This article is part of a new series, CVCA Quarterly Exclusive, written and published by the Canadian Venture Capital and Private Equity Association. This series provides an analysis of the CVCA’s most recently published VC & PE Canadian Market Overview through expert commentary and perspectives.
Compared to venture capital activity in Canada, private equity activity has more-or-less remained flat in the last few years.
PE activity in 2017 has seen a resurgence in Q2 when $8.9M was invested across 170 deals. Q2 2017 established a new high-water mark for the most number of deals historically since 2013.
While Canada has seen a handful of PE activity spikes over the years ($22.9B in Q4 2014 and $11.4B in Q3 2015), the spike in 2017 YTD is a welcome resurgence after six sluggish quarters due mainly to the low oil prices.
Traditionally, the oil, gas and power sector has always led PE investing capturing roughly one-third of dollars invested. Its share dropped dramatically to only 8% in the first half of 2017. The total dollar amounts have also consistently been declining, $13B in 2014, $8.6B in 2015 and $4.4B in 2016 and only $1.1B in H1 2017.
CVCA Research Director, Darrell Pinto, recently appeared on Bloomberg TV Canada’s Bloomberg Markets on August 23rd, and provided some insight about this trend.
Pinto says traditionally, the oil and gas sector has been the largest share of private equity activity in Canada. With depressed oil prices, it’s forcing private equity firms to look at alternatives to their traditional sweet spots.
Last year, the CVCA predicted we’d continue to see climbs in mid-market deals in other non-traditional PE sectors, and this is being borne out in 2017.
In fact, more than 23% of all PE deals in H1 2017 were in the industrial and manufacturing sector, compared to only a 14% share in 2013. Additionally, information communications technology (ICT) companies captured 17% of PE deals in H1, compared to a 10% share in 2013.
Pinto notes that the activity in the industrial and manufacturing sector and ICT sectors are not deals to the same scale, in terms of total dollars, but, there’s many more of those deals happening than in previous years.
He says he remains optimistic about the Canadian energy sector.
“Regarding the downward trend in oil prices, I take the long-term view. Especially with Canadian resources—we’re going to see cycles. We’re in a down cycle right now, and I’m optimistic that we’ll see an upturn in the next few years.”
There was one notable exit in the oil and gas sector in H1 2017; the IPO of STEP Energy Services (TSX: STEP) in May. STEP was one of the few oil and gas related companies to IPO since 2014, illustrating the recent difficulty for oil and gas companies to access capital.
To read more about private equity activity in the first half of 2017, read the full CVCA H1 2017 VC & PE Canadian Market Overview here.