Venture Capital in Canada: Mergers and Acquisitions and IPOs are Quickly Surging

Posted by Louis Rheaume

According to a report by Canada’s Venture Capital and Private Equity Association and research partner Thomson Reuters, VC deal-making in Canada slowed in the first three months of 2012, with a total of $263 million invested, down 34% from the year before.  In addition, the number of innovative Canadian companies financed with VC, totaling 113 in this period, decreased 10% year over year.

The report found amounts invested per company averaged $2.3 million in Q1 2012, down from $3.2 million in Q1 2011.

“Perhaps the biggest single obstacle facing high-growth Canadian technology firms is difficulty accessing adequate value-added risk financing, in general and relative to competitors in the global economy," said Gregory Smith, President of the CVCA. VC investment between January and March was led in IT sectors, which absorbed $115 million, or 44% of the total, though down 31% from the year before.

In contrast with deal-making, Canadian VC fund-raising showed particular year-over-year growth in the first quarter of 2012.  Led by an array of major VC partnership closings, new capital committed to domestic funds totaled $742 million this time around, which is more than twice the amount committed to funds at the same time in 2011.

THE EVOLUTION OF VENTURE CAPITALISM

At the CVCA conference, it was pointed out that there are around 50 IPOs lined up for 2012. The window of opportunities for lucrative exits strategies are more open for entrepreneurs and VCs now than before. Companies going public typically have more revenue, sustainable near-term growth, credibility, and are usually cash flow positive.

Mergers and acquisitions are exits with a bright perspective. The biggest firms in North America have around $1.8 trillion in cash for investments such as acquisitions. Tech mergers and acquisitions are quickly surging and hunters are paying bigger premiums than in previous years (such as how Radian6 was acquired last year for $326 million by Salesforce).  It appears that Canadian firms have now great balance sheets and will likely become more active participants in M&A.

Furthermore, Canadian VCs are raising more money into their funds.  Several experts, such as Chris Arsenault, Managing Partner of iNovia Capital, predicts an important surge in VC funding into tech firms in the coming months: “The pipeline is full. Many VC funds needed money, but the opportunities are already there.” For instance, Teralys, a major Quebec VC tech fund of funds, just announced new major investments.

Another expert suggests that Canada has a very “relationship-mentality” when raising money for VC funds.  While some reports propose that the Canadian VC performance was “poor” in the past decade, Gary Rubinoff, Managing Partner at Summerhill Venture Partners pinpoints that it is not really fair to compare Canadian VC performance to American VC performance.  “The US has been doing venture capital a lot longer than Canada.  America has many decades of experience."

Still, Mr. Rubinoff is excited about the future: “The pace of innovation is incredible. Great deals are now numerous. There are over 500 VC funding groups in North America, this number has reduced and there is now less competition."

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Louis Rheaume

Louis Rheaume

Mr. Rhéaume has the scholarity of a doctorate in business administration, concentration in strategic management, innovation management and corporate finance. He holds a Master’s degree in finance. He has numerous years of experience in consulting, strategy, financial analysis and business intelligence, mainly in the telecommunications and computing industries. He has also been a researcher in... more



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