Canada Private Equity
Canada Private Equity
Canada Private Equity: Buyouts Up as VC Sinks
Buyouts in Canada are at a near-record fund-raising pace and private equity investment activity will likely rise too as asset valuations are expected to firm by the end of 2009. Unlike U.S. private equity firms’ fund-raising–which has slowed dramatically since the last quarter of 2008–the Canadian buyout industry is one of the world’s strongest. The Canada’s Venture Capital and Private Equity Association (CVCA) reports that over the past five years, Canada’s private equity buyout industry has increased Canada’s GDP by C$30 billion ($24.6 billion), creating more than 100,000 jobs.
Buyouts Investment Expected to Rise in 2009
The president of CVCA, Gregory Smith recently told Reuters: “I think we’ll see some softness in terms of investment numbers in 2009, but the amount of money that’s been raised by private independent funds, the size and liquidity of our pension plans in Canada, the strength of our financial institutions, our banks in Canada, will continue to put Canada in a very strong position for the mid-market in the buyout industry.” Smith believes that 2009 will be a solid year for investment, “We had a very strong fund-raising year 2008 and it was strong in 2006 and 2007, which means we have a lot of capital that is available to invest in 2009.”
As Buyouts Soar, Venture Capital Struggles
While Canada’s buyout industry is a source of optimism, the country’s venture capital sector is floundering. Investors began avoiding venture capital at the onset of the global economic crisis and they have yet to return, according to Mr. Smith. Surprising, as Canada’s buyout industry prepares to break a fund-raising record, the venture capital sector reached its lowest deal activity in twelve years–just over C$1 billion in 2008.
And Smith believes that venture capital investment may decline even further in 2009. He says, “There’s been a number of long-term venture capital firms in Canada, I’d say about a half of dozen in number, who have tried to raise new money to invest but have stopped fund-raising efforts because of the inability to raise capital.”
The low numbers reflect the decline of an industry that has been struggling for years in Canada. It’s tough enough finding funding for a small business or entrepreneur but even with investment an idea may fail to get commercial recognition as investors lose interest. Smith explains, “Good ideas can die because there’s no place to go. I think that the global crisis will have a further dire consequence on what is already a very fragile venture capital industry in Canada.”
Canada’s Government to the Rescue
The CVCA has been working in conjunction with Canada’s federal government to raise investment in venture capital. One example is the partnership announced this week between the country’s biggest pension fund administrator and the Quebec province. Caisse de depot et placement du Quebec announced a major venture capital deal with the Quebec government worth at least C$825 million. This follows a series of similar but smaller-scale venture capital deals with the local and federal government.
Smith also hopes to fix Canada’s property regulation, Section 116 of the Income Tax Act, which may have been a reason why foreigners are investing elsewhere. By changing the Income Tax Act and working with the federal government, the CVCA hopes to drive up venture capital activity. As private equity buyout activity booms, Canada hopes to save its venture capital sector from going bust.
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