rapport à la période précédente de trois ans. Source : Statistique Canada, Enquête sur le financement et la croissance des petites et moyennes entreprises (Ottawa : Statistique Canada, 2014). Graph 7: Canadian PE fundraising, by size, 2006–2016 Graphique 7 : Taille des levées de fonds pour % of number of funds raised les fonds de CI canadiens, 2006-2017 Graph 7: Canadian PE fundraising, by size, 2006–2016 Graphique% du nombre 7de : fondsTaille des levées de fonds pour 7% 9% 7% 8% 8% 14% 13% 11% les fonds de CI canadiens, 2006-2017 % of number of funds raised 7% 17% 7 % 9 % 7 % 8 % 8 % 8% 8% 27% 14 % 13 % 11 % 31% 7% 11% % du nombre de fonds 7 % 17 % 7% 18% 7% 8 % 8 % 9% 14% 13% 8% 8% 11% 27 % 14% 31 % 7 % 11 % 7% 17% 17% 18 % 7 % 9 % 7 % 8 % 8 % 8% 8% 27% 14 % 13 % 11 % 31% 7% 38% 22%11% 17 % 17 % 53% 18% 27% 33% 7 % 17 % 14% 18% 8 % 8 % % 14% 31 % 38 % 27 17% 53 % 277 % % 33 % 2211 % 17% 17% 18 % 14 % 14 % 18 % 31% 38% 53% 27% 33% 22% 17 % 17 % 14% 18% 31 % 38 % 33 % 22 % 13% 17% 53 % 27 % 27% 14 % 18 % 31% 25% 73% 13 % 17 % 13% 67% 44% 27 % 57% 31 % 73 % 25 % 13% 67 % 44 % 53% 50% 27% 13 % 25% 9% 57 % 38% 73% 38% 53 % 13 % 13% 67% 44% 50 % 27 % 9 % 27% 57% 73 % 25 % 53% 25% 38 % 38 % 67 % 44 % 50% 18% 13 % 9% 27 % 57 % 38% 38% 11% 53 % 25 % 50 % 18 % 11 % 9 % 200627% 2007 2008 2009 2010 2011 2012 2013 201425% 2015 2016 38 % 38 % 18% 11% 200627 % 2007 2008 2009 2010 2011 2012 2013 201425 % 2015 2016 ≥$5 billion $250 million to $499 million 18 % 11 % $12006 billion2007 to $52008 billion2009 2010 $1002011 million2012 to2013 $2492014 million2015 2016 ≥5 milliards $ De 250 à 499 millions $ $500 million to $999 million <$100 million ≥$5 billion $250 million to $499 million De2006 1 à 52007 milliards2008 $ 2009 2010 De2011 100 2012à 249 2013millions2014 $ 2015 2016 Source: PitchBook, 1H 2018 Canadian PE & VC FactBook (Seattle: PitchBook, 2018). De 500 à 999 millions $ <100 millions $ $1 billion to $5 billion $100 million to $249 million ≥5 milliards $ De 250 à 499 millions $ $500 million to $999 million <$100 million SourceDe :1 PitchBook, à 5 milliards 1H 2018 $Canadian PE & VC FactBookDe 100 (Seattle à 249 : PitchBook, millions 2018). $ Source: PitchBook, 1H 2018 Canadian PE & VC FactBook (Seattle: PitchBook, 2018). De 500 à 999 millions $ <100 millions $ Source : PitchBook, 1H 2018 Canadian PE & VC FactBook (Seattle : PitchBook, 2018). Graph 8: Participation rate, Canadian PE deals,1 Graphique 8 : Taux de participation, transactions de CI by investor type, 2014–17 canadiennes1 par type d’investisseur, 2014-2017 Graph% = normalized 8: Participation participation rate, rate 2Canadian PE deals,1 Graphique% = taux de participation 8 : Taux de normalisé participation,2 transactions de CI by investor type, 2014–17 canadiennes1 par type d’investisseur, 2014-2017 8% 8 % % = normalized participation rate2 % = taux de participation normalisé2 8% 8 % 27% 27% 27 % 27 %

42% 46% 8% 42 % 46 % 8 % 8% 8 % 27% 27% 27 % 27 % 20% 20 % 42% 46% 47% 42 % 46 % 47 %

42% 42 % 20% 22% 20 % 22 % 18% 47% 18 % 47 % 24% 24 % 3% 42% 3 % 42 % 22% 2% 22 % 2 % 16%18% 9% 2% 1618 % 9 % 2 % 6% 24%6% 27% 6 % 246 % % 27 % 13% 3% 13 % 3 % 10% 15% 15% 10 % 15 % 15 % 9% 2% 2% 3% 9 % 2 % 2 % 3 % 16% 1% 16 % 1 % 3% 7% 6% 6% 27% 1% 3 % 7 % 6 % 6 % 27 % 1 % 8% 5% 8 % 5 % 6% 13% 4% 2% 6% 6 % 13 % 4 % 2 % 6 % 10% 15% 15% 10 % 15 % 15 % 5 3% 5 3 % Canada B.C. Prairies1% Ontario Quebec Canada C.-B. Prairies1 % Ontario Québec 3% 7% 1% 3 % 7 % 1 % 5% 5 % Foreign6% investors 4% Strategics8% 2% 6% Investisseurs6 % étrangers 4 % 8 % Investisseurs2 %stratégiques6 % CanadianCanada PE5 firmsB.C. PrairiesHigh net worth/familyOntario officesQuebec SociétésCanada canadiennes5 C.-B. de CI Prairies ParticuliersOntario fortunés/Québec Government/labour funds Undisclosed4 Fonds publics/fonds de travailleurs gestionnaires de grande fortune ForeignInstitutional investors investors3 Strategics Investisseurs étrangersinstitutionnels3 Investisseurs stratégiquesinconnus4 Canadian PE firms High net worth/family offices Sociétés canadiennes de CI Particuliers fortunés/ 1 CanadianGovernment/labour PE deals include buyout, funds add-on, growth,Undisclosed debt, privatization4 and follow-on deals 1 ComprennentFonds publics/fonds les rachats, les acquisitions, de travailleurs les transactionsgestionnaires de croissance, de de dette grande et de privatisation fortune (excluding infrastructure and other3 deals). ainsi que les réinvestissements (follow-on3 investments), mais ne comprennent pas les transactions4 2 ParticipationInstitutional rate is investors the number of deals with a specific investor type/(normalized) number of PE deals; enInvestisseurs infrastructure et les institutionnels autres transactions. Investisseurs inconnus data include disclosed and undisclosed deals. 2 Nombre de transactions avec un type d’investisseur particulier par rapport au nombre total (normalisé) 13 InstitutionalCanadian PE investors deals include are Canadian buyout, add-on, asset managers, growth, debt, pension privatization funds, banks, and follow-on insurance/brokerage deals 1 Comprennent de transactions les de rachats, CI; transactions les acquisitions, divulguées les transactionsou non. de croissance, de dette et de privatisation ainsi que les réinvestissements (follow-on investments), mais ne comprennent pas les transactions companies,(excluding infrastructure funds of funds, and LPs other and deals). credit unions. 3 Gestionnaires d’actifs, caisses de retraite, banques, compagnies d'assurance/de courtage, en infrastructure et les autres transactions. 42 UndisclosedParticipation includesrate is the undisclosed number of deals madewith a byspecific Canadian investor and othertype/(normalized) investors. number of PE deals; fonds de fonds, commanditaires et coopératives de crédit canadiens. 24 TransactionsNombre de transactions effectuées avecpar des un investisseurstype d’investisseur canadiens particulier non connus par rapport et d’autres au nombre investisseurs. total (normalisé) 5 Participation data include disclosedrates for Canada and undisclosed include all deals. provinces. Due to lack of data and small sample size, 5 Les de transactions taux de participation de CI; transactions pour le Canada divulguées comprennent ou non. toutes les provinces. En raison du manque 3 Institutional no separate analysisinvestors was are doneCanadian for the asset Atlantic managers, region. pension funds, banks, insurance/brokerage companies, funds of funds, LPs and credit unions. 3 Gestionnaires de données et d’actifs,de la petite caisses taille de de retraite, l’échantillon, banques, la région compagnies de l’Atlantique d'assurance/de n’a pas fait courtage, l’objet 4Source: Undisclosed CVCA Infobase, includes undisclosedteam analysis. deals made by Canadian and other investors. d’unefonds analysede fonds, distincte. commanditaires et coopératives de crédit canadiens. 4 Transactions effectuées par des investisseurs canadiens non connus et d’autres investisseurs. 5 Participation rates for Canada include all provinces. Due to lack of data and small sample size, 5Source Les taux : Base de departicipation données de pour la CVCA, le Canada analyse comprennent d'équipe. toutes les provinces. En raison du manque no separate analysis was done for the Atlantic region. de données et de la petite taille de l’échantillon, la région de l’Atlantique n’a pas fait l’objet Source: CVCA Infobase, team analysis. d’une analyse distincte. Source : Base de données de la CVCA, analyse d'équipe. Graph 1: PE investment activity in Canada, 2001–2017 Graphique 1 : Activité du marché canadien $ in billions, number of PE deals du capital-investissement (CI), 2001-2017 Graph 1: PE investment activity in Canada, 2001–2017 Graphique 1 : Activité du marché canadien en milliards de $, nombre de transactions de CI $35 inDeal billions, value number of PE deals33.7 31.1 Deal count 500 du capital-investissement (CI), 2001-2017 450 en35 milliardsValeur de la transactionde $, nombre de33,7 transactions de CI 31,1 Nombre de 500 3530 Deal value 33.7 Deal 28.2count 500 transactions 31.1 400 450 3530 Valeur de la transaction 33,7 Nombre28,2 de 500 25 24.2 450 31,1 400 30 28.2 350 transactions 400 25 24,2 450 300 30 28,2 350 2520 18.6 15.9 24.2 400 17.7 350 300 250 2520 18,6 15,9 24,2 15 12.8 300 17,7 350 20 18.6 15.9 12.8 200 250 11.8 17.7 10.0 10.9 12,8 300 10.5 250 2015 18,6 15,9 150 12,8 17,7 200 1510 12.8 10,0 11,8 7.9 12.8 200 10,9 10,5 250 10.0 6.0 11.8 150 5.3 10.9 10.5 100 1510 12,8 7,9 12,8 200 105 3.4 150 10,0 6,0 11,8 7.9 50 5,3 10,9 10,5 100 6.0 100 105 3,4 150 5.3 7,9 50 05 3.4 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 50 5,3 6,0 100 05 0 20013,4 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Note:0 Canadian PE includes the following types of deals: control stake, minority stake, add-on, 0 50 mezzanine,2001 2002 private2003 investment2004 2005 in2006 public2007 equity,2008 restructuring2009 2010 2011and other.2012 2013The number2014 2015 of PE2016 deals2017 Remarque0 : Le capital-investissement (CI) canadien comprend notamment les types de transaction suivants0 : includes disclosed and undisclosed deals. 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Note: Canadian PE includes the following types of deals: control stake, minority stake, add-on, participation de contrôle, participation minoritaire, acquisition, mezzanine, investissement privé dans des Source: Thomson Reuters. mezzanine, private investment in public equity, restructuring and other. The number of PE deals sociétés ouvertes, restructuration. Le nombre de transactions de CI comprend les transactions divulguées Remarqueet les transactions : Le capital-investissement non divulguées. (CI) canadien comprend notamment les types de transaction suivants : includes disclosed and undisclosed deals. participation de contrôle, participation minoritaire, acquisition, mezzanine, investissement privé dans des Source : Thomson Reuters. Source: Thomson Reuters. sociétés ouvertes, restructuration. Le nombre de transactions de CI comprend les transactions divulguées et les transactions non divulguées. Source : Thomson Reuters. Graph 2: Age distribution of SME owners in Canada, 2014 Graphique 2 : Répartition par âge des propriétaires % of survey respondents de PME au Canada, 2014 Graph 2: Age distribution of SME owners in Canada, 2014 Graphique 2 : Répartition par âge des propriétaires % des répondants au sondage de PME au Canada, 2014 % of survey respondents 47.5% % des répondants au sondage 47,5 % 47.5%

26.1% 47,5 % 26,1 %

12.7% 26.1% 11.8% 12,7 % 26,1 % 11,8 % 1.9% 12.7% 11.8% 1,9 % <30 30-39 40-49 50-64 ≥65 12,7 % 11,8 % 1.9% <30 30-39 40-49 50-64 ≥65 Source: Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises 1,9 % (Ottawa: Statistics<30 Canada, 2014).30-39 40-49 50-64 ≥65 Source : Statistique Canada, Enquête sur le financement et la croissance des petites et moyennes entreprises <30 30-39 40-49 50-64 ≥65 Source: Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises (Ottawa : Statistique Canada, 2014). (Ottawa: Statistics Canada, 2014). Source : Statistique Canada, Enquête sur le financement et la croissance des petites et moyennes entreprises (Ottawa : Statistique Canada, 2014).

Graph 3: Intention of Canadian SME owners Graphique 3 : Intention des propriétaires canadiens to exit their business within 5 years, 2004–2017 de PME de quitter leur entreprise d’ici 5 ans, 2011-2017 Graph 3: Intention of Canadian SME owners Graphique 3 : Intention des propriétaires canadiens % of survey respondents % des répondants au sondage to exit their business within 5 years, 2004–2017 de PME de quitter leur entreprise d’ici 5 ans, 2011-2017

% of survey respondents 49,3 % % des répondants au sondage 49,3 % 37,7 % +11.6% 37,7 % +11,6 % 49,3 % 49,3 % 37,7 % +11.6% 37,7 % +11,6 %

2011 2017 2011 2017

Note: Exit is defined as selling, transferring or winding down a business. Remarque : « Quitter » signifie vendre, transférer ou fermer l’entreprise. 2011 2017 2011 2017 >>At the same time, Sources:the percentage CFIB, Passing on theof Business owners to the intending Next Generation to (Ottawa: sell toCFIB, non-family November 2012); members grew fromSources 48% : FCEI, Transfert de l’entreprise à la prochaine génération (Ottawa : FCEI, novembre 2012); in 2011 to 52% in BDC,2017.Note: The Exit (SeeComing is defined WaveGraph as ofselling, Business 4.) transferring Transitions or windingin Canada down (Montreal: a business. BDC, 2017); and BDC, What Do Buyers BDC,Remarque Vague : de« Quitter » transferts signifie d’entreprise vendre, en transférer vue au Canada ou fermer (Montréal l’entreprise. : BDC, 2017); BDC, Que recherchent les Look for When Purchasing a Business? (Montreal: BDC, 2017). acheteurs de PME canadiennes? (Montréal : BDC, 2017). Sources: CFIB, Passing on the Business to the Next Generation (Ottawa: CFIB, November 2012); Sources : FCEI, Transfert de l’entreprise à la prochaine génération (Ottawa : FCEI, novembre 2012); >>Taken together, theseBDC, The findings Coming Wave indicate of Business Transitions the percentage in Canada (Montreal: of BDC,business 2017); and BDC,owners What Do intending Buyers to sellBDC, within Vague de transferts d’entreprise en vue au Canada (Montréal : BDC, 2017); BDC, Que recherchent les five years to non-familyLook for When members Purchasing a increased Business? (Montreal: by BDC,50% 2017). between 2011 (17%) and 2017 (25%). acheteurs de PME canadiennes? (Montréal : BDC, 2017). >>BDC research indicates that the larger the business, the greater the likelihood the owner plans to sell to non-family members. In 2017, the percentage of exiting owners intending to sell to non-family members was almost 60% for companies with at least five employees, compared to 46% for smaller firms. (See Graph 5.) Graph 4: Intention of Canadian SME owners to sell Graphique 4 : Intention des propriétaires canadiens de PME their business to non-family members, 2004–2017 de vendre leur entreprise à des personnes extérieures Graph 4: Intention of Canadian SME owners to sell Graphique 4 : Intention des propriétaires canadiens de PME % of survey respondents à leur famille, 2011-2017 their business to non-family members, 2004–2017 de vendre leur entreprise à des personnes extérieures % des répondants au sondage % of survey respondents à leur famille, 2011-2017 52,2 % 48,1 % +4.1% % des répondants au sondage 48,1 % 52,2 % 52,2 % +4,1 % 48,1 % +4.1% 52,2 % 48,1 % +4,1 %

2011 2017

Sources: CIBC, Are Canadian Entrepreneurs Ready for Retirement? (Toronto: CIBC World Markets, 2005); 2011 2017 CFIB, Passing on the Business 2011to the Next Generation (Ottawa: CFIB, 2017November 2012); BDC, The Coming Wave of Business Transitions in Canada (Montreal: BDC, 2017); and BDC, What Do Buyers Look for When Sources : CIBC, Are Canadian Entrepreneurs Ready for Retirement? (Toronto : CIBC World Markets, 2005); Sources:Purchasing CIBC, a Business? Are Canadian (Montreal: Entrepreneurs BDC, 2017). Ready for Retirement? (Toronto: CIBC World Markets, 2005); FCEI, Transfert de l’entreprise à2011 la prochaine génération (Ottawa : FCEI,2017 novembre 2012); BDC, Vague de CFIB, Passing on the Business to the Next Generation (Ottawa: CFIB, November 2012); BDC, The Coming transferts d’entreprise en vue au Canada (Montréal : BDC, 2017); BDC, Que recherchent les acheteurs Wave of Business Transitions in Canada (Montreal: BDC, 2017); and BDC, What Do Buyers Look for When Sourcesde PME canadiennes? : CIBC, Are Canadian (Montréal Entrepreneurs : BDC, 2017). Ready for Retirement? (Toronto : CIBC World Markets, 2005); Purchasing a Business? (Montreal: BDC, 2017). FCEI, Transfert de l’entreprise à la prochaine génération (Ottawa : FCEI, novembre 2012); BDC, Vague de transferts d’entreprise en vue au Canada (Montréal : BDC, 2017); BDC, Que recherchent les acheteurs de PME canadiennes? (Montréal : BDC, 2017).

Graph 5: Business transition strategies of Canadian Graphique 5 : Stratégies de transfert d’entreprise SME owners, 2017 des propriétaires canadiens de PME, 2017 Graph 5: Business transition strategies of Canadian Graphique 5 : Stratégies de transfert d’entreprise % of survey respondents % des répondants au sondage SME owners, 2017 des propriétaires canadiens de PME, 2017 % of survey respondents 8.3% % des répondants au sondage 8,3 %

33.1% 33,1 % 32.3%8.3% 32,38,3 % %

33.1% 33,1 % 32.3% 32,3 % 20.8% 20,8 %

20.8% 20,8 % 59.4% 59,4 % 46.1% 46,1 % 59.4% 59,4 % 46.1% 46,1 %

<5 ≥5 <5 ≥5 employees employees employés employés Wind down/sell assets<5 ≥5 Fermeture/vente des<5 actifs ≥5 employees employees employés employés Family succession Relève familiale WindSale/transfer down/sell outside assets family Fermeture/venteVente/transfert à desl’extérieur actifs de la famille Sources:Family BDC, succession The Coming Wave of Business Transitions in Canada (Montreal: BDC, 2017); and BDC, SourcesRelève : BDC, familiale Vague de transferts d’entreprise en vue au Canada (Montréal : BDC, 2017); WhatSale/transfer Do BuyersLook for outside When Purchasing family a Business? (Montreal: BDC, 2017). BDC,Vente/transfert Que recherchent les acheteursà l’extérieur de PME de canadiennes? la famille (Montréal : BDC, 2017). Sources: BDC, The Coming Wave of Business Transitions in Canada (Montreal: BDC, 2017); and BDC, Sources : BDC, Vague de transferts d’entreprise en vue au Canada (Montréal : BDC, 2017); What Do BuyersLook for When Purchasing a Business? (Montreal: BDC, 2017). BDC, Que recherchent les acheteurs de PME canadiennes? (Montréal : BDC, 2017).

Graph 6: Average yearly growth in sales/revenues Graphique 6 : Augmentation annuelle moyenne for Canadian SMEs, by age of owner, 2014 du chiffre d’affaires des PME canadiennes, selon l’âge Graph 6: Average yearly growth in sales/revenues Graphique 6 : Augmentation annuelle moyenne % of survey respondents du propriétaire, 20144 for Canadian SMEs, by age of owner, 2014 du chiffre d’affaires des PME canadiennes, selon l’âge % des répondants au sondage 10.0% 7.7% 5.8% du propriétaire, 2014 % of survey respondents16.3% 26.8% 10,0 % 7,7 % 5,8 % % des répondants au sondage16,3 % 10.0% 7.7% 5.8% 16.3% 26,8 % 26.8% 7,7 % 5,8 % 55.7% 10,0 % 59.7% 16,3 % 26,8 % 65.0% 55,7 % 62.7% 59,7 % 55.7% 49.1% 59.7% 65,0 % 62,7 % 65.0% 55,7 % 62.7% 49,1 % 59,7 % 49.1% 65,0 % 62,7 % 49,1 % 38.5% 32.7% 24.0% 21.0% 25.0% 38,5 % 32,7 % 38.5% 32.7% 24,0 % 21,0 % 25,0 % 24.0% 21.0% 25.0% 38,5 % <30 30-39 40-49 50-64 ≥65 32,7 % 24,0 % 25,0 % High growth (≥ 20%) <30 30-3921,0 % 40-49 50-64 ≥65 <30 30-39 40-49 50-64 ≥65 Sustained growth (19% to 1%) Croissance élevée (≥20 %) <30 30-39 40-49 50-64 ≥65 HighWeak growth growth (≥ (<1% 20%) or negative) Croissance soutenue (de 1 % à 19 %) Note:Sustained The growth rate growth shown is(19% the average to 1%) annual revenue growth rate over the preceding three-year period. FaibleCroissance croissance élevée (<1 (≥20 % %)ou négative) Weak growth (<1% or negative) Source: Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises RemarqueCroissance : Le taux de soutenue croissance indiqué (de 1 est % leà taux 19 de%) croissance annuel moyen du chiffre d’affaires (Ottawa:Note: The Statistics growth rate Canada, shown 2014). is the average annual revenue growth rate over the preceding three-year period. par Faiblerapport à croissancela période précédente (<1 % de outrois négative) ans. Source: Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises RemarqueSource : Statistique : Le taux deCanada, croissance Enquête indiqué sur le est financement le taux de etcroissance la croissance annuel des moyen petites du et chiffre moyennes d’affaires entreprises (Ottawa: Statistics Canada, 2014). par(Ottawa rapport : Statistique à la période Canada, précédente 2014). de trois ans. Source : Statistique Canada, Enquête sur le financement et la croissance des petites et moyennes entreprises (Ottawa : Statistique Canada, 2014). Graph 7: Canadian PE fundraising, by size, 2006–2016 Graphique 7 : Taille des levées de fonds pour % of number of funds raised les fonds de CI canadiens, 2006-2017 Graph 7: Canadian PE fundraising, by size, 2006–2016 Graphique 7 : Taille des levées de fonds pour % du nombre de fonds 7% 9% 7% 8% 8% les fonds de CI canadiens, 2006-2017 % of number of funds raised14% 13% 11% 7% 17% 7 % 9 % 7 % 8 % 8 % 8% 8% 27% % du nombre de fonds 14 % 13 % 11 % 7% 31% 7% 8% 8% 11% 17 % 18%9% 13% 11% 7 % 14% 17% 8 % 8 % % 14% 7% 31 % 27 7 % 9 % 7 % 8 % 8 % 11 % 17% 17%8% 8% 27% 18 % 14 % 13 % 11 % 31% 7% 11% 14 % 17 % 18% 38% 7 % 53% 33% 22% 17 % 178 % % 8 % % 14% 27% 31 % 27 14% 17% 18% 7 % 11 % 17% 18 % 38 % 33 % 22 % 17% 53 % 14 % 27 % 38% 14 % 17 % 18 % 53% 31% 27% 33% 22% 17 % 14% 18% 17 % 38 % 33 % 22 % 17% 53 % 31 % 27 % 13% 14 % 18 % 31% 27% 17 % 73% 25% 13 % 13% 67% 44% 31 % 27 % 13% 25 % 57% 27% 73 % 53% 50% 13 % 67 % 44 % 73% 25% 13 % 67% 44% 9% 57 % 27 % 13% 38% 38% 53 % 57% 73 % 50 % 25 % 53% 50% 13 % 67 % 44 % 9 % 27% 25% 38 % 38 % 18%9% 57 % 38% 38% 11% 27 % 53 % 50 % 25 % 9 % 27% 18 % 25% 38 % 38 % 11 % 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 201618% 11% 27 % 25 % 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 201618 % ≥$5 billion $250 million to $499 million 11 % 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 $1 billion to $5 billion $100 million to $249 million ≥5 milliards $ De 250 à 499 millions $ 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 ≥$5$500 billion million to $999 million $250<$100 million million to $499 million De 1 à 5 milliards $ De 100 à 249 millions $ Source:$1 billionPitchBook, to 1H $5 2018 billion Canadian PE & VC FactBook$100 (Seattle:million PitchBook, to $249 2018). million ≥5 De milliards 500 à 999 $ millions $ De<100 250 millions à 499 millions$ $ $500 million to $999 million <$100 million SourceDe :1 PitchBook, à 5 milliards 1H 2018 $Canadian PE & VC FactBookDe 100 (Seattle à 249 : PitchBook, millions 2018). $ Source: PitchBook, 1H 2018 Canadian PE & VC FactBook (Seattle: PitchBook, 2018). De 500 à 999 millions $ <100 millions $ Source : PitchBook, 1H 2018 Canadian PE & VC FactBook (Seattle : PitchBook, 2018). Graph 8: Participation rate, Canadian PE deals,1 Graphique 8 : Taux de participation, transactions de CI by investor type, 2014–17 canadiennes1 par type d’investisseur, 2014-2017 Graph 8: Participation rate, Canadian PE deals,1 Graphique 8 : Taux de participation, transactions de CI % = normalized participation rate2 % = taux de participation normalisé2 by investor type, 2014–17 canadiennes1 par type d’investisseur, 2014-2017

% = normalized participation rate2 8% % = taux de participation normalisé2 8 % 8% 8 % 27% 27% 27 % 27 % 8% 8 % 42% 46% 42 % 46 % 8% 8 % 27% 27% 27 % 27 %

42% 46% 42 % 46 % 20% 20 % 47% 47 %

20% 42% 20 42 % 47% % 47 % 22% 22 % 18% 18 % 24% 24 % 42% 42 % 22% 3% 22 % 3 % 18% 18 % 2% 24% 2 % 24 % 16% 9% 2% 16 % 9 % 2 % 6% 6% 27% 6 % 6 % 27 % 3% 3 % 13% 13 % 9% 2% 2% 9 % 2 % 2 % 10%16% 15% 15% 1016 % 15 % 15 % 6% 6% 27% 3% 6 % 6 % 27 % 3 % 1% 1 % 3% 7% 1% 3 % 7 % 1 % 13% 13 % 6% 8% 5% 6% 6 % 8 % 5 % 6 % 10% 4% 15% 15% 2% 10 % 4 % 15 % 15 % 2 % 3% 3 % 1% 1 % Canada53% B.C.7% Prairies Ontario Quebec1% Canada53 % C.-B.7 % Prairies Ontario Québec1 % 5% 5 % 6% 4% 8% 2% 6% 6 % 4 % 8 % 2 % 6 % Foreign investors Strategics Investisseurs étrangers Investisseurs stratégiques Canada5 B.C. Prairies Ontario Quebec Canada5 C.-B. Prairies Ontario Québec Canadian PE firms High net worth/family offices Sociétés canadiennes de CI Particuliers fortunés/ ForeignGovernment/labour investors funds UndisclosedStrategics 4 InvestisseursFonds publics/fonds étrangers de travailleurs Investisseursgestionnaires stratégiquesde grande fortune CanadianInstitutional PE investors firms 3 High net worth/family offices SociétésInvestisseurs canadiennes institutionnels de CI 3 ParticuliersInvestisseurs fortunés/ inconnus4 4 gestionnaires de grande fortune 1 CanadianGovernment/labour PE deals include buyout, funds add-on, growth,Undisclosed debt, privatization and follow-on deals 1 ComprennentFonds publics/fonds les rachats, les acquisitions, de travailleurs les transactions de croissance, de dette et de privatisation 3 3 4 (excludingInstitutional infrastructure investors and other deals). ainsiInvestisseurs que les réinvestissements institutionnels (follow-on investments), maisInvestisseurs ne comprennent inconnus pas les transactions 2 Participation rate is the number of deals with a specific investor type/(normalized) number of PE deals; en infrastructure et les autres transactions. 1 Canadian data include PE discloseddeals include and buyout,undisclosed add-on, deals. growth, debt, privatization and follow-on deals 12 ComprennentNombre de transactions les rachats, avec les acquisitions,un type d’investisseur les transactions particulier de croissance,par rapport deau dettenombre et detotal privatisation (normalisé) 3 Institutional (excluding infrastructure investors are and Canadian other deals). asset managers, pension funds, banks, insurance/brokerage ainside transactions que les réinvestissements de CI; transactions (follow-on divulguées investments ou non. ), mais ne comprennent pas les transactions 2 Participation companies, funds rate is of the funds, number LPs ofand deals credit with unions. a specific investor type/(normalized) number of PE deals; 3 Gestionnaires en infrastructure d’actifs, et les caissesautres transactions. de retraite, banques, compagnies d'assurance/de courtage, 4 Undisclosed data include disclosedincludes undisclosed and undisclosed deals deals.made by Canadian and other investors. 2 Nombre fonds de de fonds, transactions commanditaires avec un typeet coopératives d’investisseur de créditparticulier canadiens. par rapport au nombre total (normalisé) 4 Transactions effectuées par des investisseurs canadiens non connus et d’autres investisseurs. 53 ParticipationInstitutional investors rates for areCanada Canadian include asset all provinces. managers, Due pension to lack funds, of data banks, and insurance/brokeragesmall sample size, de transactions de CI; transactions divulguées ou non. 35 GestionnairesLes taux de participation d’actifs, caisses pour lede Canada retraite, comprennent banques, compagnies toutes les d'assurance/deprovinces. En raison courtage, du manque nocompanies, separate fundsanalysis of funds,was done LPs for and the credit Atlantic unions. region. 4 Undisclosed includes undisclosed deals made by Canadian and other investors. fondsde données de fonds, et de commanditaires la petite taille de et l’échantillon, coopératives la de région crédit de canadiens. l’Atlantique n’a pas fait l’objet Source: CVCA Infobase, team analysis. 4 Transactions d’une analyse effectuées distincte. par des investisseurs canadiens non connus et d’autres investisseurs. 5 Participation rates for Canada include all provinces. Due to lack of data and small sample size, 5 Les taux de participation pour le Canada comprennent toutes les provinces. En raison du manque no separate analysis was done for the Atlantic region. Source de données : Base deet dedonnées la petite de taille la CVCA, de l’échantillon, analyse d'équipe. la région de l’Atlantique n’a pas fait l’objet Source: CVCA Infobase, team analysis. d’une analyse distincte. Source : Base de données de la CVCA, analyse d'équipe. Graph 1: PE investment activity in Canada, 2001–2017 Graphique 1 : Activité du marché canadien $ in billions, number of PE deals du capital-investissement (CI), 2001-2017 en milliards de $, nombre de transactions de CI 35 Deal value 33.7 31.1 Deal count 500 450 35 Valeur de la transaction 33,7 31,1 Nombre de 500 30 28.2 transactions 400 450 30 28,2 25 24.2 350 400 24,2 300 25 350 20 18.6 15.9 17.7 300 250 20 18,6 15,9 15 12.8 17,7 12.8 200 250 10.0 11.8 10.9 10.5 15 12,8 12,8 200 10 150 10,0 11,8 7.9 10,9 10,5 6.0 100 150 5.3 10 7,9 5 3.4 50 5,3 6,0 100 5 3,4 0 0 50 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 0 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Note: Canadian PE includes the following types of deals: control stake, minority stake, add-on, mezzanine, private investment in public equity, restructuring and other. The number of PE deals Remarque : Le capital-investissement (CI) canadien comprend notamment les types de transaction suivants : includes disclosed and undisclosed deals. participation de contrôle, participation minoritaire, acquisition, mezzanine, investissement privé dans des Source: Thomson Reuters. sociétés ouvertes, restructuration. Le nombre de transactions de CI comprend les transactions divulguées et les transactions non divulguées. Source : Thomson Reuters.

Graph 2: Age distribution of SME owners in Canada, 2014 Graphique 2 : Répartition par âge des propriétaires % of survey respondents de PME au Canada, 2014 % des répondants au sondage 47.5% 47,5 %

26.1% 26,1 %

12.7% 11.8% 12,7 % 11,8 % 1.9% 1,9 % <30 30-39 40-49 50-64 ≥65 <30 30-39 40-49 50-64 ≥65 Source: Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises (Ottawa: Statistics Canada, 2014). Source : Statistique Canada, Enquête sur le financement et la croissance des petites et moyennes entreprises (Ottawa : Statistique Canada, 2014).

49,3 % 49,3 % 37,7 % +11.6% 37,7 % +11,6 %

2011 2017 2011 2017

52,2 % 48,1 % +4.1% 52,2 % 48,1 % +4,1 %

2011 2017

Graph 5: Business transition strategies of Canadian Graphique 5 : Stratégies de transfert d’entreprise SME owners, 2017 des propriétaires canadiens de PME, 2017 % of survey respondents % des répondants au sondage To sum up, a growing number of retiring business owners intend to sell their business to non-family 8.3% 8,3 % members within the next five years. This demographic trend should increase demand for investment by PE funds. 33.1% 33,1 % 32.3% 32,3 % There are 228,000 SMEs with five or more employees in Canada.2 If about 30%3 of them are sold to non-family members within five years,20.8% as anticipated in the BDC survey, 67,000 companies overall 20,8 % (13,400 per year) will change hands. However, the number of Canadian PE deals in all categories, including ownership transitions, totalled just 603 in 2017,4 which59.4% leads to the following conclusions. 59,4 % 46.1% 46,1 % >>The number of potential ownership transitions which is growing could represent a huge growth opportunity for PE investors, although specific conditions are necessary to be met for PE funds to participate in such investments. <5 ≥5 <5 ≥5 >>Increasing the number of transactionsemployees could both bolster employeesthe PE market and support employés employés more ownership transitions.Wind down/sell assets Fermeture/vente des actifs Family succession Relève familiale According to StatisticsSale/transfer Canada, SMEs outside whose family owners are 50 or older tend to grow more slowly thanVente/transfert oth- à l’extérieur de la famille Sources: BDC, The Coming Wave of Business Transitions in Canada (Montreal: BDC, 2017); and BDC, Sources : BDC, Vague de transferts d’entreprise en vue au Canada (Montréal : BDC, 2017); er SMEs (See GraphWhat 6). DoAs BuyersLook a result, for Whenmaking Purchasing it easier a Business? for (Montreal: owners BDC, to 2017). sell should have a significantBDC, positive Que recherchent les acheteurs de PME canadiennes? (Montréal : BDC, 2017). impact on economic growth.

55.7% 59.7% 65.0% 55,7 % 62.7% 59,7 % 49.1% 65,0 % 62,7 % 49,1 %

Graph 7: Canadian PE fundraising, by size, 2006–2016 Graphique 7 : Taille des levées de fonds pour % of number of funds raised les fonds de CI canadiens, 2006-2017 % du nombre de fonds 7% 9% 7% 8% 8% 14% 13% 11% 7% 17% 7 % 9 % 7 % 8 % 8 % 8% 8% 27% 14 % 13 % 11 % 31% 7% 11% 7 % 17 % 18% 8 % 8 % 14% 27 % 31 % 7 % 11 % 2 Source: Dun & Bradstreet (2016). The SME count excludes companies with an17% unknown17% number of employees, firms ineligible for financing, 18 % 14 % and the offices of doctors and other professionals. According to Statistics38% Canada, there were 1,167,978 SMEs in Canada in 2015. 53% 27% 33% 22% 17 % 17 % 3 Assuming 49.3% Canadian SME owners intend to exit14% in the next five years, and that 59.4% of the companies18% with more than five employees 38 % will be sold to external buyers, we could expect that in total 29.3% of business owners in Canada could be looking to sell to third parties53 % in the 27 % 33 % 22 % 17% 14 % 18 % next five years. 31% 4 Source: Canadian Venture Capital & Private Equity Association (CVCA), VC & PE Canadian Market Overview 2017 (Toronto: CVCA, 2017). 5 17 % 31 % 13% 27% 73% 25% 13 % 13% 67% 44% 27 % 57% 73 % 25 % 53% 50% 13 % 67 % 44 % 9% 57 % 38% 38% 53 % 50 % 9 % 27% 25% 38 % 38 % 18% 11% 27 % 25 % 18 % 11 % 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 ≥$5 billion $250 million to $499 million 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 $1 billion to $5 billion $100 million to $249 million ≥5 milliards $ De 250 à 499 millions $ $500 million to $999 million <$100 million De 1 à 5 milliards $ De 100 à 249 millions $ Source: PitchBook, 1H 2018 Canadian PE & VC FactBook (Seattle: PitchBook, 2018). De 500 à 999 millions $ <100 millions $ Source : PitchBook, 1H 2018 Canadian PE & VC FactBook (Seattle : PitchBook, 2018).

8% 8 %

8% 8 % 27% 27% 27 % 27 %

42% 46% 42 % 46 %

20% 20 47% % 47 %

Graph 2: Age distribution of SME owners in Canada, 2014 Graphique 2 : Répartition par âge des propriétaires % of survey respondents de PME au Canada, 2014 % des répondants au sondage 47.5% 47,5 %

26.1% 26,1 %

49,3 % 49,3 % 37,7 % +11.6% 37,7 % +11,6 %

2011 2017 2011 2017

52,2 % 48,1 % +4.1% 52,2 % 48,1 % +4,1 %

2011 2017

8.3% 8,3 %

33.1% 33,1 % 32.3% 32,3 %

20.8% 20,8 %

59.4% 59,4 % 46.1% 46,1 %

55.7% 59.7% 65.0% 55,7 % Is there a shortage of capital62.7% for small PE deals? 59,7 % 49.1% 65,0 % There is anecdotal evidence that fundraising for small PE funds, especially funds smaller than 62,7 % $100 million, has become more difficult over the last decade. Large Canadian institutional investors 49,1 % have withdrawn from this segment, mainly because these investments are too small for them. 38.5% 32.7% 24.0% 21.0% 25.0% 38,5 % Statistics on the Canadian PE market are incomplete, making it almost impossible to analyze trends 32,7 % in detail—notably, those related to deal size—and draw reliable conclusions. As a result, much of the 24,0 % 21,0 % 25,0 % <30 30-39 40-49 50-64 ≥65 following analysis is based on surveys and industry roundtables. High growth (≥ 20%) <30 30-39 40-49 50-64 ≥65 However, two quantitativeSustained results growth extracted (19% tofrom 1%) PitchBook and CVCA databases are worth noting.Croissance élevée (≥20 %) Weak growth (<1% or negative) Croissance soutenue (de 1 % à 19 %) According to PitchBook, funds smaller than $100 million comprised over 50% of all Canadian PE >> Note: The growth rate shown is the average annual revenue growth rate over the preceding three-year period. Faible croissance (<1 % ou négative) funds raised in every year, but one, between 2008 and 2013. However, the proportion fell to 11% Source: Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises Remarque : Le taux de croissance indiqué est le taux de croissance annuel moyen du chiffre d’affaires in 2015 and 18% in(Ottawa: 2016. Statistics While Canada, this 2014). trend is cyclical—it was harder to raise large amounts duringpar rapport the à la période précédente de trois ans. Source : Statistique Canada, Enquête sur le financement et la croissance des petites et moyennes entreprises global financial crisis and its aftermath—it nevertheless shows the difficulty of raising smaller(Ottawa funds: Statistique Canada, 2014). at present. (See Graph 7.)

>>Types of investors active in PE deals vary significantly by region. In the Prairies and Ontario, the most active investors are foreign, followed by Canadian independent PE funds. In Quebec, government and Graph 8: Participation rate, Canadian PE deals,1 Graphique 8 : Taux de participation, transactions de CI institutional fundsby are investor the main type, players. 2014–17 (Once again, databases are incomplete, but differencescanadiennes found 1 par type d’investisseur, 2014-2017 in this partial data are significant.) Accordingly, responses to unmet needs among small businesses % = normalized participation rate2 % = taux de participation normalisé2 may differ strongly by region. (See Graph 8.)

8% 8 %

8% 8 % 27% 27% 27 % 27 %

42% 46% 42 % 46 %

20% 20 % 47% 47 %

42% 42 % 22% 22 % 18% 18 % 24% 24 % 6 3% 3 % 2% 2 % 16% 9% 2% 16 % 9 % 2 % 6% 6% 27% 6 % 6 % 27 % 13% 13 % 10% 15% 15% 10 % 15 % 15 % 3% 3 % 1% 1 % 3% 7% 1% 3 % 7 % 1 % 5% 5 % 6% 4% 8% 2% 6% 6 % 4 % 8 % 2 % 6 % Canada5 B.C. Prairies Ontario Quebec Canada5 C.-B. Prairies Ontario Québec Foreign investors Strategics Investisseurs étrangers Investisseurs stratégiques Canadian PE firms High net worth/family offices Sociétés canadiennes de CI Particuliers fortunés/ Government/labour funds Undisclosed4 Fonds publics/fonds de travailleurs gestionnaires de grande fortune Institutional investors3 Investisseurs institutionnels3 Investisseurs inconnus4

Graph 2: Age distribution of SME owners in Canada, 2014 Graphique 2 : Répartition par âge des propriétaires % of survey respondents de PME au Canada, 2014 % des répondants au sondage 47.5% 47,5 %

26.1% 26,1 %

49,3 % 49,3 % 37,7 % +11.6% 37,7 % +11,6 %

2011 2017 2011 2017

52,2 % 48,1 % +4.1% 52,2 % 48,1 % +4,1 %

2011 2017

8.3% 8,3 %

33.1% 33,1 % 32.3% 32,3 %

20.8% 20,8 %

59.4% 59,4 % 46.1% 46,1 %

55.7% 59.7% 65.0% 55,7 % 62.7% 59,7 % 49.1% 65,0 % 62,7 % 49,1 %

8% 8 %

8% 8 % 27% 27% 27 % 27 %

42% 46% 42 % 46 %

20% 20 % 47% 47 %

In organizing the roundtables, BDC recognized that responses to the questions might vary by sector, region and type of investment (for instance, majority versus minority, ownership transition or expansion).

5 Roundtable participants are listed in the appendix. 7 2. Summary of roundtable discussions

To what extent is there a shortage of institutional capital for small PE funds? Participants in the three roundtables largely agreed it is currently very hard—much harder than 10 to 15 years ago—to raise Canadian PE funds smaller than $150 million for the following reasons. >>Large Canadian pension funds no longer invest in this market segment as limited partners (LPs) because it is too small for them. They focus on direct investing (to avoid the need to pay fees to an external manager) and on investing in large PE funds that generate less volatile returns and give them access to large co-investment opportunities. Even intermediate-sized pension funds (with between $20 billion and $50 billion under management) are not writing cheques for less than $50 million. >>Smaller pension funds usually have no alternative asset allocation and lack the sophistication and internal capacities needed to invest in this asset class. >>Unlike the U.S., Canada has only one fund-of-funds—Northleaf Capital Partners—that can manage large pension fund programs targeted to small PE funds (such as the program it manages for the Canada Pension Plan Investment Board), or manage PE allocations from smaller pension funds. >>In the U.S., unlike in Canada, the following factors support the PE market. –– University endowments are important sources of PE capital. –– There are many sophisticated investors (wealthy individuals and family offices) willing to invest outside public markets. Some will make the bold move of becoming anchor investors in PE funds. –– There are important regional sources of PE capital.

In all three roundtables, participants provided anecdotal evidence of institutional investors that had invested in funds smaller than $200 million in the 1990s and 2000s but did not re-invest in subsequent funds because they wished to write larger cheques. This puts pressure on fund managers to either increase the size of their fund and looking for larger deals or look for other sources of capital (such as family offices, high-net-worth individuals and foreign investors).

Is demand for small PE investments rising due to ownership transitions? There was a consensus in all three roundtables that ownership transitions are a huge opportunity for PE investment. Several participants mentioned that most of their deals come from such situations.

At the same time, they also noted important problems of matchmaking (linking the right sellers with the right buyers) and the investment readiness of businesses in these situations. These two dimensions are often intertwined: In many cases, entrepreneurs are not ready, operationally and emotionally, to sell and let go of their business, which makes the matchmaking process long, difficult and costly.

8 Are there unmet needs at the lower end of the PE market? Answers to this question were complex and sometimes contradictory. Here are the common elements of the responses. >>Due to the shortage of institutional capital in this segment of the market, there are very few small, private, independent PE funds—those using an LP or general partner (GP) model and looking for opportunities below $15 million to $20 million in enterprise value. This seems to be true across the country and particularly in Quebec. (The regional dimension is discussed in more detail below.) >>Over the last five years, the number of pledge funds and, more recently, search funds serving this end of the market has risen dramatically. These funds are financed mainly by family offices, entrepreneurs and high-net-worth individuals. >>Some participants—particularly those working for pledge funds and search funds—said there is no shortage of capital for small PE deals. >>However, there are important problems of intermediation, investment readiness and matchmaking. –– For economic reasons, consulting firms look for deals larger than $15 million in enterprise value. For smaller deals, intermediation is less efficient and relies on family professionals (such as lawyers and accountants) and brokers. –– Many small companies are relatively unsophisticated. So, it takes a lot of work to educate an entrepreneur on the process of selling his or her company. –– It may be a long, difficult and emotional process to persuade the owner of a small company to sell. –– It takes almost the same amount of work to do a small deal as a larger deal. >>Most of these problems are not new. Some participants mentioned that the number of advisors active in this segment, notably in banks and accounting firms, declined after the global financial crisis, contributing to the challenges in this market. Despite these difficulties, participants insisted this end of the market offers tremendous opportunities for PE investors.

Are pledge funds and search funds a default solution or the right answer? Roundtable participants agreed that, over the last decade, pledge funds—and, to a lesser extent, search funds—have played an increasingly large role at the lower end of the market.

There are no statistics on these funds. However, pledge fund representatives made up the majority of the private sector participants in the Calgary and Toronto roundtables. They said there were many other similar investors in the market, especially in Toronto.

One Toronto participant who manages a search fund said there might be more than 20 such funds in Toronto, and that he often fields phone calls from people wishing to start one. He believes there is no shortage of people, capital and support systems in Toronto to start such funds. Usually, search funds in Canada focus on deals involving businesses with $1 million to $5 million in earnings before interest, taxes, depreciation and amortization (EBITDA). These deals are usually not recorded in databases.

9 Participants also discussed whether pledge funds and search funds are a default solution for managers because there are no sources of institutional capital that would allow them to raise formal PE funds. Roundtable participants presented the following arguments. >>The increasing involvement of family offices6 and entrepreneurs through pledge and search funds has many benefits. –– These investors not only write smaller cheques but are also more open to first-time fund managers and give them the benefit of the doubt. –– They are more agile investors than larger funds. They make decisions faster, understand entrepreneurs better and do not need complex reporting. –– They are better at educating entrepreneurs about ownership transitions, because they have typically been entrepreneurs themselves and are often willing to share their knowledge. –– They may be able to draw on operational expertise from their entrepreneurial networks. >>Pledge funds and search funds may be better adapted than larger investors to smaller companies for the following reasons. –– Their decision-making processes and the size of their investments may be more suitable for family offices and high-net-worth individuals, especially since they usually raise funds on a deal-by-deal basis. –– They have lower management costs, due to their lighter structure and less-stringent reporting mechanisms.

Several participants initially chose to run a pledge fund “by default,” to build the track record required to raise a PE fund in the future. However, given their advantages, some participants said they might continue to operate a pledge fund for the longer term.7

On the other hand, participants—sometimes the same ones—also mentioned the following points. >>Pledge funds and search funds may have advantages, but they are not scalable and do not have access to stable pools of capital. >>The number of investors ready to invest in pledge funds has increased greatly, but the number remains small and varies by region. >>There is currently plenty of capital to invest in pledge funds and search funds, but it is unclear what will happen during the next downturn. >>It would be very useful for an institutional investor, such as BDC, to help raise small PE funds by becoming an anchor investor.

6 There are different types of family offices. Large second- or third-generation family offices behave more like institutional investors. First-generation family offices linked to a successful entrepreneur behave in a more entrepreneurial way with far more direct involvement in deals. Many of the roundtable discussions referred implicitly to first-generation family offices. 7 Shortcomings of the pledge fund model usually make it less attractive to sophisticated LPs. These shortcomings include the lack of a stable source of capital, the uncertainty of deal-by-deal fundraising, the lack of a professional investment team, deal-by-deal carried interest and economics skewed to the GP model. 10 How important are investment readiness and matchmaking? There was a strong consensus in the three roundtables that, in many cases, the main obstacle to a successful ownership transition is not the availability of capital, but, rather, the emotional readiness of the owner to sell, the company’s suitability for sale and difficulty matching sellers with the right buyers.

Advisors, accountants and investors can help in this area. As already mentioned, small family offices led by entrepreneurs may also be particularly well-positioned to help entrepreneurs because they have already gone through similar processes and may be more patient than larger investors.

However, in many circumstances, the process may still be difficult, long and costly. How to accelerate transitions remains an important issue.

Could minority investments be part of the solution? Fund managers argued that, in most ownership transitions, the entrepreneur has to let go of the business and, therefore, there has to be a transfer of majority ownership. However, minority investments can be a good way to prepare for a long-term transition and play an important role in intergenerational transitions.

Are there different needs for capital among regions? Toronto roundtable participants argued strongly there is no shortage of capital or expertise in the market, and that pledge funds and search funds are filling the gap, with an increasing number of entrepreneurs and high-net-worth individuals seeding these funds. At the same time, they said BDC could help the market by acting as an anchor investor in small PE funds.

Calgary roundtable participants also mentioned a surge in pledge funds financed by family offices and entrepreneurs. At the same time, participants said there were too few of these funds to meet the needs of small businesses. They noted many Canadian PE funds handle deals larger than $20 million—and that American PE funds are also attracted to these deals because of lower valuations in Canada—but the lower end of the market is underserved.

The Montreal roundtable had a different tone. Participants agreed there is no overall shortage of capital. However, they indicated there may be a lack of diversification of investors. Government and institutional funds are the main players in Quebec, and they tend to focus mainly on minority investments. There are fewer private sector investors who could bring operational experience and expertise to transitions. Participants also noted the buyout market is less developed, both for independent PE funds and pledge funds.

11 Roundtables participants

Name Organization Type of investor Warren Raby RayQuest Family office David Albo Ciel Capital Family office Kelly Burke Sculler Capital Family office Elmer Kim Hyatt Bangia Family office David Sherman Sherman family office Family office Ludovic Dumas Claridge Family office Enzo Gabrielli Horizon Capital Family office (Chamendy Family Office) Mark W. Auger Financière Savoie Family office Dave Mullen Highland West Capital Family office Mathieu Gauvin CDPQ Institutional Investor Luc Lapointe Fondaction Institutional Investor Jérôme Nycz BDC Capital Institutional Investor Thomas Park BDC Capital Institutional Investor Patrick Latour BDC Capital Institutional Investor Claude Miron BDC Capital Institutional Investor Alexandra Bonnefoy BDC Capital Institutional Investor Mathew Colucci PillarFour Capital LP/GP Randy Garg Vistara Capital Partners LP/GP Michael McGee Avrio Capital LP/GP Art Robinson Longbow Capital LP/GP Matt Hall Market Square LP/GP David Hass Brookside Capital Partners LP/GP Jared Kalish FirePower Capital LP/GP Martin Kent Kensington Capital LP/GP Peter Samson Ironbridge Equity Partners LP/GP Dominic Bécotte XPND LP/GP Marie-Claude Boisvert Clearspring Capital Partners LP/GP Eric Phaneuf Walter Capital Partners LP/GP Christian Turgeon BDG & Associés LP/GP

12 Name Organization Type of investor Jordan Martel Sequeira Partners Mergers and Acquisitions Experts Samantha Horn Stikeman Mergers and Acquisitions Experts Flora Wan Deloitte Mergers and Acquisitions Experts Christine Pouliot PWC Mergers and Acquisitions Experts Éric St-Pierre Arma Capital Mergers and Acquisitions Experts Jonathan Hudson Glenbow Capital Pledge fund/search fund Andrew Bishop Bingley Capital Inc. Pledge fund/search fund Jeff Block Evora Equity Pledge fund/search fund Noemie Ouellet-Gendron Namakor Pledge fund/search fund Michael Arblaster CPS Capital Pledge fund/search fund Raymond Tam BTC Partners Pledge fund/search fund Dan Forest Alpine Partners/Datavalet Pledge fund/search fund Technologies Mike Woollatt ACCR Industry experts Gilles Duruflé Independent Expert Industry experts