Tech bubble or no, according to the latest Thomson Reuters report, the Canadian venture capital and private equity scene is hot with both segments filing an incredibly strong H1 2015.
When it came to venture capital in the land of moose and maple syrup, the first half of 2015 saw 300 deals valued at $1.2 billion. This is the most VC deals done from January to June since 2005 and the most money invested in this time period since 2002.
Our information technology scene was the big winner this half with 55% of VC dollars invested at $650 million with the majority of those dollars going toward software and Internet-specific companies. Some of the big deals in this arena worth noting were Markham, Ontario-based Real Matters, a cloud-based provider of insight analytics for both residential and commercial properties. Whitecap Venture Partners, and possibly others, decided to sink $60.0 million into this operation.
VarageSale, a Toronto-based online virtual garage sale platform, netted $34.0 million from Sequoia Capital, Lightspeed Ventures and possibly others as these two were the only ones disclosed. It might be interesting to note that theScore, who I have written about before in my Tech Roundups, snagged $23.5 million from Relay Ventures.
Cleantech and Life Sciences sidled up behind with 13% or $159 million and 20% or $243 million respectively during the first six months of 2015. Traditional sector companies in such areas as industrial, manufacturing and consumer-related sectors, brought up the rear with 12% of the VC take.
Canada seems to be increasingly attractive to foreign VC firms beyond North America as 9% of the investments made during this time period came from offshore sources. Conversely, Canadian VC firms have also turned their eyes abroad with $455 million invested in foreign companies in the last 12 months which is coincidentally a six-year high.
Private equity made a splash in H1 2015 as well, with Canadian PE buyout activity registering $11.4 billion in 205 deals. Not only was this the most money spent since 2007, but somebody call Guinness, this was a new all-time record for deals done in the first six months.
When it came to buyouts and other types of private equity, the Canadian scene saw the number of PE buyout deals jump to 28% of eligible domestic M&A activity. This ratio has doubled in the last five years. Alberta was a hotbed of PE activity, beating out the other provinces by raising $7.1 billion mostly through oil and gas deals. When it came to buyouts, Quebec (45%) and Ontario (33%) led the pack with Ontario seeing a 55% growth spurt over H1 2014 while both Alberta (29%) and British Columbia (59%) slid down the hill.
Canadian PE money played a larger role abroad with Canadian funds leading or participating in 82 deals in other countries valued at approximately $95 billion. American companies made up 67% of 82 deals and most of the dollars, 54% in fact, went in that direction as well.
It seems that private equity is slowly making a larger dent on the mergers and acquisitions front as the 205 PE deals done during the first half of 2015 make up a over 25% of total M&A activity. Although Canadian investors have grown a little cold with 3% less dropping dollars in domestic deals.
Big buyout-PE deals during H1 2015 included Heritage Royalty at $3.3 billion from the Ontario Teachers’ Pension Plan, Brookfield Residential Properties at $1.13 billion from Brookfield Asset Management, and IAMGOLD Corporation Niobec Mine at $657 million from Temasek Holdings and CEF Holdings.
All-in-all six of the largest Buyout-PE transactions made up 63% of the dollars invested with two deals climbing over a billion and four deals between $500 million to $1.0 billion. There were another 127 deals that went down the scale from there. It should also be noted that there were 72 deals that kept their values under wraps.
Manufacturing and oil & gas/mining took the lead respectively in number of deals (19%) and money invested (~$6.0 billion). More Canadians are looking outside our borders to place their PE investment with Q2 2015 totals soaring to $64.4 billion from $30.5 billion posted in the previous quarter.
PE fundraising levels aren’t as strong as they used to be with only $4.4 billion in the first six months of 2015 compared to the heady days of 2013 when fundraising hit $16.1 billion. Perhaps considering that we’ve had a good three-year run of fundraising, this dip is to be expected and in a sense still considered a strong showing.
In the end, VC and PE activity came out swinging and seem relatively immune to the public market woes and at this point, might make a viable investment choice for those able to get involved. But let’s not forget the tech bubble and the issue it presents in regards to wildly inflated valuations. Whether these over-valued companies implode or fail to sustain their value on exit, it still presents a certain volatility that investors should seriously consider. Even if investors find businesses more in line with trusted traditional valuations, how will the bursting of the tech bubble impact the VC/PE community on the whole? Tread carefully.
