Sustained growth in the Canadian economy and heightened competition for deal flow amongst private equity and other institutional investors continue to make Canada an attractive destination for U.S.-based PE investors. According to a new study commissioned by Bennett Jones, Due North: U.S. Private Equity Sets Sights on Canada, U.S. investment firms will continue to dedicate resources to sourcing opportunities in Canada, drawn by a perception of lower valuations and the opportunity to deploy meaningful capital, all while remaining relatively close to home.
The report, conducted by Mergermarket, an Acuris company, is based on a survey of Canadian and U.S. PE executives, as well as Canadian portfolio company executives. It finds the top sectors for investment in Canada are consumer goods (24 percent), industrials and chemicals (22 percent), oil and gas (14 percent) and technology (14 percent).
“Canada remains an attractive destination for U.S. investors, notwithstanding certain challenges facing the Canadian economy. The total value of private equity deals continues to reach new heights,” says John Mercury, Vice Chair, Clients and Industries at Bennett Jones. “The time was ripe to look deeper into the area, to better understand the motivations driving investment decisions and to help identify opportunities for our clients.”
Respondents in Due North said key aspects of investing in the Canadian market include:
- rapid business growth and global connections are twin priorities for Canadian companies and U.S. PE firms;
- local market knowledge is key for investors to understand the Canadian market and make sound investment decisions; and
- building relationships in Canada is the best way to identify a Canadian-based target.
Canada/U.S. trade relations and impacts from the overhauled U.S. tax code present potential challenges to dealmakers’ optimism. 48 percent of respondents say they are very concerned about the effects of trade uncertainty and 36 percent say U.S. tax reform will make Canadian targets less attractive on the whole.
Despite these headwinds, survey respondents were largely optimistic about the prospects for PE investment in Canada. They make clear that the rewards can be substantial for the diligent and patient investor, and explain that present challenges can be overcome.
Additional highlights from respondents in Due North include:
- Sixty-eight percent said Canada’s economic expansion would be the top factor attracting PE investors to the country.
- Sixty percent said the smaller number of potential buyers and lower valuations compared to the United States make the Canadian market appealing.
- Forty-two percent said the ability to use “waterfall” economics or flow-through structures was the most important factor when structuring a deal in Canada.
Read the full private equity report and survey results.
Mergermarket is a business development and market intelligence tool designed specifically for the M&A sector and provides proprietary intelligence and analysis on corporate strategy across the world. With around 200 M&A journalists talking directly to senior executives, dealmakers and other key players in over 60 locations globally, Mergermarket reports on the whole deal life cycle, from mapping out companies’ early stage strategic intentions to tracking deals before they develop and providing real-time news on live events, thereby creating a large window of opportunity. Subscribers can also mine for trends, patterns and deal ideas using Mergermarket’s comprehensive deals database and regular data-driven editorial analysis and commentary. Visit www.mergermarket.com to learn more.
About Bennett Jones
Bennett Jones is one of Canada's premier business law firms and home to 400 lawyers and business advisors. With deep experience in complex transactions and litigation matters, the firm is well equipped to advise foreign businesses and investors with Canadian ventures, and connect Canadian businesses and investors with opportunities around the world.
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