While the Canadian alternative investment industry is talking about a "crisis" in venture capital, there is a quiet confidence that the buyout sector will do just fine in the second half of 2009.
Gregory Smith, the president of the Canadian Venture Capital Association (which also oversees private equity), said in an interview this week that one of the big differences in the two classes of investment is the recent fundraising. VC funds, for example, have had trouble raising money since the dot-com crash in 2000, and in the first quarter raised a mere C$149 million ($134 million).
"What I find encouraging is that between 2006 and 2008, C$20 billion was raised by Canadian private equity funds, so there is a lot of money out there [to invest],'' said Smith, seated in the CVCA's office in Toronto.
Certainly, the activity by buyout funds in Canada was nothing to write home about in the first quarter of 2009. There were 18 completed and pending buyouts in Canada in the first quarter, 10 of which had a disclosed value of $600 million. In the previous first quarter, the figure was 33 completed and pending deals, nine of which had a disclosed value of $2.4 billion, according to data released this month by the CVCA and Thomson Reuters.
Yet Smith said the buyout industry is healthy with a strong reserve of capital commitments, low leverage and a focus on the Canadian midmarket. Though the most notorious deal in Canadian buyout history -- the Ontario Teachers Pension Plan-led purchase of telecom giant BCE Inc. (NYSE:BCE) -- blew up before it could close, the market is more characterized by midmarket deals, valued in the tens or hundreds of millions of dollars.
And Smith is not worried about the low number of deals in the first three months, saying parties were adjusting to a "dramatic revaluation" of corporations in the Canadian market and around the world.
"I would expect to see the number of buyouts to increase in the second half," he said. - Peter Moreira
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