Definition
Private Equity in Canada refers to a type of capital investment where funds are directly invested in private companies or conducted in buyouts of public companies, resulting in the delisting of public equity. Much like in other parts of the world, private equity is usually structured as a limited partnership managed by a private equity firm acting as the general partner. The private equity market in Canada also includes venture capital funding for startups and growth capital for expanding firms.
Key Takeaways
- Private Equity in Canada refers to financial investors who directly invest in private companies or engage in buyouts of public companies, resulting in the delisting of the public companies from stock exchanges. They play a vital role in fostering economic growth and innovation.
- Canadian Private Equity is largely dominated by a few large companies, which includes Onex Corp, Brookfield Asset Management, and CPP Investment Board. These firms and a few smaller ones make up the majority of the sector, and they focus primarily on industries like technology, energy, and healthcare.
- The private equity market in Canada has been growing over the years. There has been an increased interest from international investors, showing the potential and opportunities in Canadian markets. However, due to the high risk and long-term engagement involved in private equity investments, they are typically only accessible to accredited investors or those with a high net worth.
Importance
Private Equity (PE) in Canada is crucial as it plays a significant role in the economy, stimulating growth and driving innovation. PE firms provide companies with strategic capital that enables them to grow, make acquisitions, or restructure their operations, essentially improving companies’ overall market competition.
These investments often result in job creation and economic expansion. Moreover, they provide institutional and high-net-worth investors with opportunities for substantial investment returns.
The importance of PE also extends to strengthening the investment ecosystem in Canada, encouraging entrepreneurship, foreign investments, and fostering a competitive market environment. Hence, Private Equity in Canada serves as a cornerstone for economic growth, business development, and financial prosperity.
Explanation
The purpose of Private Equity (PE) in Canada, much like in other parts of the world, is to provide a source of direct capital investment into private companies or buyouts of public companies that result in a delisting of public equity. This implies that investment funds directly invest in private businesses and focus on improving their profitability and enhancing performance over a specified period, typically five to seven years.
They increase the company’s value and then exit their investment either through a sale to a strategic investor (another company in the same industry) or via an Initial Public Offering (IPO), during which the company’s shares are sold to the public market for the first time. The use of private equity offers many benefits.
For instance, PE investment can provide needed capital for businesses that require an influx of cash for expansion or capital improvements. Additionally, companies can benefit from the expertise, contacts, and experience that PE firms deliver to the table, which can significantly catalyze their growth and success.
Furthermore, it allows profound organizational restructuring or strategic shifts to happen smoothly without the scrutiny of public markets. Private Equity in Canada is a crucial aspect of the country’s financial environment, contributing to economic dynamism by fostering growth and innovation in Canadian businesses.
Examples of Private Equity in Canada
Onex Corporation: One of the oldest and most successful private equity firms in Canada, Onex Corporation has assets of over $44 billion across various asset classes. Since its inception in 1984, Onex has acquired and built numerous companies across a wide array of industries.
Brookfield Asset Management: Based in Toronto, Brookfield Asset Management is a leading global alternative asset manager with approximately $600 billion in assets under management. The firm focuses on real estate, renewable power, infrastructure and private equity.
Birch Hill Equity Partners: A long-standing player in the Canadian market, Birch Hill Equity Partners focuses on investments in mid-market companies. The firm has invested in over 50 Canadian companies since 1994 with a total value of more than $6 billion.
FAQs on Private Equity in Canada
What is Private Equity?
Private Equity refers to an investment management strategy where financial institutions or individual investors directly invest in private companies or conduct buyouts of public companies resulting in the delisting of public equity. Investment in private equity often requires a long holding period to allow for a turnaround of a distressed company or a liquidity event such as an Initial Public Offering (IPO) or a sale to a public company.
How Does Private Equity Work in Canada?
In Canada, private equity investing operates in a similar way as it does in other parts of the world. Large financial institutions, pension funds, or wealthy individuals make investments directly into private companies or engage in buyouts of public ones. The aim is to improve the company’s value over a significant holding period often ranging from 4 to 7 years before selling it for a profit.
What are the Major Private Equity Firms in Canada?
Some of the most prominent private equity firms in Canada include Brookfield Asset Management, Onex Corporation, and CPP Investments. These firms handle billions of dollars in assets and have significant influence within the Canadian economy.
What is the Role of Private Equity in the Canadian Economy?
Private Equity plays a vital role in the Canadian economy. It provides a source of direct capital investment for businesses that may struggle to raise capital from public or conventional sources. This can lead to business growth, restructuring, or sometimes salvaging a business in distress.
What are the Risks Involved in Private Equity Investments?
While private equity has the potential for high returns, it also comes with significant risk. The long holding period exposes investors to market fluctuations and the potential failure of the investment. It also requires significant management intervention, which may not always be successful. Besides, these investments are relatively illiquid which means they cannot be easily sold or converted into cash.
Related Entrepreneurship Terms
- Canadian Venture Capital and Private Equity Association (CVCA)
- Buyout Funds
- Mezzanine Financing
- Limited Partnerships in Canada
- Direct Investment
Sources for More Information
- Canadian Venture Capital and Private Equity Association (CVCA): An authoritative source of information about private equity in Canada.
- PricewaterhouseCoopers (PwC) Canada : A leading audit, tax, and consulting services provider with significant insights into the private equity market in Canada.
- Business Development Bank of Canada (BDC): A financial institution owned by the Government of Canada, which caters exclusively to entrepreneurs, including information on private equity.
- KPMG Canada: A global network of professional firms providing audit, tax and advisory services, including information on the Canadian private equity market.
