Blakes study finds room for optimism in Canadian mid-market transactions
Webcast of the study available at: http://blakes.com/bwc/bizcast/pe/bizcastpe.html
TORONTO (February 28, 2008) – LAWFUEL – Law Firm Announcements – Blake, Cassels & Graydon LLP (Blakes) today released a study of the perceptions of 125 private equity practitioners and investment bankers in the United States and Canada, which found that middle market transactions, the heart of the Canadian market, are expected to continue in 2008, although possibly financed at lower multiples than last year.
Although the credit environment has dampened activity in financial markets and respondents are cautious about the prospects for Canadian private equity in 2008, they remain optimistic about activity in the longer term. About two-thirds of respondents expect the credit tightening to last throughout 2008, but less than 10 per cent see it enduring beyond year-end. Respondents believe the growth in private equity transactions will continue to outpace any growth in M&A activity in Canada generally, with large institutional investors almost unanimous in this assessment.
“In this environment, deal certainty has become very important,” said Blakes Partner Frank Arnone. “The trend is evident in the level of scrutiny and precision that private equity dealmakers and targets are placing on the terms of acquisition agreements, including material adverse change clauses and reverse break fee provisions.”
Half of the study respondents believe there have been changes in approach to material adverse change clauses and to reverse break fees due to the current credit situation. While there is no clear consensus about the impact on the amount of reverse break fees, it is clear that they are now an important consideration for both buyers and sellers.
“In 2008, we are going to see a tremendous pool of available capital and a desire to complete transactions competing with tight credit conditions and negative experiences, primarily in the U.S., where broken deals have made boards of directors wary,” said Blakes Partner Michael Gans. “However, the historically conservative nature of Canadian lenders and the mid-market nature of the marketplace mean that Canada is well situated for the year ahead.”
Although 2007 capital raising was lower than 2006’s all-time high, respondents generally expect an increase in the amount of capital available to private equity firms in the coming months. With tighter credit conditions, funds are indicating a greater willingness to increase equity participation.
Canadian investors are also expected to be looking abroad for opportunities. According to Blakes Partner Kim Harle, “We anticipate that the recent dramatic appreciation of the Canadian dollar against the U.S. currency, in particular, will drive increased outbound investment. Interestingly, the majority of Canadian private equity and large institutional investors in the study identify larger deal opportunities when looking overseas.”
The study found that Canadian capital will continue to find attractive acquisition and investment targets in the United States, followed closely by Europe. Respondents named solid return investment areas, such as the industrial manufacturing sector, as the prime targets for Canadian private equity firms looking at potential foreign assets.
The study was conducted for Blakes by mergermarket in late 2007 and early 2008.
For a copy of the study, please go to http://www.blakes.com/canadianprivateequity or contact: Chrystal Boudreau
Founded in 1856, Blakes has more than 550 lawyers and offices in Canada, the United States, Europe and China. Blakes was recently named “Canadian Law Firm of the Year” by Chambers and Partners Legal Publishers, one of the world’s leading publishers of legal directories and trade periodicals. In October 2007, and for the fifth consecutive year, Blakes was the only law firm named one of “Canada’s Top 100 Employers” in Maclean’s newsmagazine. More information on Blakes is available by visiting the Firm’s Web site at www.blakes.com.
mergermarket, part of The Mergermarket Group, is an unparalleled, independent M&A intelligence tool used by the world’s foremost financial institutions to originate deals. It provides proprietary intelligence on potential deal flow, potential mandates and valuations via the world’s largest group of M&A journalists and analysts who have direct access to the most senior decision-makers and corporates. The Mergermarket Group has over 400 employees worldwide and regional head offices in New York, London and Hong Kong. Visit us at www.mergermarket.com.
Manager, Media and Public Relations