Monday Market Minute | Nov 01, 2021

Canadian PE deal activity reaches record levels as sponsors rush to deploy

What Moved

CVCA data confirmed that Canadian private equity deal activity in 2021 was on pace to shatter all previous records. Buyout, growth equity, and add-on acquisition volumes all exceeded historical highs. The urgency to deploy was driven by multiple factors: record dry powder carrying management fee drag, an expectation that rising rates would increase borrowing costs for future deals, and a competitive market where hesitation meant losing assets to faster-moving bidders. Deal multiples for quality mid-market businesses routinely exceeded 10x EBITDA.

Why It Matters

Record deal activity at peak valuations represented the classic late-cycle dynamic that LP investors needed to evaluate carefully. The historical correlation between elevated entry multiples and below-average fund returns was well-established. However, the counterargument — that secular growth in technology-enabled businesses justified premium pricing — had enough merit to sustain bullish deployment strategies. The truth would be revealed only in the vintage-year performance data three to five years hence.

Signal to Watch

The ratio of platform deals to add-on acquisitions was a subtle but important indicator. Sponsors using add-on strategies to build scale at lower blended entry multiples were demonstrating operational sophistication; those paying premium prices for platform companies without a clear buy-and-build thesis were more exposed to valuation risk.

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