14 LEXPERT MAGAZINE
|
MARCH 2019
A LARGE
NUMBER OF
PRIVATE EQUITY
FUNDS ARE IN
THE LATTER
PART OF THEIR
LIFE CYCLES.
THAT'S A LOT OF
DRY POWDER
SITTING
AROUND IN
SEARCH OF
THE RIGHT
OPPORTUNITIES
BY SANDRA RUBIN
pools of money — may have year-long extensions built
in but, when time's up, they have to exit their invest-
ments and distribute the profits to investors.
By that stage, many are already forming their next
fund. Raising hundreds of millions of dollars or more
for a new fund can easily take over a year, so the well-
F
or anyone who doesn't
work in the field, it may
come as a surprise to learn
that unlike a hedge fund, which
can live on forever, a Private Eq-
uity fund has the same life ex-
pectancy as a goat: Ten years.
Its managers work with a
ticking clock. e life span co-
lours everything as they hunt
for companies in which new
technology, a tweak to opera-
tions or a change to the busi-
ness model will create a higher
valuation within a few years.
As a fund approaches the fin-
ish line, it has to start shedding
its assets. Some funds — just
Exit
Strategy
known firms usually hire a placement agent when an existing fund
is 75 per cent invested and start raising capital for the next iteration.
Here's the thing. A whack of Private Equity funds, like the
Boomers, are entering their senior years.
Michael Akkawi, head of the Private Equity Practice at Torys
LLP in Toronto, says right now as many as half of North American
PE funds are in the latter part of their life cycles. at means there
are a lot of assets to be shed and firms going to market in competi-
tion for capital.
"A lot of this is happening around the same time, so in terms of
raising capital we're seeing a lot of activity. Just in Canada, you've
got almost all the typical names that either just closed raising a fund
or are in the middle of it," Akkawi says.
John Mercury, leader of the Private Equity Practice group at Ben-
nett Jones LLP in Calgary, estimates that over US$218 billion in
Private-Equity capital was raised in North America in 2018, "and
that's not even a final number."
Even so, that's a ton of money chasing deals. Newly capitalized
funds like to hit the ground running and start bagging acquisitions
as soon as possible. No one likes to see undeployed cash, known as
"dry powder," just sitting around.
What that means is that aside from a lot of financing work,
lawyers are seeing a lot of Private Equity M&A work although
many, if not most, transactions, unless they involve a listed com-
SOPHIE LAMONDE
STIKEMAN ELLIOTT LLP
"There are players
coming to Canada to
look for good stories,
including US and
European firms.
We see foreign buyers
taking a keen interest
in Canadian assets.
That's good from a
seller's perspective."
