VC and PE investment in Canada declined 63 percent in Q3, claims new report

BY Fraser Tennant

Canadian venture capital (VC) and private equity (PE) investment declined dramatically in the third quarter of 2020, according to a report published this week by the Canadian Venture Capital & Private Equity Association (CVCA).

In its ‘Venture Capital Canadian Market Overview: Q3 2020’, the CVCA reveals that $1.4bn was invested in over 155 deals in Q3 2020, 27 percent lower than Q3 2019 ($1.9bn across 177 deals). Furthermore, year-to-date (YTD) activity is tracking 25 percent below the four-year average across 2015-2019 in both dollars invested and deals ($21bn across 565 deals).

The largest deal seen in Q3 was the $354m growth investment in Toronto-based Superior Plus by Brookfield Asset Management.

However, a decrease in mega-deals served to drive the average deal size down. In Q3 2020 there were only three mega-deals ($50m plus) that closed, compared to eight in the previous quarter. As a result, the average deal size in Q3 2020 was only $7m, bringing down the YTD average deal size to $8.5m, in contrast to 2019, when the average deal size was $11m. 

“The strength of Q2 was in many ways a combination of GPs further capitalising their portfolio and the added capital injections of Business Development Bank of Canada (BDC) and Export Development Canada (EDC) matching programmes,” said Kim Furlong, chief executive of the CVCA. “Q3, however, is more aligned with the challenges the pandemic has created for deal flow. While our members are finding ways to deploy capital, the realities of COVID-19 and the continued strength of valuations is apparent in the deal flow.”

In terms of later stage deals, these represented 45 percent of the total investment in the third quarter with $1.6bn invested over 57 deals, while 42 percent ($1.5bn over 189 deals) went to early stage and 8 percent ($298m over 154 deals) went to seed stage companies.

Additionally, the CVCA notes that there were 15 PE-backed exits in the third quarter, a significant increase from the 11 exits in the entire first half of 2020. The pace of VC-backed exits is on track relative to previous years, with 26 exits completed YTD.

Ms Furlong concluded: “Despite the uncertainty due to the COVID-19 pandemic, Canadian PE firms are adapting to the evolving conditions. “Given Canadian PE’s long-term investment horizon, PE fund managers are well-positioned to help our businesses on a path to economic recovery.”

Report: Venture Capital Canadian Market Overview: Q3 2020

AvePoint goes public via $2bn SPAC deal

BY Fraser Tennant

In a $2bn deal that takes it from private to public ownership, global Microsoft strategic cloud partner AvePoint is to merge with publicly traded special purpose acquisition company (SPAC) Apex Technology.

The combined company will benefit from $140m in proceeds from a group of institutional investors participating in the transaction through a committed private investment (PIPE).

Furthermore, Sixth Street, the global investment firm which led a $200m growth equity investment in AvePoint in 2019, will continue as a shareholder in the combined company, which will be led by AvePoint’s co-founder and chief executive Dr Tianyi Jiang, with AvePoint co-founder Kai Gong serving as executive chairman.

Upon completion of the proposed transaction, existing AvePoint shareholders are expected to own approximately 72 percent of the combined company, which is expected to have approximately $252m in cash on the balance sheet.

Headquartered in Jersey City, New Jersey, AvePoint has grown to serve the largest software-as-a-service (SaaS) userbase in the Microsoft 365 ecosystem, with more than 7 million cloud users and an estimated market of $33bn by 2022 according to the International Data Corporation (IDC).

“AvePoint provides critical data management solutions that enable organisations to make their digital collaboration systems more productive, secure and compliant,” said Dr Jiang. “The impact of coronavirus (COVID-19) and the growth of Microsoft’s cloud solutions, including Microsoft 365 and Microsoft Teams, have accelerated demand for our products.

“And we were growing prior to COVID-19 as well,” he continued. “We have achieved eight quarters of impressive growth. We have positive free cash flow and are in line with the key ‘Rule of 40’ SaaS industry growth metric. Going public now gives us the ability to meet this demand and scale up faster across product innovation, channel marketing, international markets and customer success initiatives.”

The merger has been approved by the board of directors of Apex, as well as the board of directors of AvePoint, and is subject to the satisfaction of customary closing conditions, including the approval of the shareholders of Apex and AvePoint and the receipt of any required regulatory approvals.

Gavriella Schuster, corporate vice president at Microsoft, said: “AvePoint’s merger to become a public company demonstrates the power of Microsoft’s channel and the opportunity it provides our partners to flourish long-term.”

News: Sixth Street-backed AvePoint to go public via $2 billion merger

Guitar Center files for Chapter 11 bankruptcy

BY Richard Summerfield

Guitar Center, the biggest musical instrument retailer in the US, has filed for Chapter 11 bankruptcy as the impact of COVID-19 continues to be felt across the retail sector.

The filing in the Bankruptcy Court of the Eastern District of Virginia will allow Guitar Center and its related brands to continue to operate in the normal course while it restructures. The company said it has liabilities of $1bn to $10bn, with a similar range for its assets, according to the filing.

Under the terms of the company’s restructuring plan, Guitar Center, which has around 300 stores across the US, and its sister brand Music & Arts, which has more than 200 stores specialising in band and orchestral instruments for sale and rent, will reduce their debt by nearly $800m.

Guitar Center has secured up to $165m in new equity investments from its equity sponsor, a fund managed by private equity firm Ares Management Corporation, and new equity investors, which include a fund managed by The Carlyle Group and funds managed by Brigade Capital Management.

Guitar Center has arranged $375m in debtor-in-possession (DIP) financing, which is being provided by a number of its existing noteholders and ABL lenders. In connection with the plan, the company currently intends to raise $335m in new senior secured notes. UBS Investment Bank will serve as the lead placement agent in connection with this effort. Guitar Center expects to emerge from bankruptcy protection before the end of the year.

“This is an important and positive step in our process to significantly reduce our debt and enhance our ability to reinvest in our business to support long-term growth,” said Ron Japinga, chief executive of Guitar Center. “Throughout this process, we will continue to serve our customers and deliver on our mission of putting more music in the world. Given the strong level of support from our lenders and creditors, we expect to complete the process before the end of this year.”

Prior to the outbreak of COVID-19, the company was already under significant financial pressure as competition from online rivals intensified and it struggled to cope with its heavy debt load, a legacy of its leveraged buyouts. The retailer was first acquired by private equity firm Bain Capital. Ares Management then took control in 2014, in a deal aimed at reducing Guitar Center’s debt; despite these efforts, the company continued to carry around $1.3bn worth of debt from the Bain takeover.

News: Guitar Center is filing for bankruptcy

RSA sold in $9.6bn deal

BY Richard Summerfield

British insurance firm RSA has agreed to be sold to Canada’s Intact Financial and Denmark’s Tryg in a $9.55bn cash deal.

The deal has won the unanimous approval of RSA’s directors who recommended the company’s shareholders vote in favour of the offer. The deal is expected to complete in the second quarter of 2021.

Under the terms of the deal, Tryg will pay around £4.2bn while Intact will contribute the remaining £3bn, with the overall offer representing a 51 percent premium to RSA’s 4 November closing share price of 460 pence. RSA shareholders will also receive a preannounced interim dividend of 8p per share, worth about £82m.

The proposed takeover would see RSA’s existing business broken up. Intact would gain RSA’s Canada, UK and international operations while Tryg would take the Sweden and Norway businesses. The consortium would co-own RSA’s Danish unit, though it will be managed by Intact while it explores strategic options for the business, including a sale or stock market flotation.

“The board of RSA is pleased to be recommending Intact and Tryg’s cash offer for the company, which delivers attractive, certain value for shareholders,” said Martin Scicluna, chairman of RSA. “RSA has provided peace of mind to individuals and protected businesses from risk for more than 300 years. However, I am confident that the values of our business, and not least our dedication to serving customers well, will be sustained as part of Intact and Tryg.”

“This acquisition is highly strategic for Intact,” said Charles Brindamour, chief executive of Intact. “It expands our leadership position in Canada, builds on our strong track record in specialty lines, and puts us in a solid position to strengthen RSA’s UK and Ireland operations. We have strong capabilities in data, risk-selection and claims management, which we plan to leverage across the business. I look forward to welcoming RSA’s employees into our company and leveraging their deep expertise across the business. Together, we are stronger and more resilient.”

News: British insurer RSA agrees $9.6 billion takeover by overseas rivals

Natural gas producer Gulfport Energy files for Chapter 11

BY Fraser Tennant

In a bid to reduce its debt by approximately $1.25bn, natural gas and oil company Gulfport Energy Corporation, along with its wholly owned subsidiaries, has filed for Chapter 11 bankruptcy protection in order to implement a restructuring support agreement (RSA).

Attached to the RSA is a pre-negotiated’ restructuring plan that will strengthen Gulfport’s balance sheet, significantly reduce its funded debt, and lower ongoing operational costs. The company also plans to  issue $550m of new senior unsecured notes under the plan to existing unsecured creditors of certain Gulfport subsidiaries.

In addition, Gulfport has secured $262.5m in debtor-in-possession (DIP) financing from its existing lenders under its revolving credit facility, including $105m in new money that will be available upon court approval. The financing is structured to fund Gulfport’s ordinary course operations during the Chapter 11 proceedings, including employee wages and benefits and payments to suppliers and vendors.

Gulfport Energy is one of a growing number of US oil and gas companies that have filed for Chapter 11 bankruptcy protection after the coronavirus (COVID-19) pandemic deepened their struggle with low prices and excessive debt.

“Despite efforts to streamline our business, our large legacy debt burden in addition to significant legacy firm transportation commitments created a balance sheet and cost structure that was unsustainable in the current market environment,” said David M. Wood, president and chief executive of Gulfport Energy. “After working diligently to explore all strategic and financial options available, Gulfport’s board of directors determined that commencing a Chapter 11 process is in the best interest of the company and its stakeholders.”

Headquartered in Oklahoma City and employing 259 people, Gulfport Energy is an independent returns-oriented, gas-weighted, exploration and development company, as well as being one of the largest producers of natural gas in the US.

“We expect to exit the Chapter 11 process with leverage below two times and rapidly deliver thereafter due to a much-improved cost structure driven by reduced legacy firm transport commitments and costs,” continued Mr Wood. “These improvements will significantly improve our ability to generate cash flow and value for our stakeholders going forward.”

Furthermore, Gulfport hopes to safeguard its future with the help of commitment from its existing lenders to provide $580m in exit financing upon emergence from Chapter 11.

Mr Wood concluded: “We hope to move through the restructuring process quickly and efficiently and emerge as a stronger company positioned for future success.”

News: Natural gas producer Gulfport Energy files for bankruptcy