Canadian PE and VC investment divergent in H1 2018

BY Fraser Tennant

Private equity (PE) and venture capital (VC) investment in Canada has been divergent in the first half (H1) of 2018, with activity trending downward and upward respectively, according to a new report by the Canadian Venture Capital & Private Equity Association (CVCA).

In its ‘VC & PE Canadian Market Overview H1 2018’, the CVCA notes that $7.6bn was invested across 146 PE deals in Q2, bringing the year-to-date (YTD) total to $14.5bn across 288 deals. Much of this investment was due to two mega deals which made up 69 percent of total dollars invested. In comparison, mega deals made up 51 percent of dollars invested in H1 2017.

Further key findings in the Canadian PE investment space include a sharp drop in the number of exits in H1 2018, with only 41 exits ($10.5bn) compared to 152 exits ($11.5bn) in H1 2017.

“Canadian PE appears on pace from previous years, however on the dollar side it is increasingly driven by significant deals, suggesting the levels are a bit more tenuous,” said Mike Woollatt, chief executive of the CVCA. “In the absence of a few large deals, activity in the Canadian PE market is being driven substantially by smaller deals as activity shifts to categories with typically smaller deal sizes.”

Unlike PE, VC investment is on an upward trajectory and shows no signs of slowing for the remainder of 2018. Indeed, almost $1bn was invested over 166 deals in Q2, bringing the year-to-date (YTD) total VC investment to $1.7bn – 7 percent higher than H1 2017. Moreover, Q2 2018 is the third time since January 2017 where VC investment in Canada has surmounted $1bn.

Additional key findings in the Canadian VC investment space include an average deal size of $6m, which represents a 28 percent increase from the previous quarter and 13 percent higher than the average deal size in the five-year period between 2013 and 2017 ($5.3m).

“Innovation in Canada is enjoying the best VC investment climate in well over a decade,” continued Mr Woollatt. “We are consistently observing an increase in size and volume of deals at all stages, plus, a welcome resurgence in exits. We are bracing for 2018 to be another record year.”

Report: VC & PE Canadian Market Overview H1 2018

EQT gets SUSE

BY Richard Summerfield

Private equity firm EQT Partners is to acquire British software company Micro Focus International’s Linux operating system SUSE enterprise software business for around $2.5bn, subject to shareholder approval and customary closing conditions.

The acquisition will be financed by the EQT VIII fund. Micro Focus will reportedly use some of the proceeds of the sale to reduce debt and may return some money to shareholders.

SUSE has been part of Micro Focus since 2014 when the company acquired The Attachmate Group for $2.35bn. At that time, SUSE represented just over a fifth of The Attachmate Group’s revenue. In the year to end April 2017, SUSE generated revenue of $303m and adjusted operating profit of $98.7m, according to Micro Focus  The EQT fund is paying a multiple of 26.7 times adjusted operating profit of the unit for the 12 months to end October 2017.

“Today is an exciting day in SUSE’s history,” said Nils Brauckmann, chief executive of SUSE. “By partnering with EQT, we will become a fully independent business. The next chapter in SUSE’s development will continue, and even accelerate, the momentum generated over the last years. Together with EQT, we will benefit both from further investment opportunities and having the continuity of a leadership team focused on securing long-term profitable growth combined with a sharp focus on customer and partner success. The current leadership team has managed SUSE through a period of significant growth and now, with continued investment in technology innovation and go to market capability, will further develop SUSE’s momentum going forward.”

“We are excited to partner with SUSE’s management in this attractive growth investment opportunity,” said Johannes Reichel, partner at EQT Partners and investment advisor to EQT VIII. “We were impressed by the business’ strong performance over the last years as well as by its strong culture and heritage as a pioneer in the open source space. These characteristics correspond well to EQT’s DNA of supporting and building strong and resilient companies, and driving growth. We look forward to entering the next period of growth and innovation together with SUSE.”

“It was clear from the outset that the SUSE Business was an outstanding business with great people, great customers and fantastic products in a vibrant and dynamic market,” said Kevin Loosemore, executive chairman of Micro Focus.

SUSE believes that the sale to Swedish-based EQT will help finance the next stage in its expansion, allowing the company to hire additional software engineers.

News: UK's Micro Focus sells SUSE software business to EQT for $2.5 billion

$5.57bn deal sees KKR take Envision Healthcare private

BY Fraser Tennant

Continuing its recent, high-profile mergers & acquisitions (M&A) activity within the healthcare sector, private equity (PE) firm KKR is to acquire US medical staff provider Envision Healthcare in a deal valued at $5.57bn.

The acquisition of Envision saw global investment giant KKR see off competition from Carlyle Group, TPG Global and others to seal the deal for $46 per share. The agreement is an all-cash transaction, including the assumption or repayment of debt.

"Envision is a leading provider of physician-led services in a healthcare system in which physician-patient interactions have a pronounced impact on nearly all healthcare decisions,” said Jim Momtazee, head of KKR's healthcare investment team. “Envision has a very strong reputation for delivering high-quality, patient-focused care through its network of 25,000 clinical professionals at thousands of hospitals, surgery centres and alternate sites of care across the country.”

No stranger to Envision Healthcare, KKR already owns Envision American Medical response (AMR), the largest US provider of ambulance services, which it bought for $2.4bn in 2017 and merged with its helicopter ambulance service. Another healthcare sector deal last year saw KKR take WebMD Health Corp private for an estimated $2.8bn.

The agreement for KKR to acquire Envision Healthcare has been unanimously approved by Envision's board of directors and represents the culmination of the board's comprehensive review of strategic alternatives to enhance shareholder value.

Over the last seven months, the Envision Healthcare board, with the assistance of three independent financial advisers and legal counsel, examined a full range of options to generate shareholder value, including capital structure alternatives, potential acquisitions, portfolio optimisation, a potential sale of the whole company, and continued operation as a standalone business.

"After conducting a robust review of the business and competitive landscape, the company's opportunities and challenges, and the strategic and financial alternatives available, the board unanimously believes that this transaction will deliver the most value to Envision's shareholders,” said James D. Shelton, Envision's lead independent director.

The transaction is expected to be completed in the fourth quarter of 2018 and is subject to customary closing conditions and regulatory approvals.

Mr Momtazee concluded: “We are excited to partner with the outstanding team at Envision Healthcare to help build upon the strong foundation in place and accelerate the organisation’s growth going forward."

News: KKR to take Envision private for $5.57 billion in healthcare push

Walmart sells 80 percent of Brazilian operations to Advent

BY Fraser Tennant

A conversion, not an expansion. That is how global private equity (PE) investor Advent International is describing its majority stake investment in Walmart Inc’s operations in Brazil.

Under the terms of the acquisition agreement, Advent will invest in Walmart Brazil to strengthen the business and position it for long-term success – converting store formats instead of opening new ones – with the remaining 20 percent being retained by Walmart Inc. upon completion of the transaction.

A presence in Brazil for the last 22 years, Walmart Brazil currently has 438 stores in 18 states, with 55,000 associates. In 2017, the company’s total sales were more than $25bn.

“We have been in Brazil for over 20 years and are excited about this partnership with one of the country’s leading retailers,” said Patrice Etlin, a managing partner at Advent International in Brazil. “We believe that with our local market knowledge and retail expertise we can position the company to generate significant results and reach new levels of success in Brazil. We plan to invest in the business, work with the Walmart Brazil management team, associates, Walmart and our industry advisors to create a more agile and modern company to accelerate its development and improve the customer experience.”

A global PE fund with a strong local presence and extensive experience in retail investment both in Brazil and internationally, Advent has been present in Brazil for more than 20 years. Over that time, the firm has invested in 30 Brazilian companies, always with a strategy focused on revenue growth and operational excellence. Previous investments have included several retail companies such as Dufry, Quero-Quero, Allied and Internat.

Walmart’s decision to partner with Advent in Brazil is the result of the retail corporation’s review of its international portfolio. Following completion of the transaction, Walmart expects to record a non-cash, net loss of approximately $4.5bn.

“Walmart is committed to building strong, resilient businesses that continuously adapt to local customers’ needs in a rapidly changing world,” said Enrique Ostale, executive vice president and chief executive of Walmart UK, Latin America and Africa. “We will retain a stake in Walmart Brazil and continue to share our global retail expertise, giving our Brazil business the best opportunity for long-term growth, providing opportunity for associates and low prices for customers.”

The Advent/Walmart transaction is subject to regulatory approval in Brazil.

News: Walmart sells majority of Brazil unit, takes $4.5 billion charge

KKR to acquire BMC Software for $8.3bn

BY Fraser Tennant

In its largest acquisition since the financial crisis, leading global investment firm KKR is to buy BMC Software, a global leader in IT software solutions, in a deal valued at $8.3bn.  

BMC is being acquired from a private investor group led by Bain Capital Private Equity and Golden Gate Capital, and includes GIC, Insight Venture Partners and Elliott Management. The group has owned BMC since 2013.

Since then, BMC has reallocated hundreds of millions of dollars toward higher growth R&D and go-to-market initiatives to address the massive digital disruption that is taking place in industries around the globe. Furthermore, the company has helped companies accelerate their cloud adoption.

"With the support and partnership of our investor group, BMC significantly accelerated its innovation of new technologies and new go-to-market capabilities over the past five years," said Peter Leav, president and chief executive of BMC. "Our growth outlook remains strong as BMC is competitively advantaged to continue to invest and win in the marketplace.”

Acquirer KKR has a long record of supporting technology companies, having invested over $26bn in the TMT sector in the last decade. KKR also has experience with a number of enterprise systems software related investments, including Mitchell, Epicor and Calabrio.

"In an ever-changing IT environment that is only becoming more complex, companies that help simplify and manage this essential infrastructure for their enterprise customers play an increasingly important role," said Herald Chen, KKR member and head of the firm's technology, media & telecom (TMT) industry team and John Park, KKR member. "We are thrilled to partner with the talented BMC team to accelerate growth, including via M&A, building on BMC's deep technology expertise and long-standing customer relationships."

Financing for the transaction is being provided by Credit Suisse, Goldman Sachs Bank USA, Jefferies Finance LLC, Macquarie and Mizuho Bank.

“Customers can expect the BMC team to remain focused on providing innovative solutions and services with our expanding ecosystem of partners to help them succeed across changing enterprise environments,” added Mr Leav. “We are excited to embark on our next chapter with KKR as our partner."

The KKR/BMC transaction is subject to regulatory approvals and other customary closing conditions and is expected to be completed in the third quarter of 2018.

News: KKR to acquire PE-backed IT management business BMC in reported $8.3bn deal