Stakeholders in the Canadian venture capital (VC) and private equity (PE) spaces had few reasons to complain last year, if newly released figures are any indication.
According to the Canadian Venture Capital and Private Equity Association (CVCA), 2018 was defined by robust inflows into Canada’s VC space, as well as a fourth-quarter comeback on the PE side.
With $1.3 billion in funding over 165 deals achieved in the fourth quarter, Canadian VC investments reached $3.7 billion by year-end, just 2% lower than the total for 2017.
The average deal size in 2018 was $6.1 million, 3% lower than in 2017 but 16% more than the average $5.3 million seen over the period from 2013-2017. The contribution of mega-deals (those worth $50 million or more) to Canada’s VC space shrank last year, bringing in just a 30% share of total dollars invested compared to 39% in 2017.
Ontario-based companies received 51% of total VC investment ($1.9 billion), a significantly bigger slice than the 39% they got in 2017. Quebec-based companies got 29% ($1.1 billion), while those in BC took in 12$ ($441 million).
Sector distributions in VC investment were in line with historical trends. Information and communication technology (ICT) companies got a little over two thirds of total 2018 investment ($2.6 billion over 386 deals), while a 17% share went to life-science companies ($630 million over 101 deals). Looking at investments by stage, later-stage companies saw their share of total investment rise by eight percentage points to 49% ($1.8 billion), while early-stage companies got a 42% share ($1.6 billion), down from 52% in 2017. Meanwhile, the share of seed investments rose slightly from 6% to 8%.
“We are seeing more VC flowing into more Canadian companies at all stages which is an important metric for the health of the sector,” said CVCA CEO Kim Furlong. “A healthy mix of new growth funds, increased interest from international investors and government support through VCCI is helping to fuel the momentum.”
On the private-equity side, dollar investments accelerated sharply in Q4 — tripling from Q3 to reach $6 billion — which brought the 2018 year-end total to $22.3 billion over 543 deals. That was down 15% from the $26.4 billion seen in 2017, but 62% more than the $13.8 billion in 2016.
Four $1B+ mega-deals, two of which happened in Q4, accounted for a cumulative $14.4 billion. That represented a 65% share of Canadian PE investment in 2018, double that of the prior three years. The combined value of PE mega-deals in 2018 also surpassed the value of all other deals put together, something that had not happened since the 2014 record that was driven by the $11.8-billion acquisition of Tim Hortons.
PE deals worth less than $25 million made up 68% of all deals, up from 60% in 2017 while those between $25 million and $100 million captured 8%, down from 11%. Montreal-based companies got 26% of all PE deals (98 deals totalling $2.6 billion), while Toronto-based companies got 20% (78 deals totalling $11 billion).
Sector-wise, industrial and manufacturing companies accounted for the largest share of PE deal activity with 22% (118 deals), followed by ICT companies with 16% (88 deals). Consumer and retail sector interest translated to an 11% share of deal flow (59 deals).
“Canada continues to be an attractive source of investment opportunities for both domestic and international investors,” Furlong said. “We will watch to see if the mega-deal trend in Canadian PE experienced last year will continue in 2019 or if we see a return to more conservative sizing.”
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