Foreign buyout firms drive Canada private equity deals to new high

TORONTO (Reuters) - Foreign buyout firms chasing Canadian assets helped push private equity activity to a record high in the first half of 2017, and lawyers and fund managers say the trend is likely to continue through the rest of the year.

Deal values jumped 55 percent in the first half from a year ago to C$14.6 billion ($11.6 billion), an all-time high, according to data released by Thomson Reuters on Wednesday. Deal volumes rose 10 percent to 184.

About 38 percent of the buyout deals targeting Canadian companies had a non-Canadian lead investor, compared with 27 percent in the first half of 2016.

“There’s quite a bit of a focus from American players on Canada. And this focus is on the bigger deals,” said Michael Akkawi, head of the private equity practice at law firm Torys LLP, who sees strong foreign involvement in the coming year.

Highlights included the C$4.8 billion acquisition of Canadian financial technology company DH Corp by buyout firm Vista Equity Partners and Starwood Capital Group’s purchase of Milestone Apartments for C$1.7 billion.

Meanwhile, venture capital investment in Canadian companies hit a 16-year high in the first half, rising 18 percent to C$2.1 billion, driven by deals in the healthcare and technology sectors. It was the best first half since 2001.

“We’ve had a few exceptional deals. We’re seeing both U.S. and Canadian interest in Canadian technology companies,” said Shahir Guindi, national co-chair of law firm Osler, Hoskin & Harcourt LLP.

Guindi advised Element AI Inc as Canada’s biggest artificial intelligence (AI) company raised C$137 million, in one of the largest-ever funding rounds for an AI company.

Deal volumes, however, slipped 27 percent from year-earlier levels, suggesting a smaller number of companies were benefiting from large investments.

“I expect the early stage activity to remain very strong,” said Damien Steel, managing director at OMERS Ventures, who sees a squeeze on companies requiring series B investments.

“Fintech and AI will dominate the funding in terms of themes,” Steel added. “You’re seeing a ton of AI and machine learning companies coming out of Canada.”

($1 = 1.2562 Canadian dollars)

Reporting by John Tilak; Editing by Tom Brown