MONTRÉAL, Aug. 26, 2014 /CNW Telbec/ - Although activity in the venture capital (VC) market in QuÉbec slowed in the second quarter, it is worth noting that the share of financing of companies in early-stage development (at the seed and start-up levels) doubled, capturing 26% of the market. Meanwhile, the QuÉbec buyout and private equity (PE) market continued to show strong growth, with investments totalling $2.9 billion in the first quarter, nearly double the amount reported for the same period in 2013. These observations are drawn from the 2014 second-quarter report on activity in the VC industry and the 2014 first-half report on the buyout and PE market in QuÉbec, compiled by Thomson Reuters and released today by RÉseau Capital.
Start-up companies do well despite slower venture capital activity
In the second quarter of 2014, the number of companies financed by VC rounds in QuÉbec was almost unchanged (44 in Q2 2014 compared with 47 in Q2 2013) even though the total invested declined by 55% compared with 2013, falling to $94 million. It should be noted, however, that activity picked up compared with the first quarter of 2014, when investments totalled $68 million. In the first half of the year, the Canadian market saw modest growth of 8%, with total investments of $890 million, while the United States experienced a surge, with $22.7 billion invested, the highest first-half total since 2001.
"Since the start of the year, we have seen the VC market in QuÉbec shaped by smaller financing rounds, with the average amount invested standing at $2.1 million, compared with $4.4 million during the same period last year," says Jack Chadirdjian, President and CEO of RÉseau Capital. "The significant growth in the financing of companies at very early stages of development is good news, since their increased presence will energize the industry by creating a large pool of innovative companies in QuÉbec."
Non-technology sectors dominated in the second quarter, with $56 million in investments, 60% of the total. The information technologies and clean technologies groups each accounted for 14% of market activity, while life sciences declined to 12% of all investments. Major transactions in QuÉbec included the $10-million Series A financing provided to MontrÉal-based OMsignal.
VC fundraising activity across Canada slowed considerably in the second quarter of 2014 in comparison with a year earlier. New capital invested in the first half totalled $643 million, down 25% from the previous year. QuÉbec VC funds continued to attract the lion's share of commitments, however, with 45% of the total raised in Canada over the first six months of 2014. A plan to launch a $375 millionQuÉbec-based VC fund-of-funds vehicle, which was announced by the QuÉbec government in June, is likely to impact the fund-raising environment in the months ahead.
Very strong growth in the buyout and PE market
Acquisitions with majority ownership, growth-focused investments and other PE transactions conducted in QuÉbec numbered 87 between January and June, up 74% from the same period a year earlier. The $2.9 billion in buyout-PE investments at June 30 exceeded the $2.5 billion invested for all of 2013 — eloquent testimony to the strength of this market.
"The buyout and PE market is showing strong growth, sending a very good signal to our local companies that seek to excel internationally," Mr. Chadirdjian states. "Activity in QuÉbec broadly dominates the Canadian market, with 45% of the transactions recorded, and it ranks second in dollars invested, behind Alberta. This is an excellent performance."
The QuÉbec market continued to be characterized by large-cap transactions ($100 million or more) in the first half of 2014, accounting for 76% of total disclosed value during this period. Of particular note is the $1.1-billion transaction for the final closing of the acquisition of Atrium Innovations. As for the number of transactions, those for $10 million or less formed the biggest category, at 61% of the total, although they absorbed only 5% of all capital invested.
Canada-wide, the disclosed value of transactions totalled $9.7 billion, more than triple the amount in the same period last year, while the increase in the United States ($74.2 billion) was more moderate, posting an advance of 8%.
A wide variety of industry sectors in QuÉbec drew the attention of buyout-PE investors in the first half of 2014, with manufacturing and retail sales companies setting the trend in transaction volume, posting market shares of 22% and 13% respectively. But healthcare and mining companies dominated in terms of total investment, with market shares of 38% and 33% respectively.
In the first half of 2014, the fundraising activity of Canadian buyout, mezzanine and other PE firms replicated the solid results recorded on the investment side. New capital commitments totalling $7.4 million amount to double the sum committed in the same period last year and exceed the year-long totals achieved in most of the last few years, with the exception of 2013.
About RÉseau Capital
RÉseau Capital, founded in 1989, has more than 425 members representing private-equity, tax-advantaged and public investment companies, as well as banks, accounting and law firms, angel investors, and many professionals working in the field. RÉseau Capital is the only private-equity association that brings together all stakeholders in the QuÉbec investment chain. Its mission is to contribute to the development and efficient operation of the private-equity industry, which plays a major role in the development and financing of businesses in QuÉbec.
SOURCE RÉseau Capital