Canadian private capital continued its climb in 2015: venture capital (VC) activity saw amounts invested and fundraising increase substantially, with exit values reaching historical highs. Private equity (PE) saw solid fundraising numbers and large increases in volume.
These are some of the main findings from the Canadian Venture Capital & Private Equity Association's (CVCA) private capital market activity reports for 2015.
VC investment continued its strong growth in 2015, with 536 deals capturing CAD2.3 billion, an increase of 24 per cent and 12 per cent respectively over 2014. Primarily driven by three large IPOs (Shopify, ProNAi, and Davids Tea), VC exit values were way up reaching a record of CAD4.3 billion in 2015, compared with CAD1.5 billion in 2014 and CAD1.3 billion in 2013.
Ontario continued to lead all provinces in venture capital investments, accounting for 38 percent and 42 percent of deal numbers and disbursement respectively. Quebec investment activity was up dramatically in 2015, increasing its national share of VC activity to approximately 31 per cent, and up 51 percent and 102 percent respectively in number of deals and dollars invested over 2014.
ICT continued to lead all sectors with just under two-thirds of volume and transaction values. However, Health and Life Sciences drove growth in 2015, up 39 per cent in deal volume and 35 per cent in dollar terms, compared to 2014.
Other insights from the report show funding by stages shifting towards earlier stage deals at the expense of later stage. The volume growth went to seed stage, which is up 30 per cent year over year to 178 deals in 2015. The growth in deal value, however, went to early stage (up 46 per cent from 2014) as a result of significantly larger round sizes. This shift caused later stage shares in overall investment to fall to 12 per cent in volume and 23 per cent in terms of amount invested (compared to 2013's 20 per cent and 49 per cent respectively).
"Venture capital investment is going through a much needed resurgence in Canada", said Mike Woollatt, CEO of the CVCA. "The future looks brighter as exits climbed through 2015 and fundraising numbers were strong, thanks in large part to government activity on the fund of funds side."
Private equity saw a 19 per cent increase in deal volume over 2014 with 399 deals in 2015. Due in large part to the 2014 Tim Horton's deal, which alone represented CAD11.8 billion, deal values in 2015 were down from the CAD42.2 billion record in 2014. Despite this, they still reached a historically high value of CAD22.8 billion. Quebec also saw a substantial increase in private equity activity in 2015 with CAD5.4 billion invested over 151 deals – now representing 38 per cent of the volume and 24 per cent of the amounts invested.
The impact of the low oil prices was felt in 2015 as the number of deals and the amount invested in oil and gas declined from 82 deals and CAD13.1 billion in 2014 to 48 deals across CAD8.6 billion in 2015. While oil and gas remains the highest in terms of amount invested, it is now fourth in terms of volume after industrials, ICT and mining. Data collected from a comprehensive survey of CVCA members shows that the vast majority (67 per cent) agree that depressed oil prices will worsen business outlooks for 2016.
In terms of exits, the IPO market for private equity remains slow representing only CAD2.5 billion over four deals in 2015. M&A exits continues to lead the charge, representing approximately 60% of both volume and overall value. The CVCA member survey reveals that the majority (56 per cent) believe 2016 will see a continued decrease in IPO activity.
"Private equity investment in Canada is leaping from strength to strength right now, despite the impact of oil and gas prices", said Woollatt. "We are seeing robust activity in deal volume, amounts invested, and fundraising levels, which bode well for future investments."
2015 has been a strong year for both VC and PE, and it is predicted that this will continue into 2016: According to the CVCA member survey, 64 per cent believe current economic conditions favour the private capital industry, with 54 per cent agreeing that a lower Canadian dollar improves business outlook for the upcoming year.
