Canadian mid-market projected to thrive

Market participants are optimistic on Canadian investment opportunities and fundraising levels despite credit market difficulties, a study has found.

Credit market dislocation is not expected to affect the core of Canada’s private equity industry, the middle market.

Mid-market deals will continue to get financed, although at lower leverage multiples, according to a survey of market participants commissioned by Canadian law firm Blake, Cassels and Graydon (Blakes).

“The historically conservative nature of Canadian lenders and the mid-market nature of the market mean that Canada is well situated for the year ahead,” said Blakes partner Michael Gans in a statement.

Canada is well situated for the year ahead.

Michael Gans

Although two-thirds of the survey’s 125 respondents expect credit tightening to continue through 2008, less than 10 percent believe it will endure into 2009, the study found.

Furthermore, the respondents’ fundraising outlook remains largely optimistic. The Canadian and US investment bankers and private equity firms surveyed generally expect an increase in available capital to private equity firms over the next 12 months. However, half of the large Canadian institutional investors surveyed disagreed, believing that the amount of available capital will shrink.

The study, “Canadian Private Equity”, was commissioned by Blakes and conducted by intelligence firm mergermarket in late 2007 and early 2008. Subjects taking part in the study included private equity practitioners in the US and Canada.

Last year, the value of announced Canadian buyouts reached an historic high of $65.5 billion, driven by the pending $46.8 billion buyout of BCE by the Ontario Teachers’ Pension Plan in partnership with Madison Dearborn Partners and Providence Equity Partners. This compares to 2006 when buyouts totaled $8.2 billion, according to recent data from the Canadian Venture Capital Association.