Canada: Venture Capital And Private Equity Exhibit Disparate Canadian Market Trends In Q1 2017

According to a report recently published by the Canadian Venture Capital & Private Equity Association (CVCA) entitled "CVCA Q1 2017 VC & PE Canadian Market Overview: VC experiences robust quarter; PE flat in Q1", Canadian venture capital (VC) recorded its second-best quarter since 2013, while Canadian private equity (PE) failed to outpace its current stagnant rate.

Interestingly, the VC deal volume in Q1 2017 (at 98 deals) ranked 13th among the 17 completed quarters since the start of 2013; meanwhile, the Q1 2017 aggregate value of money invested (at CAD$905) ranked second-highest over the same time frame, only behind the CAD$956 million invested in Q1 2016. Boosted by four deals that were over CAD$50 million, the average VC deal size climbed to CAD$9.2 million, signifying an 84 per cent increase compared to the quarterly average deal size (at CAD$5 million) for the period of 2013-2016.

VC highlights from the report

  • The March 2017 VC financing of Aurinia Pharmaceutical (Aurinia) was valued at CAD$231 million, representing an 80% increase from the 2016 Dalcor Pharmaceuticals then record-setting deal in the life sciences (at CAD$128 million).
  • British Columbia-based companies dominated Q1 2017 VC financing: on the back of the Aurinia deal, BC ranked first among all Canadian provinces and territories in total dollars invested (at $429 million), ranking higher than Ontario (at $254 million) for the first time since 2013.
  • Q1 2017 saw a remarkable increase in the quantity of VC exits: 11 exits with an aggregate value of CAD$255 million corresponds to approximately one third of the number of deals and one half the total value of all 2016 VC exits.

Canadian PE, with CAD$2.8 billion invested over 105 deals in Q1 2017, saw its lowest deal total since Q2 2015 (at 104 deals) and the least money invested since Q4 2015 (at CAD$2.6 billion). In fact, two deals accounted for just under half of all PE money invested (at CAD$1.3 billion) in Q1 2017: the CAD$723 million Arctic Glacier acquisition and the CAD$575 million sale of British Columbia-based Performance Sports Group's assets to Antares Capital and Fairfax Financial.

PE findings from the report

  • Despite witnessing significantly more PE deals in Q1 2017 (at 61 to 3), Quebec (at CAD$660 million) ranked second to Manitoba (at CAD$723 million) in provincial share of PE dollars. They were followed by British Columbia (at CAD$588 million) and Ontario (at CAD$494 million).
  • The consumer & retail sector accounted for more PE money invested (at CAD$1.3 billion) than the combined value of those sectors who ranked second to seventh: CleanTech; oil&gas, power; agri-forestry; information and communication technology; mining & resources; and industrial & manufacturing, respectively.
  • The PE exit environment is displaying promising signs: with a combined value of CAD$1.5 billion, the 31 PE exits in Q1 2017 amounts to half of the total from all of 2016. This includes the CAD$445 million Canada Goose IPO from March, which marked the first PE-backed IPO since 2015.

Juxtaposing the current strength of Canadian VC against the continuing sluggishness of Canadian PE reveals a striking shift in Canadian private investment strategies: private investors are exhibiting a greater predilection towards enterprises that are innovative, R&D intensive and export oriented.

The author would like to thank Neil Rosen, Summer Student, for his assistance in preparing this legal update.


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