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Private equity sector seen staying robust

VANCOUVER, British Columbia (Reuters) - Deal-making in Canada's small private equity sector will remain healthy this year, counter-intuitively boosted by tough fund-raising conditions, the head of an industry body predicted on Tuesday.

Mega-deals in the once high-flying sector have virtually ground to a halt in the United States and Europe as previously abundant credit, used to finance transactions, has dried up.

In this difficult environment, where banks are experiencing tight credit conditions and volatile stock markets make public fund-raising difficult, cash-hungry corporations could look to new sources of capital, Rick Nathan, president of Canada's Venture Capital and Private Equity Association said.

"I think they are going to go to the private equity firms," Nathan said on a conference call.

"I expect to see sound growth in 2008," he added, referring predominantly to the mid-market, or private equity deals in Canada worth between $50 million and $300 million.

Data released on Tuesday showed the country's private equity industry remained robust in the fourth quarter, with $2.3 billion worth of buyouts of Canadian companies reported in the three months ended December 31.

That was up 64 percent on the same quarter in 2006.

For all of 2007, announced buyouts of Canadian companies by private equity firms reached a record high of $65.5 billion although that was inflated by the pending purchase of telecom company BCE Inc (BCE.TO: Quote) for $46.8 billion, including debt.

Without the BCE purchase, total private equity buyouts in last year reached $18.7 billion, more than double the previous record of $8.2 billion set in 2006.

However, compared with the United States, Canada's private equity industry remains tiny. U.S. market activity in 2007 was seven times that invested in Canada, and 25 times the total market if the BCE deal is excluded.

Buyouts of Canadian companies were roughly balanced between Canadian and U.S. investors in 2007, the CVCA said.

Turning to the venture capital industry, the CVCA said investment across Canada amounted to $500 million in the fourth quarter, in line with the same period in 2006.

For all of 2007, venture capital investment rose 21 percent to $2.1 billion, largely driven by U.S. money as the local market's contribution remained weak.

"The fund-raising trend for Canadian VC firms is a serious concern as a shortage of domestic capital may continue to drive the growth of our most innovative emerging companies away from home, and into the U.S., where venture capital is more readily available," Nathan said in a statement.

The private equity and venture capital figures were compiled by the CVCA in conjunction with research partner Thomson Financial.

(Reporting by Nicole Mordant; Editing by Rob Wilson)

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