Companies across all sectors need investment to grow their operations and bring their businesses to a new level. In some cases, private equity (PE) firms invest in promising companies that they grow or lever up to optimize their financial performance and enhance their opportunities to create value. To recover their investment and generate returns for their own investors, PE firms may take the companies public.
With the recent strength in the equity market, PE firms have been increasingly looking to the Canadian public markets to monetize their holdings. In fact, the deal volume in Canada’s private equity markets in 2013 was back to pre-recession volume levels in 2007, and the country’s private equity environment in 2014 looks promising.
In October of 2013, for example, Kohlberg Management VI, LLC, the largest shareholder in Performance Sports Group Ltd. (PSG:TSX), sold 3.2 million common shares of the company at $12.15 a share to a syndicate of underwriters co-led by RBC Capital Markets and Paradigm Capital Inc. Performance Sports Group, formerly Bauer Performance Sports Ltd., manufactures ice hockey, roller hockey, lacrosse, baseball and softball equipment and related apparel. In the process, Kohlberg reduced its ownership in Performance Sports Group from 30.3% to 21.2%. This deal was the latest in a series of sell-downs completed by Kohlberg in recent years.
In another offering on Toronto Stock Exchange (TSX) earlier in 2013, U.S.-based JMI Equity sold 1.5 million common shares of Halogen Software Inc. (TSX:HGN) at $14 a share in a bought deal involving a syndicate of underwriters led by Canaccord Genuity Corp. and including Raymond James Ltd., Cantor Fitzgerald Canada Corporation and National Bank Financial Inc. Halogen markets cloud-based management software to companies that want to improve the efficiency of their human-resources practices. The deal generated proceeds of $21 million for JMI.
Several companies have also gone public on TSX Venture Exchange (TSXV), enabling venture capital firms to convert their investments into publicly traded shares. Wesley Clover International Corporation, founded by Sir Terence Matthews, for example, now holds about 29% of the outstanding shares of Magor Corporation (TSXV:MCC). Founded in 2007, Magor has developed a collaborative telecommunications technology and Wesley Clover took the company public on TSXV last year in a qualifying transaction valued at $5.9 million.
In 2012, Spectra7 Microsystems (TSXV:SEV), an analog semiconductor company based in California, received $11 million in funding from three Canadian venture capital and private equity firms, Celtic House Venture Partners, Ventures West Capital Ltd. and EdgeStone Capital Partners. The next year, in February 2013, Spectra7 raised $5.4 million through a qualifying transaction (QT) on TSXV. Since its public listing, the company has raised almost $16 million in equity capital on TSXV.