Venture capital, private equity financings fall in third quarter amid pandemic uncertainty

The pandemic is slowing down deal making in Canada’s venture capital and private equity markets, with the value of investing in the two sectors dropping sharply this year after running at a record-setting pace in 2019.

Venture capital funds committed a total of $5-billion to domestic companies through the first nine months of the year, down 11 per cent from the record value of deals seen last year, according to statistics released on Tuesday by data services company Refinitiv. The decline comes as the pandemic limits travel and on-site due diligence, critical parts of the investing process, and as many investors struggle to model the long-term financial prospects of businesses. There were 468 transactions during the first three quarters of the year – the same volume of deals seen the previous year.

The largest venture capital deal in the past three months was a $90-million investment in a chain of fertility clinics, the Fertility Partners, from Toronto-based Peloton Capital Management and Australian asset manager Heal Partners Trust. The Fertility Partners is based in Toronto and is expanding into British Columbia, Manitoba and Quebec.

Venture capital investment in Canadian technology companies has remained strong in 2020 even given the uncertain environment,” said Greg Beaman, Refinitiv’s manager for private equity contributions. “Despite this, the third quarter alone saw the value of financings drop 51 per cent relative to 2019 figures, with volumes down 4 per cent.”

Fundraising, a key metric for the future health of venture capital, is also down sharply at a time when investors and fund managers are mainly working remotely owing to the novel coronavirus. Refinitiv said 17 domestic funds closed during the first three-quarters of 2020, pulling in a total of $1.9-billion. Although that marked a 47-per-cent decline in the amount of capital committed to the sector, compared with a year ago, this year qualifies as the fourth strongest period for fundraising on record.

In the Canadian private-equity market, fund managers committed $14-billion to 314 investments through the first nine months of the year, according to Refinitiv. The value of private-equity deals fell by 14 per cent, year over year, and the volume of transactions dropped 17 per cent compared with 2019.

So far this year, bragging rights for the largest domestic private-equity transaction belong to a consortium that includes Los Angeles-based Stone Canyon Industries and the Ontario Teachers Pension Plan and Public Sector Investment Board. The group bought Kissner Group Holdings LP, a Cambridge, Ont.-based producer of rock salt and other deicing products, for US$2-billion from New York private-equity fund Metalmark Capital.

Canadian venture capital funds cashed out on a total of 36 investments worth $1-billion in the first nine months of the year, a 48-per-cent decline in the value of what are known as exits, compared with 2019. The three largest transactions featured fund managers selling stakes in initial public offerings, at drug companies Repare Therapeutics Inc. and Fusion Pharmaceuticals Inc. and legal and business tech provider Dye & Durham Ltd.

Canadian fund mangers were involved in 45 private-equity exits worth $15.6-billion through the first nine months of the year, which was double the value of deals done in the same period last year. However, the bulk of that total reflects the planned $10.4-billion sale of Bombardier Inc.’s train manufacturing business to French rival Alstrom. The Caisse de dépôt et placement du Québec also owns a significant stake in the Bombardier division, which makes this a private-equity transaction.

Source: The Globe and Mail