The Lexpert Guides to the Leading US/Canada Cross-Border Corporate and Litigation Lawyers in Canada profiles leading business lawyers and features articles for attorneys and in-house counsel in the US about business law issues in Canada.
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14 | LEXPERT • June 2015 | www.lexpert.ca/usguide-corporate/ transactions rose from about 30 per cent to some 40 per cent of the market by deal volume between 2009 and 2014. SPEAKING OF THE Canadian PE market in the singular, however, is tantamount to an oxymoron. "Private equity in Canada is very sophisticated, well developed, competitive and clearly delineated because we know who the players are," says Akkawi. "But the fact is that we have knowledge- able private-equity funds in every geographic part of Canada, in most industries and in all segments of the market by deal size." Geographically, there are strong and varied private equity markets in Toronto, Montréal, Calgary, Vancouver and the Maritimes. As of 2014 Q3, Québec led with the most deal activ- ity, followed by Ontario. But the one challenge all these markets face is competition. "A lot of the weaker players le the market a er 2007, but that still le – to name just a few – domestic and foreign private- equity fi rms, pension funds and strategic buyers vying for the assets," Akkawi says. " e key question for investors, then, is how to manage that kind of competition." With, as the industry calls it, a lot of "dry powder" (uninvested capital) around and with debt being fairly accessible (though perhaps becoming less accessible given the current state of the Canadian economy), the missing ingredient is high-quality assets. " e demand in Canada is defi nitely higher than the supply," Akkawi says. But investors and sellers have learned from the fi nancial crisis experience. Many sellers are demanding high prices even as buyers are wary of paying too much. "Gone are the days when private equity just bid up prices to acquire an asset," says Frank Arnone of Blake, Cassels & Graydon LLP in Toronto. "What they're looking for now is value." Nowadays, that can be a chore. " e strategics are buying and that tends to drive up valua- tion," says Shahir Guindi, who practices in the Montréal offi ce of Osler, Hoskin & Harcourt LLP. But there are ways of dealing with these obstacles. "One way is to fi nd new markets and new industries," Akkawi says. With an eye on the energy market, Kohlberg Kravis Roberts & Co. L.P. (KKR) did just that when it opened a Calgary offi ce in March 2014. By the end of the year, KKR, represented by Derek Flaman of Torys LLP in Calgary, had announced a C$500- million investment that gave it a 50 per cent equity position in a new entity, the Veresen Midstream Limited Partnership, which upon closing will own the North American energy infrastructure assets of Calgary-based Veresen Inc. e Veresen deal, like others, suggests that the current havoc in the energy market hasn't proven much of a deterrent, at least not to US investors. In January 2015, two prominent US private- equity fi rms focused on energy, Riverstone Holdings LLC and NGP Energy Capital Management, committed C$465 million to CanEra Resources Inc. III, a private Calgary-based oil and gas exploration and production company. Other major US PE concerns, like e Blackstone Group LP, are reported to have raised $4.5 billion for a new energy fund, and Warburg Pincus LLC is looking to the oil patch as well. What's attracting Americans, among other things, is the abundance of "Private equity was very active in Canada in 2014," says John Leopold of Stikeman Elliott LLP in Montréal. "And that was true of all segments of the market, something that is refl ective of how diverse the Canadian private-equity universe has become." As of September 30, 2014, investors disclosed some C$26.4 billion in PE transactions, more than twice the C$10.2-billion total for 2013. Deal volume also grew, with the 289 deals recorded representing a growth of more than 40 per cent year-to-year. And while the diminished economic outlook of the past few months has evoked consternation, some of its elements, like the recent drop in the price of oil and the fall of the Canadian dollar, may actually help sustain or even boost the PE market in 2015. "Last year was a very good year for private equity in Canada and North America," says Michael Akkawi of Torys LLP in Toronto. " e deal volume was high, especially in the mid-market [C$100 million to C$500 million], and I don't see it changing this year." According to Allen & Overy LLP's M&A Index, Q4 2014, Canada ranks fi h in the world as an inbound target magnet. And a omson Reuters study ( omson Reuters publishes Lexpert) found that, measured proportionately, private-equity and buyout-fund investment in Canadian companies in 2014 more than doubled the take for US companies. Indeed, Canada's 52 inbound acquisitions compare very favorably on a proportion- ate basis with the US total of 234 such deals. A&O also ranks the top 10 overseas target markets for the 10 leading global acquirers in the $100 million-plus range. Canada stands out here as well, placing second as a target for US acquirers in deal volume (28) and deal value ($26.2 billion). To be sure, A&O's acquirer rankings include public as well as private M&A. But the statistics also demonstrate that private "Private equity was very active in Canada in 2014. And that was true of all segments of the market, something that is refl ective of how diverse the Canadian private-equity universe has become." John Leopold Stikeman Elliott LLP « PRIVATE EQUITY