Canada’s buyout, VC activity remains strong in Q3

U.S. venture capital and buyouts interest in Canadian companies has grown dramatically in the past few years and now stands at record levels, according to statistics complied by the Canada’s Venture Capital and Private Equity Association (CVCA) and Thomson Financial (publisher of PE Week).

During the three-month period ended Sept. 30, a total of $3.3 billion was invested in Canadian companies by buyout funds, based on 39 reported transactions. Year-to-date in 2007, 133 buyout transactions have been reported for Canadian companies with a total value of $64.1 billion. In comparison, during the full year of 2006, which was a record year for buyout activity in Canada, $12.2 billion was invested in 107 reported buyouts of Canadian companies.

“The third quarter data clearly shows that the buyout sector in Canada remains strong, in spite of recent instability in the credit markets,” said Rick Nathan, president of the CVCA and managing director of Kensington Capital Partners Ltd.

Of course, the 2007 data is partly inflated because it includes the proposed buyout of Bell Canada Enterprises, Canada’s largest communications company. The Ontario Teachers’ Pension Plan is leading a group that has bid a little less than $50 billion for BCE. Still, excluding the BCE transaction, total investment this year in other transactions has grown from $12.2 billion during all of 2006 to more than $15 billion through the end of the third quarter.

“It is remarkable to note that even without the Bell Canada buyout, our private equity markets remain on a pace to double in size yet again this year,” Nathan said. “But of course we can’t exclude it. The Bell Canada deal is an historic transaction in our markets.”

The Canada private equity community is also boasting gains on the venture side. In the third quarter of 2007, VC investment activity in Canada increased on both a year-over-year and quarter-over-quarter. Overall, $512 million was disbursed across the country, up 17% from the $438 million invested in the prior quarter, and up 47% from the $347 million disbursed in the third quarter of 2006.

Year-to-date, Canadian VC activity stands at $1.6 billion, an increase of 30% from the $1.2 billion invested as of the same period in 2006.

The Q3 VC numbers were impacted by two large deals. Toronto-based OANDA Corp., a developer of Internet-based currency tools, raised $100 million. And Montreal-based Enobia Pharma, which develops drugs to treat bone diseases, raised $40 million from OrbiMed Advisors, Coller Capital and other investors.

The two deals continues a trend from recent quarters, with a handful of very large transactions having an impact on the total results. —Amanda Williams Palmer