Canada's Buyout-Private Equity & Venture Capital Markets in Q1 2013: Venture Capital Investment Up 55%, Buyout Deal Activity Moderates

TORONTO, May 16, 2013 /CNW/ - Based on data from the CVCA- Canadian Venture Capital and Private Equity Association and research partner Thomson Reuters, for the first quarter of 2013, Canadian venture capital and private equity funds (buyout) disclosed $2.56 billion of new investments and $1.48 billion of new capital formation. Sector highlights included the following:

Venture capital highlights:

• An increase in both the number of investments and proportion of 'new' investments
• A significant increase in total capital invested
• A marked increase in clean tech financings
• A significant number of exits for venture-backed companies, with the majority of these via strategic sales
• A decline in fundraising relative to the prior period, Q1 2012

Private equity (buyout) highlights:

• Resource extraction captured one third (33%) of deals and the majority of capital deployed
• Liquidity for PE backed companies was consistent with prior periods and driven primarily by strategic sales
• There was a noticeable decline in international activity by Canadian funds

VENTURE CAPITAL

Investing Highlights

Venture capital investment activity in Canada increased 55% versus the same period in 2012 to $460 million in the first quarter of 2013. This also represented a marked increase over the previous quarter. The number of deals also grew 17% with 137 Canadian companies receiving new investment capital.  The size of Canadian VC financings increased to an average of size of $3.4 million, up substantially from the $2.5 million average in Q1 2012. Despite the increase, the average deal size was still only 49% of that seen for comparable firms in the United States in Q1 2013.

"It is gratifying to see the substantial growth in venture capital investment in Canada in the first quarter, particularly with respect to first time investments and clean tech.  This is likely, at least in part, a  reflection of the successful capital formation in 2011 and 2012 now resulting in the managers of those funds being able to put more capital to work in outstanding new and emerging companies," said Peter van der Velden, President of the CVCA and Managing General Partner of Lumira Capital Corp.

On a sector basis, investment activity for the quarter was led by the clean technology sector, which accounted for 39% or $180 million of all investments, materially exceeding the $144 million invested during all of 2012. The Information technology sector accounted for $150 million of the quarter's investment activity (up 6% year over the prior year), while the life sciences sector raised a disappointing $40 million, which was down from the prior year.

Exit Highlights

Domestic and foreign VC fund exits from Canadian-based portfolio businesses got off to a strong start in 2013, with 15 liquidity/realization events, which was well ahead of 2012, a year in which there were only 30 such liquidity events for the entire year. Strategic sales accounted for the majority of exits, although two venture back companies did complete initial public offerings during the period.

"The considerable number of exits in the first months of 2013 is encouraging and should have important spillover effects for the Canadian venture capital market. Exits result in distributions back to limited partners and are therefore essential in allowing for the continuity of the investment cycle," said Mr. van der Velden. 

Fund-raising Highlights

In contrast to investment activity, Canada VC fund-raising activity in the first quarter of 2013 lagged activity of one year ago, when a significant number of major partnerships were closed.  New capital committed to a dozen Canadian funds totaled $381 million in this period, down 44% from the same time in 2012.

"These numbers, while not entirely unexpected given the strength of fund raising activity in 2012, highlight the fragile nature of the Canadian venture ecosystem.  Of the capital committed to VC funds in the quarter, $178 million came from retail investors, $100 million came from the managers of a single fund (it was a self-fund entity) and $78 million came from foreign sources. The numbers highlight the critical need for capital in the sector from a variety of sources, the continuing importance of retail capital, and the need to engage domestic and foreign institutional, financial and corporate investors in the Canadian VC sector, something which the Venture Capital Action Plan will hopefully start to address" said Peter van der Velden, President of the CVCA and Managing General Partner of Lumira Capital.

BUYOUT & PRIVATE EQUITY

Investing Highlights

With total disclosed investments $2.1 billion for Q1, 2013 the level of investment activity was in-line with amounts reported in Q1 2012.  The key change for the period was a 47% decline in the number of deals, which was reflective of a handful of major transactions during the period.

"While the level of deal activity in Q1 was a bit disappointing, it is important to note, it follows a record year for domestic deal transaction activity in 2012." said Mr. van der Velden.

In terms of sector allocations, resource extraction captured one-third of deals in the first three months of 2013, followed by construction-engineering and information-media sectors, which each took 11% of the total number. In terms of dollar flows, mining dominated in this period, accounting for 53% of the total largely because of the Arcelor Mittal Mines Canada transaction.  The oil and gas sector followed with 20% of all disbursements.

During the first quarter Canadian buyout-PE funds were less active abroad, at least as compared to their extensive deal-making throughout 2012 and 2011. Despite the decline in activity, Canadian funds still led or participated in a total of 13 international deals with disclosed values of $2.1 billion

Exit Highlights

The pace of liquidity/realization events involving Canadian-based, PE-backed companies remained steady in Q1. Domestic and foreign fund realizations totaled 19, or effectively one-quarter of the 78 exits reported in all of 2012. Strategic sales continued to dominate exit activity, accounting for 74% of transactions in Q1 2013.

"As with venture-backed exits, the steady number of liquidity events involving private equity investments in Canada is positive news," said Mr. van der Velden.  "This is especially so in light of concerns about a continuing "exit bottleneck" that has the potential to negatively impact private equity deal-making and fund-raising in parts of the global market,"

Fund-raising Highlights

Canadian buyout, mezzanine and other PE fund-raising activity in Q1, 2013 mimicked activity in 2012, with a total of $1.1 billion of new capital being committed to ten partnerships and other funds. During the whole of last year, Canadian buyout-PE fund-raising brought $4.5 billion into the market.

Thomson Reuters

Thomson Reuters is the world's leading source of intelligent information for businesses and professionals.  They combine industry expertise with innovative technology to deliver critical information to leading decision makers in the financial, legal, tax and accounting, scientific, healthcare and media markets, powered by the world's most trusted news organization. With headquarters in New York and major operations in London and Eagan, Minnesota, Thomson Reuters employs more than 50,000 people in 93 countries.  www.thomsonreuters.com .

CVCA

The CVCA - Canada's Venture Capital & Private Equity Association, was founded in 1974 and is the association that represents Canada's venture capital and private equity industry. Its over 2000 members are firms and organizations which manage the majority of Canada's pools of capital designated to be committed to venture capital and private equity investments.  The CVCA fosters professional development, networking, communication, research and education within the venture capital and private equity sector and represents the industry in public policy matters. www.cvca.ca

SOURCE: CVCA - Canada's Venture Capital & Private Equity Association

To arrange an interview with Peter van der Velden, President of the CVCA and Managing General Partner of Lumira Capital Corp, or Richard Rémillard, CVCA's Executive Director, please contact Lauren Linton, Director of Marketing, [email protected] .