The credit crunch is dragging the Canadian LBO market down after reaching historic heights last year.
Buyout firms announced 29 deals in Canada in the first quarter of 2008, a far cry from the 47 deals announced in the same period a year ago, and also down from the 42 deals announced in the fourth quarter of 2007, according to data recently released by Canada’s Venture Capital and Private Equity Association and Thomson Reuters (publisher of PE Week).
The nine Q1 announced deals with disclosed valuations added up to $2.4 billion. That was a more than 50% drop from $5 billion in announced deals during the first quarter of 2007.
Among the recent first quarter’s signature transactions were
All told, last year saw $65 billion worth of announced LBO transactions in Canada, concentrated in the software, manufacturing and food products sectors. Of the 181 deals, which was up from 105 the year before, the largest was the pending
Canadian buyout firms continued to remain active last year, as they sponsored 132 deals in 2007, compared to 97 deals in 2006. They sponsored just 21 deals in the first quarter of this year.
The majority of other investors were U.S.-based firms, which tend to enjoy higher market share on the bigger deals. “Because there aren’t a lot of [local] firms, the firms that are in the market get a lot of activity,” says Stephen Lister, managing partner of Toronoto-based
The Canadian LBO market has slowed primarily due to the U.S. credit crunch, which has made buyout shops less able to pay up for companies. Still, mid-market deals remained relatively common, partly because Canadian banks had taken a more conservative stance during the buyout boom and weren’t hurt as badly as their U.S. counterparts. Many remained active financiers to local buyout deals.
That the mid-market has remained as active as it has is a tribute to growing interest from foreign investors, which view the market as somewhat underserved, says Imperial Capital’s Lister. The Canadian government’s 2006 decision to eliminate income trusts has also helped sustain the market.
Imperial Capital, for example, lost at least six deals when sellers decided to convert their companies to income trusts rather than sell to the firm. “I was thrilled, frankly, when they killed it,” Lister says.
Meantime, the 100 remaining Canadian income trusts should provide a continuing source of buying opportunities, as they are slated to be bought, merged or converted to corporations by 2011.
“It definitely is a universe of entities that are looking for some kind of solution and private equity is one,” says Peter Gottsegen, managing partner and founder fo