Canada s Buyout & Private Equity Market in Q2 2013 Prepared by for Canada s Venture Capital & Private Equity Association
Canadian buyout-pe market trends In the second quarter of 2013, deal activity in the Canadian buyout and related private equity (PE) market continued to moderate relative to activity last year. Control-stake acquisitions, minority investments and other PE transactions (announced and completed) totaled 72 in this period, down 27% year over year. To date in 2013, a total of 142 deals have been done, which is 24% below the number reported in the first half of 2012. Disclosed buyout-pe deal values in the Canadian market totaled $2.3 billion between April and June, down 42% from Q2 2012. Additionally, disbursement levels at the end of the first half of 2013, standing at $4.6 billion in total, tracked below levels reported over the first half of last year coming short by 25%. 1 The largest deal done in Q2 2013 saw Toronto-based LifeLabs Medical Laboratory Services Inc., a portfolio company of OMERS Borealis Infrastructure, acquire CML Healthcare Inc. of Mississauga for $1.2 billion. Market activity also featured the $412 million take-private buyout of Toronto s Softchoice Corp. by Birch Hill Equity Partners; the $225 million purchase of solar power assets by Calgary s BlueEarth Renewables Inc., a portfolio company of ARC Financial Corp. and Teachers Private Capital; and the $30 million financing of Saint-Laurent s AJW Technique Inc., which was backed by the Fonds de solidarité des travailleurs du Québec FTQ. As of June 30 th, two transactions sized greater than $1 billion have absorbed half of disclosed dollars invested in the domestic market. Deals sized between $100 million and $500 million accounted for the second largest share, or 31%, while deals sized between $25 million and $100 million took 7%. The balance was assumed by transactions sized less than $25 million. Trends in the US buyout-pe market As in the first quarter of 2013, trends in the American buyout-pe market showed increasing vigour in the second quarter. Taken together, disclosed disbursements in the American market totaled US$105.8 billion at the end of June, which is better than double the amount recorded for the first half of 2012, according to Thomson One. Overview of Canadian Market Activity in Q2 2013 1 Of the 142 buyout-pe deals done in Canada in as of June 30, 2013, 104 deals, or 73% of the total, reflected values disclosed to Thomson Reuters. 2
Canadian market trends by sector Canadian oil and gas businesses accounted for the largest share of buyout-pe deals done in in the first half of 2013 17%. In second spot was activity in mining sectors, which accounted for 13% of the total number of transactions, followed by manufacturing-related activity, which accounted for an 11% share. With respect to disclosed deal values, domestic market activity to date has been led in healthcare and other sciences sectors, which consumed 28% of the total, primarily because of the CML Healthcare add-on acquisition. Mining-related transactions obtained the second largest proportion of dollar flows (26%), followed by oil and gas transactions (15%). Canadian market trends by region The majority of Canadian buyout-pe deals done in the first half of the year engaged business that were located in Québec (35%) and Ontario (27%). A significant number of transactions were also reported in Alberta, which accounted for 18% of the total, and British Columbia, which reflected a 15% market share. In part due to the CML Healthcare acquisition, Ontario led deal-making in dollar terms, accounting for 40% of the total invested between January and June. Québec took second spot with one-third of all disclosed disbursements, followed by Alberta (21%) and British Columbia (5%). Canadian investor activity in global markets Canadian buyout-pe deal-making abroad accelerated in the second quarter of 2013, with transaction values, totaling $4.7 billion, representing the second largest deployment by funds over the past twelve months. For this reason, international activity in Q2 2013 was up 87% from the year before. A number of major transactions contributed to this result, including the close of the US$1.8 billion acquisition of Park Ridge, New Jersey-based SeaCube Container Leasing Ltd. by Teachers Private Capital; the $1.5 billion acquisition of London, U.K.-based Vue Entertainment Ltd. by OMERS Private Equity and Alberta Investment Management Corp.; and the US$950 million acquisition of San Juan Capistrano, California-based Emerald Expositions Inc. by Onex Corp. Overview of Canadian Market Activity in Q2 2013
Between January and June, Canadian funds have led or participated in a total of 28 international deals valued at approximately $6 billion 2. That level of activity is roughly on par in transactional volume, year over year, and down 19% in values. Canadian buyout-pe exit activity Along with deal activity, buyout-pe fund realizations of Canadian portfolio companies suggested signs of moderation in the first half of 2013. Exits from Canadian assets by domestic and foreign funds totaled 33 in this period, down 11% from the number of exits reported at the same time last year. Strategic acquisitions continued to drive exits, accounting for 61% of the total number as of June 30 th, followed by financial acquisitions, which secured a 27% share. Domestic market activity in Q2 2013 featured the acquisition of Inmet Mining Corp. of Toronto by First Quantum Minerals Ltd. for $5.1 billion, giving an exit to Temasek Holdings; and the acquisition of Ottawa s N-able Technologies Inc. by SolarWinds Inc. for $120 million, giving an exit to Accel-KKR. This period also saw a major initial public offering of over $262 million by BRP Inc., a portfolio company of Bain Capital and the Caisse de dépôt et placement du Québec. Trends in Canadian buyout-pe fund-raising In the first half of 2013, Canadian buyout, mezzanine and other PE fund-raising activity was tracking well ahead of activity in 2012. New capital commitments totaling $3.7 billion went to 19 partnerships and other funds in this period, which is close to double the amount committed at the same time last year. In Q2 2013, market trends were led by the partnership closings of a wide mix of Canadian mid-market buyout-pe firms. Examples include the $350 million final close of Camcor Energy Fund VII, managed by Calgary s Camcor Partners; the launch of the $250 million Sodémex Développement by the Caisse de dépôt et placement du Québec; the $230 million launch of Capital Croissance PME by the Caisse and Desjardins Capital de risqué; the $200 million final close of Wellington Financial Fund IV, managed by Toronto s Wellington Financial LP; and the $90 million first close of Persistence Capital Partners II LP, managed by Montréal s Persistence Capital Partners. Overview of Canadian Market Activity in Q2 2013 2 Data reflect the total value of disclosed international deals in which Canadian funds have participated and not the specific Canadian financial contributions to these deals. 4
1. Buyout & Private Equity Market Activity in Canada in Q2 2013
Deal Values: Millions of $CAD $20 400 $18 $16 $14 $18.0 302 332 350 300 $12 $10 $8 228 171 227 $6.9 $11.6 $11.6 142 250 200 150 # of Deals $6 $4 $5.2 $4.6 100 $2 50 $0 2008 2009 2010 2011 2012 First Half 2013 Total Deal Values # of Deals 0 NB: For a discussion of key data methodology issues, please see explanatory notes on pg. 26-27. Canadian Deal-Making Moderates in First Half of 2013 BUYOUT-PE DEALS & DISBURSEMENTS (DISCLOSED) IN CANADA, 2008 FIRST HALF 2013 6
Deal Values: Millions of $CAD # of Deals $4,500 $4,000 $3,500 $3,000 $2,500 $2,000 56 91 89 $2,176 $2,147 $4,000 99 63 $4,077 81 70 72 $2,276 $2,329 120 100 80 60 $1,500 $1,484 $1,403 40 $1,000 20 $500 $0 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 0 Total Deal Values # of Deals NB: For a discussion of key data methodology issues, please see explanatory notes on pg. 26-27.. Disclosed Deal Values in Q2 2013 Drop 42% Year Over Year BUYOUT-PE DEALS & DISBURSEMENTS (DISCLOSED) IN CANADA, Q3 2011 Q2 2013 7
# of Deals 250 200 150 100 50 0 2008 2009 2010 2011 2012 First Half 2013 Annualized Domestic Investors Foreign Investors YTD, Canadian Funds Account for 70% of Deal-Making CANADIAN BUYOUT-PE DEAL ACTIVITY BY NATION OF LEAD INVESTOR, 2008 FIRST HALF 2013 8
Oil & Gas Mining Manufacturing Software Construction & Engineering Retail Finance Healthcare & Life Sciences Information & Media Energy & Environmental Technologies Transportation Agriculture & Forestry Distribution & Wholesale Hospitality & Entertainment Other Business Services 0 5 10 15 20 25 30 Resource Sectors, Manufacturing Drive Transactions CANADIAN BUYOUT-PE DEAL VOLUME BY SECTOR, FIRST HALF 2013 9
Healtcare & Life Sciences Mining Oil & Gas Software Energy & Environmental Technologies Agriculture & Forestry Manufacturing Construction & Engineering Retail Information & Media Hospitality & Entertainment Transportation Distribution & Wholesale Finance Other Business Services $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 Large-Caps Ensure Healthcare, Mining Consume Most Dollars CANADIAN BUYOUT-PE DISBURSEMENTS (DISCLOSED) BY SECTOR, FIRST HALF 2013 10
Deal Range # of Deals Dollars Invested (Disclosed) $1 Billion 2 $2,300 Million (50%) $500 Million - < $1 Billion 0 $0 Million (0%) $100 Million - < $500 Million 6 $1,424 Million (31%) $25 Million - < $100 Million 9 $312 Million (7%) < $25 Million 87 $569 Million (12%) Deal Values Undisclosed 38 $0 (0%) Total Deals With Disclosed Values: 104 (of 142) Total Invested: $4.605 Billion NB: For a discussion of domestic market segments, please see Explanatory Notes #4 & 5 on pg. 26. Mega-Deals Grabs Half of Values, Upper Mid-Market, 31% CANADIAN BUYOUT-PE DEALS BY MARKET SEGMENT, FIRST HALF 2013 11
Total Deals: 142 29% 32% 1% 2% 36% Control-Stake Acquisition Minority-Equity Investment Secondary Buyout Rescue-Restructuring Add-On/Other Private Equity NB: For definitions of transaction types, please see Explanatory Note #8 on pg. 27. Control & Minority-Equity Account for Most Transactions CANADIAN BUYOUT-PE DEAL VOLUME BY TRANSACTION TYPE, FIRST HALF 2013 12
Total Deals in 2012: 332 Total Deals in First Half 2013: 142 1% 1% 1% 15% 15% 37% 16% 35% 18% 4% 26% 27% 4% British Columbia Alberta Manitoba-Saskatchewan Ontario Québec Northern Canada Atlantic Canada Québec Leads Domestic Market in Number of Deals CANADIAN BUYOUT-PE DEAL ACTIVITY BY REGION, 2012 & FIRST HALF 2013 13
Total Invested in 2012: $11.6 Billion Total Invested in First Half 2013: $4.6 Billion 1% 7% 5% 38% 27% 33% 21% 1% 7% 20% 40% British Columbia Alberta Manitoba-Saskatchewan Ontario Québec Northern Canada Atlantic Canada Ontario Leads Domestic Market in Dollar Flows CANADIAN BUYOUT-PE DISBURSEMENTS BY REGION, 2012 & FIRST HALF 2013 14
Deal Values: Billions of $CAD $250 $200 $150 $100 $50 $0 2008 2009 2010 2011 2012 First Half 2013 Annualized Canada X 10 United States YTD, Canadian Market Trending Behind American Market BUYOUT-PE DISBURSEMENTS (DISCLOSED) IN CANADA & UNITED STATES, 2008 FIRST HALF 2013 15
Company Prov. Value ($ MM) Investors LifeLabs Medical Laboratory Services Inc.-CML Healthcare Inc. ON $1,200 Borealis Infrastructure ArcelorMittal Mines Canada Inc. QC $1,100 China Steel Corp. EQ Partners, POSCO, Other Investors Softchoice Corp. ON $412 Birch Hill Equity Partners KANATA Energy Group, Ltd. AB $330 ARC Financial Corp., Teachers Private Capital BluEarth Renewables Inc.-Solar Power Assets Acquisition AB $225 ARC Financial Corp., Teachers Private Capital EACOM Timber Corp. QC $186 Kelso & Co. Western Wind Energy Corp. BC $147 Brookfield Renewable Energy Partners Top Canadian Buyout-PE Deals (Disclosed) in First Half 2013 CAD$ MILLIONS 16
2. Canadian Fund Activity in Global Buyout & Private Equity Markets in Q2 2013
Deal Values: Billions of $CAD # of Deals $40.0 90 $35.0 $30.0 $33.0 $32.0 71 80 70 $25.0 52 $24.5 60 $20.0 42 $16.4 50 $17.4 50 40 $15.0 28 30 $10.0 $5.0 22 $6.0 20 10 $0.0 2008 2009 2010 2011 2012 First Half 2013 Total Deal Values # of Deals 0 NB: For a discussion of Canadian activity in global deals, please see Explanatory Note #9 on pg. 27. Despite Robust Q2 2013, Canadian Fund Activity Abroad Lags 2012 GLOBAL BUYOUT-PE DEALS (DISCLOSED) INVOLVING CANADIAN FUNDS, 2008 FIRST HALF 2013 18
Deal Values: Millions of $CAD # of Deals $16,000 35 $14,000 $14,071 30 $12,000 26 25 $10,000 $8,000 17 19 $7,692 16 16 20 $6,000 $4,000 $2,000 $5,296 $4,826 13 $2,510 $3,072 15 $1,277 13 $4,695 15 10 5 $0 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 0 Total Deal Values # of Deals NB: For a discussion of Canadian activity in global deals, please see Explanatory Note #9 on pg. 27. Canadian Deal-Making Abroad Up 87% in Second Quarter GLOBAL BUYOUT-PE DEALS & DISBURSEMENTS (DISCLOSED) INVOLVING CANADIAN FUNDS, Q3 2011 Q2 2013 19
Total Invested: $6.0 Billion Total Deals: 28 7% 7% 18% 31% 4% 62% 0% 71% Europe Australia United States Asia NB: For a discussion of Canadian activity in global deals, please see Explanatory Note #9 on pg. 27. Canadian Fund Activity Diversified, But Mostly US-Based GLOBAL BUYOUT-PE DEAL ACTIVITY INVOLVING CANADIAN FUNDS BY REGION, FIRST HALF 2013 20
3. Canadian-Based Buyout & Private Equity-Backed Exit Activity in Q2 2013
# of Exit Events 90 80 75 80 70 63 60 50 40 40 35 33 30 20 10 0 2008 2009 2010 2011 2012 First Half 2013 Other Exit IPO/Other Public Buyback Financial Sale Strategic Sale NB: For clarification of Canadian exit activity data, please see Explanatory Note #10 on pg. 27. Strategic Sales Account For 61% of Exits in Year s First Half BUYOUT-PE-BACKED EXIT INVOLVING CANADIAN BUSINESSES, BY TYPE, 2008-FIRST HALF 2013 22
Company Prov. Value ($ MM) Inmet Mining Corp. ON $5,100 Investors Ellington Investments-Temasek Holdings Mold-Masters Ltd. ON $975 PEER 1 Network Enterprises Inc. BC $635 C&C Energia Ltd. AB $500 3i Investments Clairvest Group ARC Financial Corp., 32 Degrees Capital Alliance Films Inc. QC $225 Goldman Sachs Group, Société géneralé de financement du Québec Villanova Oil Corp. SK $127 PFM Capital, Westcap Management N-able Technologies Inc. ON $120 Accel-KKR Top Canadian Exits Via Strategic Sales (Disclosed) in First Half 2013 CAD$ MILLIONS, FIRST HALF 2013 23
4. Canadian Buyout & Private Equity Fund-Raising Activity in Q2 2013
Funds Raised: Billions of $CAD $7.0 $6.4 $6.3 $6.0 $5.0 $4.8 $4.0 $3.6 $3.8 $3.7 $3.0 $2.0 $1.0 $0.0 2008 2009 2010 2011 2012 First Half 2013 YTD, Canadian Buyout-PE Fund-Raising Shows Momentum NEW COMMITMENTS TO CANADIAN BUYOUT, MEZZANINE & OTHER PE FUNDS, 2008 First Half 2013 25
1) Data collected and analyzed by for this statistical report were drawn from a variety of sources. These include proprietary sources among the members of Canada s Venture Capital and Private Equity Association (CVCA), Réseau du capital d investissement du Québec, and other Canadian and non-resident fund managers, responding to annual and quarterly surveys. 2) The data methodology for this report was developed by and is comparable to other methodologies used to track trends in comparable national and regional buyout and private equity (PE)markets. CVCA and Réseau members have provided invaluable advice to concerning characteristics and issues particular to the Canadian fund management industry and market. 3) All dollar values in this report are represented in Canadian currency unless otherwise specified. 4) Key statistical indicators (e.g., total numbers of deals, total disbursements, per quarter or per annum) are influenced by the fact that a substantial fraction of buyout and other PE deals are not fully disclosed. For instance, dollars invested in a given period pertain only to those deals with values that have been published or confidentially disclosed to. Due to strict confidentiality covenants with fund managers, has been able to expand the quantity and quality of data that are disclosed for reporting purposes. 5) For the purposes of this report, Canadian deals with disclosed values are discussed according to their organization in broad segments, including large-cap-deals (above $500 million), and various levels of mid-market activity (below $500 million), etc. 6) Statistical data reflect all essential forms of buyout-pe deal-making, including control-stake acquisitions of businesses, minority equity investments, restructuring and special-situations transactions, and mezzanine and other quasi-equity investments. The data also reflect the activity of PE funds focused on businesses in specific sectors (e.g., infrastructure, mining, oil and gas, etc.). 7) The data highlight the continuous domestic deal activity of key Canadian fund types, including private-independent funds, corporate and institutional captive funds, and retail funds. The activity of foreign investors in Canada is also captured. Explanatory Notes 26
8) Definitions of transaction types shown in chart on page 11 Control-stake acquisitions: Majority-interest acquisitions (or buyouts) of businesses. Publics-to-privates: Control-stake acquisitions in which businesses move from public to private ownership. Secondary buyouts: Control-stake acquisitions in which ownership is transferred from one investor to another. Minority equity investments: A diverse range of growth-equity and other non-controlling (or minority-interest) investments in businesses. Rescues-restructurings: Control-stake acquisitions and other activity involving businesses in financial distress or undergoing major reorganization. Acquisitions for expansion: Merger and acquisition events driven by buyout-pe-backed businesses in expansion mode. Other: Various other PE deal types and deals for which definitional information is currently insufficient. 9) The data also highlight the deal-making of Canadian funds in the United States, Europe, Asia, and elsewhere around the world. Statistics in this report reflect instances in which Canadian funds have acted as sponsors, co-sponsors or co-investors in deals in nonresident businesses, or have otherwise engaged in direct investments in these. Dollars invested in a given period pertain to the total value of disclosed deals in which Canadian funds have participated (in the case of large-cap deals, typically with foreign partners) and not the specific Canadian financial contributions to these deals. 10) Statistical data pertaining to buyout-pe-backed exit events capture activity involving businesses based in Canada. They do not include exits from non-resident businesses in Canadian fund portfolios. 11) Over time, statistics are subject to continuous change as receives new data and as investors and their portfolio companies elect to disclose further details about transactions. In addition, key indicators might change appreciably in the short term due to the circumstance of pending deals. locates pending deals in the periods in which they are announced, with related data adjusted at the time of deal closings. Explanatory Notes 27