Monday Market Minute | May 2, 2022

Canadian PE deal flow decelerates as rising leverage costs and valuation gaps stall transactions

What Moved

Canadian private equity deal activity cooled notably in Q1 2022 as the cost of acquisition financing rose and buyer-seller valuation expectations diverged. Sellers, anchored to 2021 peak multiples, were reluctant to accept lower prices. Buyers, facing higher cost of capital and uncertain forward earnings, widened their discount demands. Several mid-market transactions were quietly pulled or delayed. CVCA preliminary data showed deal count declining even as dry powder remained at record levels.

Why It Matters

The bid-ask spread in Canadian PE was the widest in years. For LP investors, the slowdown meant fewer distributions from exits and longer hold periods for portfolio companies. However, the environment was creating future opportunity — funds that maintained discipline and deployed into the correction at reset valuations could generate compelling vintage year returns. The distinction between patient, cycle-aware managers and those under deployment pressure became critical.

Signal to Watch

PE secondary market transaction volumes — rising secondary activity would indicate LPs were seeking liquidity through portfolio sales, a classic mid-cycle signal.

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