The low number of exits and the slow pace of closing funding rounds are impacting Quebec’s private capital activities

Réseau Capital and its Centre of Expertise presents the quarterly report on private equity industry activities in Québec. Produced in collaboration with the Canadian Venture Capital Association (CVCA), this report provides a detailed view of venture capital (VC) and private equity (PE) investments in Quebec for the second quarter of 2024. It provides a review of private investment activity in Quebec companies by type of investment, industry sector, stage, and size of investment.

While the decrease in interest rates may be beneficial, the current economic environment remains fragile and continues to impact the markets in both Canada and Quebec, affecting venture capital as well as private equity.

In venture capital, with 85 deals and $1.47B invested, the decline in deal count observed in H1 2024 has continued. The drop in deal count is particularly evident in seed and later-stage deals. Despite this decrease in deal volume, there has been a 14% increase in total funding compared to the same period in 2023. The year 2024 has been characterized by a resurgence in early-stage deals, along with an increase in total funding for the CleanTech and Life Sciences (LS) sectors, both of which have seen funding growth exceeding 23% compared to the same period in 2023.

As for private equity, the deal count rose by 6%, while total funding surged by 174% compared to the same period in 2023, with 283 deals and $8.11B invested. So far, 2024 has been characterized by buyout transactions, experiencing a historic year. Compared to the same periods since 2013, the first three quarters of 2024 rank first (1/12) in terms of buyouts in both deal count and total funding.

While the economic environment continues to impact private capital activity levels, certain indicators, particularly the steady pace of buyout transactions and the increase in invested amounts, demonstrate the industry’s resilience. However, the low number of exits and the slow pace of closing funding rounds remain concerning.

Venture Capital Highlights:

• In the third quarter, both deal count and total dollar invested continued to decline, with 25 deals totaling CAD $239 million.
• Since the beginning of the year, Quebec represents 20% of the national VC deal count and 23% of total funding, placing it second after Ontario.
• Q3-2024 in Quebec is characterized by a decrease in seed-stage rounds, with 8 deals totaling CAD $28 million.
• Since the beginning of the year, early-stage investments in Quebec have recorded 37 deals totaling CAD $497 million, a 42% increase in deal count compared to the same period in 2023.
• The average size of venture capital investments in Quebec stands at CAD $17.27 million, higher than the Canadian average of CAD $15.16 million, lower than the British Columbia average (CAD $32.37 million), and higher than the Ontario average (CAD $13.33 million).
• The ICT sector maintains its dominance, with 45 deals totaling CAD $630 million, representing 53% of the total deal count and 43% of total funding.

Private Equity Highlights:

• Since the beginning of the year, Quebec has recorded investments totaling CAD $8.11 billion across 283 deals. Following record transaction volumes, the positive trend continues in 2024.
• Quebec represents 60% of Canadian private equity deals, ahead of Ontario (25%) and British Columbia (10%), and accounts for 79% of the total amount invested.
• The most significant disclosed private equity transactions over the past three quarters include eStruxture (CAD $1.8 billion), Logistec Corporation (CAD $1.2 billion), Plusgrade (CAD $1 billion), and Energir (CAD $575 million).
• The average transaction size in the first three quarters of 2024 is CAD $28.65 million per deal, placing Quebec ahead of Ontario, British Columbia, and Alberta.
• The industrial and manufacturing sector continues to attract a high number of deals (96 deals totaling CAD $872 million), but the ICT sector ranks first in total dollar invested (27 deals totaling CAD $3.24 billion). The automotive and transportation, agroforestry, and financial services sectors have also generated sustained activity.
• The first three quarters of 2024 in Quebec’s buyout segment, with 21 transactions totaling CAD $3.47 billion, rank first (1/12) both in deal count and total funding for buyouts.