DESPITE SOME ENCOURAGING SIGNS, THE CLIMATE OF UNCERTAINTY CONTINUES TO WEIGH ON INVESTMENT CAPITAL ACTIVITY IN QUÉBEC

Réseau Capital and its Expertise Centre 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 2022. It provides a review of private investment activity in Quebec companies by type of investment, industry sector, stage and size of investment.

Venture capital and private equity investments in Q2 2022 totalled close to $2.48 billion in 129 transactions.  This data shows a slowdown in both venture and private equity activity. As mentioned last quarter, inflation, rising interest rates and supply chain issues are creating uncertainty that is impacting the business environment.

Despite a decline in the number of transactions and the value of investments compared to the first quarter, venture capital had a good quarter when compared to the historical average of amounts invested in the corresponding periods. A slowdown in venture capital activity is being observed in the rest of the country. In the last quarter, more than $547 million was invested in 29 transactions. Quebec’s performance was supported by several large investments, including Sheertex Holdings Corp. ($126 million) and OSF Digital ($126 million). Importantly, Quebec is on track to have its best year ever for later stage investments.

On the private equity front, unlike the first quarter, we are seeing a return of larger deals. In the last quarter, we recorded $1.9 billion in investments in 100 transactions. While the amounts invested have rebounded significantly, the number of transactions is down from the previous quarter.

Investment capital activity is affected by the overall economic environment, particularly the slowdown in the public markets seen in the second quarter. Although the public markets have improved recently, other factors continue to affect the business environment, including interest rate movements and supply chain issues.

As in the previous two quarters, these risks could continue to dampen investment activity in the coming months. The refinancing of several funds continues to be a major issue that could have a significant impact on investment activity in the coming months.

Venture Capital Highlights:

• With 29 deals totalling $547M, venture capital activity declined compared to Q1, but remains above the historical Q2 average.
• In Q2 2022, as a proportion of national activity, Quebec accounted for 14% of transactions and 33% of VC investments. Ontario remains by far the most active player, but Quebec is well ahead of British Columbia. It is worth noting that Quebec represents 33% of the amounts invested in venture capital in Canada for the second quarter, an increase of 8% compared to the previous period.
• Megadeals (over $50M) continue to support the growth of activities in Quebec with 3 transactions representing 70% of VC investments for the second quarter.

Private Equity Highlights:

• During the last quarter, we recorded $1.9 billion in investments in 100 transactions, marking a significant rebound in investment amounts from the first quarter. This rebound is also being seen in the rest of Canada.
• Since the beginning of the year, Quebec represents 57% of Canadian private equity transactions, ahead of Ontario (23%) and British Columbia (11%), and 54% of the amounts invested.
• After only two quarters, investments in the industrial and manufacturing sector in 2022 ($1.29 billion) are well positioned to exceed those of 2021 ($1.49 billion). Agroforestry, ICT, and life sciences experienced a dip in the second quarter. However, the business services and products sector had a good second quarter (4 deals for $626M) with a significant increase in investment amounts compared to the first quarter.