“Turning over a New Leaf - Canada Surges in M&A Activity”

After two years in which deal making was down, Canadian buyout and private equity investments were on the rise again in 2010 and now are positioned for a strong 2011. Estimates suggest that close to $5 billion was invested in Canada by its private equity players in 2010, which signaled the first rise for the asset class since 2007. The charge was led by deals like the Canada Pension Plan Investment Board's C$900 million purchase of a 10 percent stake in the 407 toll highway near Toronto. According to data from Canada’s Venture Capital & Private Equity Association, in 2010 there were 130 buyout and other private equity deals closed in Canada, which is up 7% from 2009. Disclosed deal values totaled $5 billion, which was a 21% increase on the previous year. Canadian private equity has snapped back to form in 2010, which puts it in line with private equity developments in North America and around the world last year. But what have the signals from Q1 2011 shown for the rest of the year?

All indications have shown that 2011 will be a strong year for private equity globally, and Canada’s private equity firms will be in the midst of the fray. "Private equity has been on the upswing around the world in 2010," said Gregory Smith, president of the Canadian Venture Capital & Private Equity Association. "And Canadian firms are fully participating in this rising activity. We are convinced that there are significant prospects for future growth." The sentiment that this year could be a great year for private equity seems to be shared by players who say now could be the best time to invest and take advantage of recession-adjusted pricing for high quality assets. Assets, which in an improving economy, would only rise in price as comfort and awareness return to markets. In fact, one could suggest that with the rise in Canadian private equity exits in 2010 (there were 72 exits, as opposed to the 35 exits in 2009), there is a growing desire and readiness to participate in new ventures as private equity and buyout firms realize on investments made in earlier stages of their portfolios. There is also consensus amongst Canada’s private equity community about the relative “return to normal” of credit markets, making for considerable liquidity in the system. Capital is available, with fundraising already exceeding the total amount raised in 2010. So if the capital and confidence are in line for Canada’s buyout players, the only question is, “Where do we go next?”

For starters, one can expect Canadian buyout and PE investors to continue playing a pivotal role in global markets. In 2010 which saw domestic investments at $5 Billion, Canadian investors contributed to international transactions valued at close to $30 billion. Canadian investors have been strong players in international private equity markets, leveraging new opportunities abroad as the global economic environment continues to stabilize.  And while a considerable amount of the domestic deal activity focused on smaller transactions, there is an expectation that investors will be on the lookout for the elusive “megadeal,” which was absent from the list of deals closed in Canada during 2010. There is a sense that there will be a deviation from last year when billion-dollar-plus deals were non-existent, and the Canadian market focused on investments in mid-market businesses located in a handful of industry sectors such as industrial products, oil & gas, and real estate. It will be interesting to see if this strategy is adopted employed again this year, or if investors will pursue opportunities in media, technology, and travel – all seen as great target areas in the coming year.