Investment activity by Canada’s venture capital and buyout industry continued to pick up in the third quarter of 2010.
According to Wiltshire Capital Canada’s private risk capital industry injected $1 billion of new capital into the economy in the third quarter. This money is making a significant contribution to economic growth during a slowdown in the pace of the recovery in Canada.
For a second quarter in a row, venture capital (VC) market activity in Canada expanded in Q3 2010, with $261 million invested in total, or 20% more than the $217 million invested the year before. Disbursements in the third quarter did not, however, approach levels recorded three months earlier, when $335 million was invested.
With two consecutive quarters of growth, Canadian VC activity in 2010 continues to track ahead of activity in 2009. As of September 30th, dollars invested totaled $905 million, up 28% from $709 million invested during the first nine months of last year. At the same time, year-to-date activity in Canada is 18% shy of the $1.1 billion invested in the same period in 2008 – the first year of the current slowdown.
In contrast with disbursements, the number of innovative firms backed with VC between July and September, totaling 107, was unchanged year over year. With 273 companies financed to date in 2010, however, this indicator is also tracking ahead of activity in 2009.
Like Q2 2010, disbursement levels in Q3 2010 were fueled by somewhat larger financing sizes. Amounts invested per Canadian firm averaged $2.4 million in the latter period, up from $2.0 million on average in Q3 2009.
The long-standing VC deal capitalization gap between Canada and the United States remains intact, however. Rather, Canadian firms have so far in 2010 secured only 42% of the dollars going to American firms.
Like domestic activity, the deal-making of Canadian VC funds in other countries increased in the third quarter, with $78 million invested. This level of international activity is more than double the $34 million invested in Q3 2009.
After the first 9 months of the year, private equity buyouts of Canadian companies have continued at a measured rate, on pace to exceed the particularly low levels seen in 2009, but holding steady at approximately US$800 million per quarter.
Wiltshire Capital (wiltshirecapital.com) concludes that Canada’s buyout industry investment levels increased slightly in the third quarter, and in the first nine months as a whole. There were 88 completed and pending Canadian deals in the first nine months of 2010, 35 of which had disclosed values of US$2.45 billion, which exceeded the 74 Canadian deals, 31 of which had disclosed values of US$1.93 billion, in the first 9 months of last year. There were 34 completed and pending buyout transactions in Q3, 2010, 12 of which had disclosed values of US $736 MM, though this was less than the 22 completed and pending buyout transactions in the third quarter of 2009, five of which had disclosed transaction sizes of US$1,034 MM.
International investment activity has been particularly strong in the third quarter, with several large Canadian investments abroad. Most notable of these was the acquisition of UK-based automotive and industrial supplier Tomkins plc, by the CPPIB and Onex Partners, for approximately US$5.0 billion.
High-profile investments in Canadian companies were led this quarter by domestic and foreign investors. Oil sands developer Laricina Energy secured a US$238 million from the CPPIB, and New York-based West Face Capital acquired a US$119 MM interest in Canadian icon Maple Leaf Foods during the quarter.