Mergers and acquisitions activity was already off to a slow start when 2020 began, but the COVID-19 pandemic (the “Pandemic”) initially resulted in a further decline in the volume of M&A activity. This was due in part to the economic and commercial uncertainties and market volatility for buyers and sellers alike, which made it difficult for companies to conduct business as usual. However, it looks like M&A activity has picked up again with gusto. In an earlier post, we reported that in a global survey of 2,900 C-suite executives, more than half of them reported that they … Continue Reading
In a previous post, we discussed the impact of COVID-19 on private equity transactions and how companies can prepare for upcoming economic changes. While opportunities for new investment are on the horizon with private equity funds presently flush with cash, movement on existing investments is likely to slow as sellers wait until markets stabilize before divesting their assets. Recent research suggests that funds with vintage years 2012 through 2017 are facing a lower exit pricing environment, which could lead fund managers to increase their holding periods and delay exiting until they can better recover their investments.
A look at … Continue Reading
Broadly, a co-investment is an investment in a specific transaction made by limited partners (LPs) of a main private equity (PE) fund alongside, but not through, such main PE fund. This is often accomplished through a separately structured co-investment vehicle which is governed by a separate set of agreements. Co-investments are attractive to PE funds and LPs alike for a multitude of reasons, including as: a means for PE funds to gain access to supplementary capital; an avenue by which PE funds may make larger single investments that are otherwise unavailable or undesirable; and a means for LPs to attain … Continue Reading
J.P. Morgan’s “2020 Global M&A Outlook” (the Report) reviews what we can expect with regards to M&A activity this year. Some of the key takeaways from the Report include:
- Anticipated Trends in International M&A: We can expect to see an increase in the global M&A market due to greater geopolitical certainty and financially competitive opportunities in regions such as Japan.
- The Role of Private Equity Firms in the M&A Market: With record levels of capital to deploy, private equity firms will continue to be active players in the M&A market.
- Shareholder Activism: Shareholder activists will continue to
The Canadian Venture Capital & Private Equity Association (the CVCA) recently published its 2019 first half (H1 2019) report on Canadian venture capital (VC) and Canadian private equity (PE) investment. Over the past year, Canadian VC investment has continued its ascent, reaching unprecedented heights and experiencing its strongest first half performance on record. Conversely, Canadian PE investment remains feeble, posting its lowest first half performance since the CVCA began collecting data in 2013.
A review of the increasing trends in the Canadian market reveals that VC investment in Canada is very robust and … Continue Reading
As competition and asset multiples increase, private equity (“PE”) firms must find new ways to put their money to work. One way to create new value is through a sponsor-to-sponsor deal.
Sponsor-to-sponsor deals involve PE firms on both sides of a transaction – buy side and sell side. Due to their high cost and complexity, there is a general view that sponsor-to-sponsor deals tend to be inefficient. However, a recent report by Bain & Company’s Annual Global Private Equity Report 2019 (Report) found that sponsor-to-sponsor deals are on the rise, which implicitly suggests that these deals may not … Continue Reading
The Canadian Venture Capital & Private Equity Association (the CVCA) has recently provided insights into Canadian investment trends for the first quarter of 2019 (Q1 2019). The CVCA has indicated that Private Equity (PE) deals have slowed in Q1 compared to their Venture Capital (VC) counterparts. VC investments have almost doubled since Q1 2018, whereas PE investments have declined by more than half. The CVCA has examined this trend by breaking down the latest developments from Q1 2019.
1. Overall trends in the number of deals and amount of funding
The value of … Continue Reading
A recent report released by the Canadian Venture Capital Private Equity Association (CVCA) entitled “VC & PE Canadian Market Overview 2018” (the Report) reviews the current strength of Canadian venture capital (VC) investment and very recent mega-deal trend in Canadian private equity (PE).
Highlights of the Report
- Total VC investment remains remarkably high: a total of CAD $3.7B in VC over 610 deals was invested in Canadian companies in 2018, representing only a 2% decline from 2017. Comparatively, an average of CAD $2.5B over 506 deals was invested each year between 2014 and
Private equity funds are increasingly turning to a “buy-and-build” (B&B) approach to boost revenues, realize value and increase returns. The B&B approach, also referred to as an “add-on” strategy, involves the purchase of a platform company, followed by the purchase of multiple related and complimentary targets through share or asset acquisitions. B&B strategies offer an alternative to otherwise potentially slow and cumbersome organic growth by setting the table for private equity funds to capture synergies through vertical integration, combined operational strength and leveraging a whole that is worth significantly more than the sum of its parts.
B&B: the… Continue Reading
The Canadian Venture Capital & Private Equity Association recently published its 2018 first half (H1 2018) report on Canadian venture capital (VC) and Canadian private equity (PE) investment. While Canadian PE investment remains feeble, Canadian VC investment has continued to climb to incredible heights.
A review of the increasing trends in Canadian VC investment, with respect to the volume and size of deals as well as the stages and sectors engaged, reveals that VC investment in Canada is very robust and showing no signs of slowing down. With H1 2018 already outpacing last year, … Continue Reading
Canada continues to be an attractive market for private equity (“PE“) investors with recent transactions highlighting significant investments into Canadian real estate and energy infrastructure assets.
Partnerships (particularly, limited partnerships) continue to be a popular PE vehicle, providing a means of pooling and aggregating investment funds and allowing for income or losses to be “flowed-through” to its members for Canadian tax purposes, subject to certain exceptions.
However, the use of partnerships with non-resident investors in PE investments raises two particular issues.
Part XIII of the Income Tax Act (Canada) (the “Tax Act“), requires that … Continue Reading
The year of 2017 witnessed a worldwide slowdown in the number of megadeals. According to a recent Mergermarket Report (the Report), the global total for the number of deals worth US$4 billion or more decreased from a peak of 158 in 2015 and 133 in 2016 to 129 in 2017. In Canada, the number of deals valued CAD$500 million or more decreased from 74 in 2016 to 55 in 2017, as reported by Duff & Phelps. However, there have been recent hints suggesting that the spring for megadeals is just around the corner.
After polling the … Continue Reading
According to Deloitte’s latest M&A trends report, corporations and private equity (PE) firms expect to see an acceleration of M&A activity in 2018, both in volume and size of deals, and with particular interest in technology assets and international markets.
After surveying more than 1,000 executives at corporations and PE firms on their views and expectations for 2018, Deloitte provides some insightful findings.
Technology acquisitions now rank #1 as a strategic driver for M&A deals
20% of those surveyed cite the acquisition of technology assets as the principal reason behind deals, which surpasses deals to … Continue Reading
According to a report by PWC, 43% of tech M&A deals were funded by private equity (PE) investors. For the deals with disclosed values, more than 52% are in the $50 million to $1 billion range.
Private equity investors may look for different factors in a target company than the traditional corporate buyer. For this reason, the dynamic of attracting offers and deal-making changes with the involvement of a private equity firm.
Focus on management
PE investors look for a company that has a clear path to deliver success. This is, among other reasons, why PE investors … Continue Reading
Last year was a record-breaking year for private equity investments in the healthcare industry, with a total disclosed deal value reaching $36.4 billion by the end of 2016. Mid-year reviews of 2017 indicate a downward trend in the number of private equity investments but a significant increase in the value of investments compared to 2016. According to the Global Healthcare Private Equity and Corporate M&A Report 2017 by Bain & Company, investors will want to increase the weight of healthcare in their portfolios given the growing population and increase in demand for healthcare.
With the ongoing regulatory reform and the … Continue Reading
A special purpose acquisition company, (SPAC), is a publicly traded shell company created with a purpose of purchasing a future target. The Canadian SPAC is modelled largely off of the US model. One of the many important characteristics that is shared between both jurisdictions is the defined timeline to make an acquisition. In a SPAC, the units offered to investors are typically exercisable at a premium to the IPO unit price after a qualifying acquisition is completed.
Interestingly, if a SPAC does not make an acquisition within 36 months after the launch of the IPO, the SPAC is … Continue Reading
According to a report recently published by the Canadian Venture Capital & Private Equity Association (CVCA) entitled “CVCA Q1 2017 VC & PE Canadian Market Overview: VC experiences robust quarter; PE flat in Q1”, Canadian venture capital (VC) recorded its second-best quarter since 2013, while Canadian private equity (PE) failed to outpace its current stagnant rate.
Interestingly, the VC deal volume in Q1 2017 (at 98 deals) ranked 13th among the 17 completed quarters since the start of 2013; meanwhile, the Q1 2017 aggregate value of money invested (at CAD$905) ranked … Continue Reading
As noted by Kingsdale Advisors in a recently published report, corporate directors and their legal advisors continue to pay insufficient attention to shareholder activism in M&A. The authors of the 2017 special report caution that not only have shareholder activists been emboldened by post-financial crisis legislative changes that afford shareholders greater say, but that these investors also enjoy access to ever more sophisticated playbooks. Further, they stress that activism in M&A is no longer the exclusive domain of entrepreneurial hedge funds; traditionally passive investors, including large asset managers and even pension funds, are increasingly willing to ensure that their … Continue Reading
Competition has increased in the private equity (PE) market. In the US, PE firms paid a 31% premium for acquisitions in 2016, an eight-year high according to Bloomberg data. There are a growing number of market participants chasing after ever scarcer quality businesses thereby causing price appreciation of businesses. In addition, the availability of low interest debt provides players with the financing to pursue these assets.
A competitive advantage
To remain competitive, there is a growing sentiment that PE firms should look to specialize, which many have already been doing. It can be difficult for PE firms … Continue Reading
As we begin 2017, the 1,000 corporate and private equity executives surveyed for Deloitte’s M&A Trends Year-end report 2016 display optimism for the coming year. The survey was conducted in September 2016 and included participants from companies or private equity firms with annual revenues of $10 million or more, representing 18 industries.
Respondents expect a rebound year from 2016, with 86% of surveyed private equity and 71% of surveyed corporate dealmakers expecting to close more deals this year. Not only is deal volume expected to increase, but 64% of all respondents also expect deal size to increase. Divestitures appear poised … Continue Reading
While private equity firms are enjoying more dry powder than ever, the overall fund lifecycle is expanding. Mergermarket interviewed private equity partners, directors and principals from across the United States and their responses point to increases in time in all three lifecycle segments of a fund: raising capital, searching for suitable targets, and exit.
For the majority of US GPs, the time period spent raising money from investors for their most recent fund was longer than the preceding one, 76% of the respondents needing between 9 to 18 months total. While fund lifecycles are extending, the amount of … Continue Reading
Chinese buyout frenzy
Outbound private equity investments from China into North America and Europe have been growing rapidly.
According to the investment bank Houlihan Lokey, in H1 of 2012, the outbound Chinese private equity transaction value was US$219M. Since then, Chinese private equity firms have drastically increased their offshore spending and recorded total transaction value of US$5,8B and US$7.4B in the first half of 2015 and 2016 respetively. While in 2012 and 2013, the rest of Asia played a more dominant role in outbound investments in terms transaction value, since 2014, China has been carrying the torch. In H1 … Continue Reading
Divestment is one strategy that a corporation can use to unlock funds for future growth and create long‑term shareholder value. According to a recent E&Y study, a successful divestment must meet three criteria: (i) it must create a positive impact on the valuation multiple of the remaining company; (ii) it must generate a sale price above expectations; and (iii) it must close ahead of its timing expectations. Only 19% of the companies surveyed for the study met all three criteria. Considering that divestiture activities are likely to increase in 2016 (a more detailed discussion on 2016 divestiture outlook can … Continue Reading
Private equity investors (PEIs) when investing in new portfolio companies, seek to align management’s interests with that of the PEI to grow the value of the portfolio company and achieve a profitable return in the investment upon exit.
Typically, PEIs incentivize management to adopt such interests through compensation arrangements in the form of performance incentives. Generally, PEIs will grant management an interest in the growth in value of the company via an interest in the equity of the company (e.g., stock options or performance shares) or in the profit/proceeds of the company, the latter of which is … Continue Reading