Private Equity Canada 2009 - Have we hit bottom?

TORONTO, May 27 /CNW/ - 2009 was a tough year for the PE industry in Canada and the United States. Overall, conditions were even more challenging than they were in 2008, with key market indicators showing reduced activity in virtually every segment. Unlike many other industries that contracted and then expanded in keeping with the economy, private equity remained well below the highs it achieved in 2007 and certainly below those of 2008.

Why would this be so?

According to an annual report just released by McKinsey & Company, many PE investors and experts believe the rebound in 2009 in a number of different assets was a response to players taking advantage of low asset prices and not a reflection of underlying economic strength. They also thought the stimulus packages and very low real interest rates masked the economic weakness inherent in private consumption. In addition, they were concerned about the impact of stimulus funding expiring in the next 12 months in Canada and the United States; the possibility of either inflation or an economic slowdown in China; and the instability and financial distress in the Eurozone.

In light of all this uncertainty, many in the Canadian and US PE industry are asking: Have we hit bottom? After all, uncertainty about the market has not dissipated - in some cases, it has increased. Yet McKinsey thinks the medium-term outlook for the industry is reasonably strong for several reasons: private equity is a cyclical industry and has shown its value in this downturn; investors will continue to seek attractive risk-adjusted returns; some consolidation in the industry is likely, lessening competition; and the economy and public equity markets will hopefully eventually stabilize and continue to grow.

Private Equity Canada 2009 offers an in-depth review of Canada's PE market over the past year. Prepared by Thomson Reuters for McKinsey, it describes key trends in the different PE segments and compares market growth rates, the creation of new partnerships, and domestic and global deal activity to prior years.

Additional Private Equity Canada 2009 highlights include:

    
    -   Canadian buyout and related PE deal-making was the slowest in
        6 years. However, Canadian fund managers believe the market will
        improve this year.

    -   Capital managed by Canadian PE funds in 2009 was $76 billion, up
        3 percent from $73.7 billion in 2008.

    -   Buyout and related PE funds absorbed most new dollars in 2009.
        Canadian fund managers oversaw $53.7 billion, up 4 percent from 2008,
        accounting for 70 percent of the entire market.

    -   Mezzanine and other quasi-equity fund managers oversaw $7.3 billion,
        down somewhat from 2008 but continuing to make up 10 percent of the
        aggregate amount.

    -   Disbursements by buyout, mezzanine, and other PE funds totalled
        $3.1 billion - 53 percent below 2008 levels. In addition, deals done
        in domestic and foreign businesses totalled 308, down 45 percent from
        2008.

    -   Canadian VC funds invested $848 million in domestic and foreign
        businesses, down 32 percent from 2008. Company financings were also
        down 18 percent year over year, totalling 402.
    

The report's conclusions are drawn from McKinsey's proprietary research and the data Thomson Reuters collected and analyzed from its annual proprietary survey and supplemented with several related surveys and interviews. The 2009 survey was consistent with the 2008 one - and those of previous years - permitting year-over-year comparisons. The 120 survey respondents represented all of the largest groups based in Canada and 96 percent of the entire capital pool.

About McKinsey & Company

McKinsey & Company is a management consulting firm that helps the world's leading corporations and organizations address their strategic opportunities and challenges. For over 80 years, the firm's primary objective has been to serve as an organization's most trusted external advisor on critical issues facing senior management.

About Thomson Reuters

Thomson Reuters is the authoritative source of information on activity in Canada's private equity space. Its extensive network of contacts and its proprietary data sources have made the firm a focal point for information on Canadian private equity deals and dealmakers. For this reason, Thomson Reuters is a vital, value-adding resource for understanding the full universe of market players in Canada, as well as those based in the United States and other countries that are engaged in cross-border investing.

SOURCE MCKINSEY & COMPANY CANADA

For further information: For further information: To obtain a copy of Private Equity Canada 2009, visit www.mckinsey.com or www.thomsonreuters.com, or www.canadavc.com; To request an interview, contact: Robert Palter at (416) 313-3774 or robert_palter@mckinsey.com; Sacha Ghai at (416) 313-3834 or sacha_ghai@mckinsey.com; Jonathan Tétrault at (514) 939-6925 or jonathan_tetrault@mckinsey.com; or Kirk Falconer at (613) 747-4441 or kirk.falconer@thomsonreuters.com

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