Canada private equity could see banner 2011

TORONTO Mon Mar 7, 2011 5:52pm EST

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TORONTO (Reuters) - Canadian private equity is set for another strong year in 2011, driven by dealmaking in its midmarket and an improved fundraising climate, the head of the Canadian Venture Capital and Private Equity Association says.

CVCA President Greg Smith told Reuters that large Canadian private equity players will again turn in a strong international performance.

"I think we'll have growth in the midmarket arena in Canada, but we'll see some of the larger transactions happen on the global arena," Smith said in an interview in Toronto.

About C$4.9 billion ($5 billion) in private equity was invested in Canada last year, the first rise for the asset class in three years, with deals like the Canada Pension Plan Investment Board's C$900 million purchase of a 10 percent stake in the 407 toll highway near Toronto.

The recovery came as confidence returned to the market after the global economic crisis, when dried-up credit markets made it almost impossible to raise new private equity funds.

"With a firming economy, people can be much more comfortable about forecasts than they could have been 18 months ago, and that generates comfort in doing deals" said Mark McQueen, chief executive at Wellington Financial.

Already, more private equity capital has been raised in 2011 than in all of 2010.

Birch Hill Equity Partners closed a fourth private equity fund in February, raising C$1.04 billion to invest in mid-sized Canadian companies.

And private equity management firm Clairvest Group Inc said in January it had its final closing for its Clairvest Equity Partners IV Limited Partnership. It raised C$467 million and overshot its original C$400 million target.

Total funds raised in 2010 were C$1.4 billion.

"My sense is that 2011 is going to be a strong year for private equity...perhaps the strongest since the peak of the last cycle,"," said Rick Nathan, managing director at Kensington Capital Partners, a Toronto-based firm with some C$500 million in capital under management.

Private equity players say now could be an optimum time to buy, taking advantage of post-recession prices for high quality assets that tend to get bid up as the economy gathers steam.

New appetite is reflected in the growing number of exits, where private equity or buyout firms "realize" on investments made as they built their portfolios.

"While still early, it appears that 2011 will be a good year to consider selling businesses or pursuing public offerings -- certainly a better environment than the last few years," said Andrew Sheiner, a managing director at Onex Corp, the giant Canadian private equity firm with diversified investments from movie theaters to healthcare.

"The credit markets have not only returned to normal, they have in our view overshot their mark. There is a lot of liquidity in the system and many investors are chasing yield."

As debt becomes cheaper again, buyers borrow more and start to pay higher prices for companies.

Private equity players say 2011 will prove to have been a good time to buy as more companies put themselves up for sale after holding off during a dismal selling environment.

Canadian companies in the middle-market range are likely to benefit the most, just as they did in 2010, when deals from $100 million through $500 million made up 45 percent of disbursements.

"We are seeing more transactions in food and in healthcare, for example, because people think the demographics for those sectors will allow the marketplace to expand," said Joe Telebar, a partner at Ernst and Young and an advisor on private equity deals.

"This year, we expect to see the return of targeted deal activity as the tailwinds of 2010 propel leading companies back into the market."

($1=$0.97 Canadian)

(Reporting by Pav Jordan; editing by Janet Guttsman)

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