Canadian Private Equity Buyout Review
First Nine Months 2018
Hyungwon Kang , Reuters Table of Contents
Canada’s PE Buyout Market First 3Q 2018 3 $ Invested and # Companies Financed 5 Investment by Company Location 7 Investment by Transaction Type 8 Investment by Investor Location 9 PE Investment vs. all Canadian M&A 10 Top PE Buyout Deals 11 Investment by Deal Size 12 Investment by Company Sector 13 Canadian Firms’ Investment Abroad 14 Buyout Funds Raised 16 PE Buyout-Backed Exits 17 PE Buyout Returns 18 Explanatory Notes & Contacts 19
2 Canadian Private Equity Buyout Market Activity: First Nine Months 2018
Canadian Buyout-PE Market Trends
The first nine months of 2018 within Canada’s buyout and related private equity market saw a total of 255 transactions collectively valued at $24.0 billion. Despite deal values declining 7% from 2017 figures, 2018 still remains the second-highest start to the year on record. Deal volumes on the other hand were down 12% from the same period last year and are at their lowest level in five years, indicating more investment dollars flowing into fewer deals.
The $5.0 billion secondary sale of Bolton, Ontario-based Husky Injection Moldings Systems by OMERS Private Equity and Berkshire Hathaway to US private equity firm Platinum Equity, has retained the number one spot in both Canada’s top deals list and top exits list. A new addition to the list during the third quarter was the announced sale of Enbridge’s natural gas gathering and processing business to Brookfield Infrastructure Partners for $4.3 billion. Also added during the quarter was a $533 million private placement involving wood products company Stella-Jones and a number of shareholders including British Columbia Investment Management Corporation, Caisse de dépôt et placement du Québec, OMERS Private Equity, Fonds de solidarité FTQ, and GPI Capital.
Canadian Market Trends by Sector
The Information Technology & Media sector remained the most active in the first half, with 43 deals collectively valued at $3.3 billion. The consumer-related sector saw 30 deals in the first nine months, while manufacturing companies saw 28 deals collectively valued at $5.0 billion. The Oil & Gas sector received the largest share of overall dollar values, with 24 deals collectively bringing in $6.7 billion.
Canadian Fund Performance
The performance of Canadian buyout, private equity energy, and subordinated capital funds continued to show slight underperformance to public market comparators through to the end of the second quarter of 2018. Published data provided by Cambridge Associates shows Canadian buyout, private equity energy, and subordinated capital funds with vintage years of 2000 or greater returning a since inception IRR of 5.4% as of the end of Q2. This lags far behind their US counterparts which showed consistent outperformance of public markets and a since inception IRR of 13.0%.
3 Canadian Private Equity Buyout Market Activity: First Nine Months 2018
Canadian Market Trends by Region
Companies based in Québec received the largest share of investment volumes throughout the first half of 2018, with 36% of all financings. Ontario placed right behind with 35%, a level greater than any of its annual shares since 2007, which saw 41% of total deal volumes.
Canadian Investor Activity in Global Markets
Canadian buyout and related PE funds participated in 105 non-Canadian deals during the first three quarters collectively valued at $67.4 billion. Deal values were up 35% year-over-year but were still down from the recorded highs in the first nine months of 2016 and 2015, which saw total foreign deal values of $77.3 billion and $99.3 billion respectively.
Top deals in non-Canadian companies during the year included Brookfield Asset Management’s $18.9 billion takeover of Chicago-based U.S. mall owner GGP (subsequently renamed Brookfield Property REIT), Chinese online payment platform Ant Financial’s $600 million investment from the Canada Pension Plan Investment Board as part of an $18.2 billion deal, and Calpine Corporation’s $7.2 billion takeover led by Energy Capital Partners which included a $970 million investment by Canada Pension Plan Investment Board.
Trends in Canadian buyout-PE fundraising
Five funds raised $4.3 billion in the third quarter of the year, bringing the overall count up to $8.5 billion raised in the first nine months. During the quarter $2.8 billion was raised by Northleaf Capital Partners, to be split between their Private Equity Investors VII and Secondary Partners II funds, and $1.3 billion was raised by Whitehorse Liquidity Partners for its second fund.
4 Historical Investment in Canadian Companies: Private Equity Buyout Deal Values Canadian companies saw deal values of $24.0 billion in the first three quarters, down 7% from last year but still the second strongest first nine months on record. Deal values in Q3 were $5.6 billion, down 51% from the same period last year.
$40
$35 $33.7
$31.8
$30 $28.2
$25 $24.2 $24.0
$20 $18.6 $17.7 $15.9 $15 $12.8 $12.8 $11.8 $10.9 $10.5 $10 $10.0
PE Deal Values ($ Billions) ($ Values PE Deal $7.9 $6.2 $6.0 $5.3 $5 $3.4
$0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Q1 Q2 Q3 Q4
5 Historical Investment in Canadian Companies: Private Equity Buyout Deal Volumes A total of 255 buyout and related private equity deals were completed in the first three quarters, down 12% from last year’s volumes and the slowest first nine months since 2013.
500 466 456 450
400 384
349 356 350 331 318 300 288
248 249 255 250 242
200 199 193 196 191
150 143 140
# of PE Buyout Deals Buyout PE of # 125 100
50
0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Q1 Q2 Q3 Q4
6 PE-Buyout Dealmaking: Deals by Company Location Québec-based companies saw 93 deals in the first nine months of the year, a 36% share of all Canadian activity. Ontario companies accounted for 35% of all deals during the period, the province’s greatest share since 2007.
100%
90%
80%
70%
60%
50%
% Deals of % 40%
30%
20%
10%
0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 First 3Q 2018 Ontario Québec Alberta British Columbia Prairies Atlantic Canada Territories
7 PE-Buyout Dealmaking: Deal Volumes by Transaction Type Control Stake deals comprised only 14% of all deal types in the first three quarters of 2018, lower than any annual share since 2001. Add-on acquisitions remained the most popular deal type with 90 deals comprising 35% of the total.
100%
90%
80%
70%
60%
50%
% Deals of % 40%
30%
20%
10%
0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 First 3Q 2018 Control Stake Minority Stake Acquisition for Expansion Mezzanine PIPE Restructuring Other
8 PE-Buyout Dealmaking: Deal Volumes by Investor Location Canadian investors participated in 75% of all Canadian PE buyout deals in the first nine months, increasing from a 73% participation rate in both of the previous two years. U.S. participation fell to 27%, down from 28% in 2017 and 30% in 2016.
100%
90%
80%
70%
60%
50%
% Deals of % 40%
30%
20%
10%
0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 First 3Q 2018 Deals Including Canadian Investors Deals Including United States Investors
9 PE-Buyout Dealmaking Versus All M&A of Canadian Targets While Canadian buyout deal volumes were down 12% year-over-year, Canadian M&A deal volumes declined slightly more at 13%, resulting in PE deals’ share of traditional M&A remaining flat at 14% throughout the first three quarters.
140 35%
120 30%
100 25%
80 20%
60 15% # of Deals of #
40 10%
20 5%
0 0% Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 # of PE Deals PE Deals as % of all M&A Activity
10 Top Canadian Private Equity Deals, First Nine Months 2018
Portfolio Company Investors
Deal Value Rank Company Name Location Sector Investing Firms (Disclosed) ($ Millions) Husky Injection Molding Plastics 1 $4,959.6 Bolton, ON Platinum Equity Systems Manufacturing Enbridge - Canadian Natural 2 $4,310.0 Calgary, AB Natural Gas Brookfield Asset Management Gas G&P Business Industrial Properties 3 Pure Industrial Real Estate Trust $3,800.0 Vancouver, BC Blackstone Group, Ivanhoe Cambridge REIT
4 Mitel Networks $2,566.6 Ottawa, ON Telecommunications Searchlight Capital Partners
5 Wolf Midstream $1,610.0 Calgary, AB Energy Infrastructure Canada Pension Plan Investment Board
6 Innergex Renewable Energy $1,100.0 Longueuil, QC Renewable Energy Caisse de dépôt et placement du Québec
7 Dalradian Resources $537.0 Toronto, ON Mineral Exploration Orion Mine Finance British Columbia Investment Management Corporation, 8 Stella-Jones $533.4 Saint-Laurent, QC Wood Products Caisse de dépôt et placement du Québec, OMERS Private Equity, Fonds de Solidarité FTQ, GPI Capital Orion Resource Partners, Newcrest Mining Limited, Lorito 9 Lundin Gold $513.6 Vancouver, BC Gold Mining Holdings, Zebra Holdings and Investments
10 Napec $320.0 Drummondville, QC Energy Infrastructure Oaktree Capital Management
11 Canadian PE-Buyout Investment by Deal Size Range The top three deals of the year; Husky Injection Molding Systems, Enbridge’s Canadian natural gas gathering and processing business, and Pure Industrial Real Estate Trust, accounted for $13 billion, or 54% of total deal values.
$1,301 6 3 14 $2,601
>= $1 Billion 38
$1,584 $500 - $999 Million $24.0 Billion $100 - $499 Million 255 Deals Invested $10 - $99 Million 145
< $10 Million 49
$18,346 Deal Values Undisclosed
12 Canadian PE-Buyout Investment by Sector, First Nine Months 2018 Companies within the IT & Media sector comprised 17% of all deals recorded during the period. Oil & Gas companies captured the largest share of deal values with $6.7 billion, or 28%.
First Nine Months 2018 Total # of Deals First Nine Months 2018 Total Deal Values ($ Billions) 50 $8
45 $7 40 $6 35 $5 30
25 $4
20 $3 15 $2 10 $1 5
0 $0
IT & Media Consumer Related Manufacturing Business Services Oil & Gas Construction & Engineering Mining & Minerals Energy & Environmental Finance Healthcare & Life Sciences Transportation Forestry & Agriculture
13 PE Investments by Canadian Firms in non-Canadian Companies Canadian funds invested in 105 deals involving non-Canadian companies in the first nine months of the year, with deal values of $67.4 billion.
$45 50
$40 45
Thousands 40
$35 35 $30
30 $25 25 $20
20 Deals of # $15 15 Deal Values ($ Billions) ($ Values Deal $10 10
$5 5
$0 0 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Total Deal Values, Canadian & Non-Canadian Investors # of Deals
14 Top PE Investments by Canadian Firms in Non-Canadian Companies, First Nine Months 2018
Portfolio Company Canadian Investors
Deal Value Rank Company Name Location Sector Investing Firms (Disclosed) ($ Billions)
1 Brookfield Property REIT $18.9 Chicago, IL Real Estate Brookfield Asset Management
2 Ant Financial $18.2 Hangzhou, China Financial Services Canada Pension Plan Investment Board
3 Calpine Corp. $7.2 Houston, TX Power Generation Canada Pension Plan Investment Board
4 Recordati $4.7 Milan, Italy Pharmaceuticals PSP Investments
5 VeriFone $4.4 San Jose, CA Financial Services British Columbia Investment Management Corporation Rotterdam, Refresco Group $2.5 Soft Drinks British Columbia Investment Management Corporation 6 Netherlands London, United Alexander Mann Group $1.5 Talent Acquisition OMERS Private Equity 7 Kingdom
8 Cleco Corporate Holdings $1.3 Pineville, LA Electric Utilities British Columbia Investment Management Corporation
9 Lytx $0.9 San Diego, CA Fleet Management PSP Investments
10 TerraForm Power $0.8 Bethesda, MD Renewable Energy Brookfield Asset Management
15 PE-Buyout Fundraising by Canadian Firms Five funds raised $4.3 billion in the third quarter of the year, including $2.8 billion split between Northleaf’s Private Equity Investors VII and Secondary Partners II funds, and Whitehorse’s $1.3 billion raise for its second Liquidity Partners fund.
$50 $45.4
$45
$40
$35
$30
$25
$19.8 $20 $16.1 $14.7 $15 $12.2
Funds Raised ($ Billions) ($ Raised Funds $11.1 $10 $8.5 $7.3
$5 $3.8
$0 2010 2011 2012 2013 2014 2015 2016 2017 First 3Q 2018
16 Canadian PE-Backed Exits, First Nine Months 2018 50 exits were completed in the first nine months, resulting in exit volumes down 21% from the same period last year. Q3 saw 7 secondary exits occur, the highest level since Q3 of 2015.
Portfolio Company Investors
Deal Value Rank Company Name Location Sector Exiting Investors (Disclosed) ($ Billions) Plastics 1 Husky Injection Molding Systems $5.0 Bolton, ON OMERS Private Equity, Berkshire Partners Manufacturing
Atrium Innovations Permira Advisers , Caisse de dépôt et placement du 2 $2.9 Westmount, QC Nutritional Products Québec, Fonds de solidarité FTQ
3 Mitel Networks $2.6 Kanata, ON Telecommunications Francisco Partners
Camso Desjardins Capital, Caisse de dépôt et placement du 4 $2.2 Magog, QC Tire Manufacturing Québec, Fonds de solidarité FTQ GFL Environmental HPS Investment Partners, Macquarie Infrastructure 5 $2.0 Toronto, ON Waste Management Partners, Hawthorn Equity Partners
30
20
# of Exits of # 10
0 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 M&A Public Secondary Sale
17 Cambridge Associates: Private Equity Fund Performance Canadian private independent funds holding positive returns, but fall significantly below public market counterparts and U.S.-based benchmarks.
14% 14%
12% 12%
10% 10%
8% 8%
6% 6%
4% Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 2018 4% Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 2018
Canadian Buyout, Private Equity Energy & Subordinated Capital Funds U.S. Buyout, Private Equity Energy & Subordinated Capital Funds mPME: S&P/TSX 60 Index mPME S&P 500 Index
18 Explanatory Notes
1. Data collected and analyzed by Refinitiv for this statistical report were drawn from a variety of sources including Refinitiv M&A databases, regulatory filings, press releases, and proprietary reports from Canadian and non- resident venture capital firms, private equity firms, law firms, and other service providers.
2. Key statistical indicators (e.g., total disbursements, per quarter or per annum) are influenced by the fact that a substantial fraction of buyout and other PE deals are not fully disclosed. For instance, “dollars invested” in a given period pertain only to those deals with values that have been published or confidentially disclosed to Thomson Reuters.
3. The data also highlight the deal-making of Canadian funds in non-Canadian companies. “Dollars invested” pertain to the total value of disclosed deals in which Canadian funds have participated and not the specific Canadian financial contributions to these deals. Deals are first tracked as of announcement date, then tracked as of completion date upon closing.
4. Statistical data reflect all essential forms of buyout-PE deal-making, including control-stake acquisitions of businesses, minority equity investments, restructuring and special-situations transactions, mezzanine deals over $3 million, acquisitions for expansion and other quasi-equity investments.
5. Fund performance data and public market equivalents are produced via the Cambridge Associates Benchmark Calculator, available through Thomson Reuters Eikon. Returns are for Canadian and US buyout, private equity energy and dubordinated capital funds with vintage years of 2000 or greater, on a first cash flow basis, in Canadian dollars, from inception to the end of the indicated quarter, under published data mode Q2 2018. Pooled internal rates of return are net of fees, expenses and carried interest. CA Modified Public Market Equivalent (mPME) replicates private investment performance under public market conditions. The public index’s shares are purchased and sold according to the private fund cash flow schedule, with distributions calculated in the same proportion as the private fund, and mPME NAV is a function of mPME cash flows and public index returns.
6. All current and previous years data is as of Wednesday, October 25th, 2018. Data is continuously updated and is therefore subject to change. All figures are in Canadian dollars unless otherwise noted.
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