Full-year numbers reflect increased caution through privatization and rise in debt financing
An increase in overall number of deals wasn’t enough to prevent an overall slowdown in private-equity funding in Canada last year, according to new figures from the Canadian Venture Capital Association (CVCA).
Based on the latest figures from the association, Canada’s private-equity space saw $14 billion invested across 635 deals last year, compared to the yearly average of $21 billion over 565 deals seen during the previous five-year period from 2015 to 2019.
The majority of PE deals struck last year (70%) were under $25M. On the opposite extreme, there were only 5 megadeals ($500M+) accounting for 50% of total PE dollars invested, which all closed in Q1 before the impact of COVID-19 was fully realized.
“PE investors are moving forward cautiously amid the ongoing COVID-19 pandemic and are being faced with a bombardment of new variables such as shifts to consumer preferences, digitization, government restrictions, and low-to-zero touch models," said CVCA CEO Kim Furlong.
The industrial and manufacturing space accounted for 128 deals in 2020, continuing a years-long trend of having the most PE activity among all sectors in Canada. Information and communications technology, meanwhile, saw a banner year with $3.7 billion over 121 deals, trouncing the five-year average of $2.6 billion over 92 deals seen during the previous five years.
Last year also saw 35 exits, 57% lower than the previous five-year average and the lowest number on record. M&A deals accounted for 24 deals amounting to $1 billion, while secondary buyouts represented $2.7 billion across 6 deals. PE-backed IPOs set a new all-time record with four deals fetching a cumulative total of $13.9 billion, nearly three times the previous high of $4.8 billion set in 2017.
“[A]midst the economic turmoil that COVID-19 has created, the valuation market remains very hot,” Furlong said. “The valuation factor is what we will be watching most closely in 2021.”
Minority (follow-on and growth) investments composed a third (34%) of total PE deal volume, with $5.6B across 217 deals. Meanwhile, buyout and add-on investments accounted for 18% of total deal volume, with CAD $2.5B across 113 deals.
Debt financing deals saw an unprecedented acceleration: 260 deals were inked last year, compared to the 195 deals on average for the 2015-2019 period. The rise in debt deals, which totalled $1.1 billion last year, point to a shift in investor risk in 2020 as the need for liquidity is increased among portfolio companies.
2020 experienced an unprecedented rise in the number of debt financing deals, with 260 deals in 2020 compared to the 5-year average of 195 deals (2015-2019), as well as an increase in minority investments compared to the 5-year average. The rise in debt financing deals indicate a shift in investor risk during 2020 when the need for liquidity is heightened in portfolio companies.
With $1.3 billion across 5 deals last year, privatization deals ticked up to peak levels last seen in 2017. That could be reflective of certain sectors opting to insulate themselves from the volatility of public markets by going private, the CVCA said.
