PRINT THIS PAGE Why buy-out investments are good for Canada04/06/2008. Source: The CVCA – Canada’s Venture Capital and Private Equity Association.
Canada has a relatively nascent but fast-growing domestic private equity industry, with $66bn raised since inception up to 2006. Buy-out investors add substantial value to companies through strong governance, a results-oriented mindset that challenges conventional thinking, and a long-term perspective that builds sustainable value. Stronger Canadian companies translate into a stronger and more productive Canadian economy, says Canada’s Venture Capital and Private Equity Association (CVCA). The CVCA estimates that over the last five years, buy-out investors have added $25-30bn in value (GDP) to the Canadian economy and created 114,000 jobs. They have also raised corporate and capital gain tax revenue, contributed to the development of a stronger Canadian capital market, and provided benefits to pensioners.
In the last 24 months, there has been a noticeable increase in Private Equity (“PE”) activity. PE touches the lives of Canadians in a myriad of different ways, from the way we reference information (Yellow Pages), to the way we shop for consumer goods (Shoppers Drug Mart), to the way we dispose garbage (BFI). This list goes on to include many wellrecognized Canadian brands such as Bell Canada, Sunquest Vacations and Porter Airlines.
Despite this recent activity, it is interesting to note that the Canadian PE industry still remains relatively nascent and public awareness and understanding is muted when compared to the US and Europe. This general lack of familiarity with PE can sometimes lead to misconceptions that include the notion that PE benefits only high net worth individuals, PE firms are short-term focused and PE reduces employment in the economy. However, the reality is that PE actually creates long-term benefits for a large set of stakeholders, ranging from individual Canadian companies to current and future pensioners. Numerous studies, including those conducted by consulting firms McKinsey, AT Kearney and Ernst & Young demonstrate that PE results in a stronger economy with higher productivity and employment.
The purpose of this report is to provide clarity on what Private Equity is, explain how it makes money and illustrate the benefits it provides to the Canadian economy.
The report is structured as follows:
Section 1: Definition of PE, its different forms, and how it compares to other financial and investment instruments
Section 2: Description of how Buyout firms raise, make and distribute money
Section 3: Overview of the PE industry in Canada
Section 4: Discussion of how Buyout firms add value to companies and how that translates into value for the broader economy Section 5: Implications and conclusions
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The CVCA – Canada’s Venture Capital and Private Equity Association– was founded in 1974. Its more than 1,500 members include venture capitalists, institutional investors, pension funds, corporate investors, private equity investors, angel investors, as well as advisory members who provide services in such areas as law, finance, executive search, investment bank, insurance, consultants, advisors, government and academia. More information on the CVCA is available at www.cvca.ca.
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