Companies looking to grow or sell their businesses are no doubt frustrated that the days of easy credit are behind us. Stricter lending has reduced investor demand and takeover costs have declined, which means less profit for sellers.

Although recent data indicate activity by Canadian leveraged-buyout firms has been slowing since the credit crunch, it seems the playing field is now wide open for cash-rich private-equity firms — some of which were sitting on the sidelines when prices were high — to score at fair prices.

“[Private-equity firms] are kind of in the driver’s seat, in terms of having the money available,” says Rick Nathan, managing director of Kensington Capital Partners Ltd. “There are a lot of very solid businesses available that need money today, and private equity is usually the logical place for them to find it. Private equity has money for new deals and is ready to deploy it.”

Nathan, who is also president of the Canadian Venture Capital Association, says recently released data compiled by the CVCA and Thomson Reuters indicate Canadian firms completed a total of 29 private-equity transactions in the first quarter of 2008. Of those, nine had disclosed transaction values, which totalled $2.4 billion.

That level of buyout activity is close to that recorded in the fourth quarter of 2007, in which 42 transactions were completed. Of those, 14 transactions had disclosed values, which totalled $2.3 billion.

The numbers are lower than the record highs seen overall in 2007, which had 181 transactions, with 65 disclosed deals valued at $18.7 billion — excluding the BCE Inc. buyout. But the recent numbers are reasonable, considering the current market conditions, Nathan says: “We’ve obviously fallen off the peak levels, but we haven’t fallen down to a level that is too bad. We have plateaued for the past nine months at a level that is very consistent with 2006, which was a busy year.”

That the market did not hit extreme lows after falling off the peak is encouraging, Nathan adds: “It demonstrates that we have really established a solid foundation for private equity in the Canada.”

The Canadian market is also relatively strong compared with markets in the U.S., which have seen the trend of megadeals come to a halt. The absence of these large transactions, Nathan says, has helped Canada’s relative standing.

Meanwhile, there are still plenty of Canadian buyout firms that are well capitalized and looking for new investments.

One of those is Clairvest Group Inc., which provides financing to mid-market companies. Clairvest has “a couple of hundred million dollars” available on its balance sheet, according Jeff Parr, the firm’s co-CEO and managing director.

Clairvest, with about $600 million of equity capital under management, manages several funds, including Clairvest Equity Partners III LP. Although this $300-million fund is two years old, three out of its four investments weren’t completed until the first quarter of 2008.

The three recent deals include a $46-million investment in Casino Marina del Sol, a gaming and entertainment complex in Chile; a $23.4-million investment in Light Tower Rentals, Inc., an oilfield equipment rental company in Odessa, Tex.; and a $20-million investment in Lyophilization Services of New England Inc., a Manchester, N.H., firm that provides freeze-drying services to biotech, pharmaceutical and medical-device manufacturers. The fund’s initial investment involved Kubra Data Transfer Ltd., a billing and payment service company based in Mississauga, Ont.

“For us, the current market conditions are really good,” Parr says. “The weakness in the debt markets and in the capital markets has reduced available capital to people who are growing and building their businesses, and also reduced valuations to levels that we find acceptable. So, now is the time for us to be investing. We’re quite excited about the current market conditions.”

In contrast, Parr says, Clairvest had focused on selling five or six businesses in the past two years because prices were too high to buy.

“Valuations were driven too high by the credit and capital markets, so we were selling, basically, anything we could sell,” Parr says. “You’re never going to pick the top; you’re never going to pick the bottom. And when we sense we’re near a top as strong as the one we just experienced, we’re out. When we sense we’re near the bottom, get aggressive on the buy.”

@page_break@More than half of the Clairvest fund — about $150 million — is still uninvested, Parr says, and he is on the prowl. He is seeking deals by looking for companies with proven, successful business models and management teams that have a stake in the business, as well as opportunities for growth, both organically and through acquisition.

Clairvest’s strategy is different from those of some of other firms, which may focus on buying underperforming companies with the goal of returning them to profitability before selling them off.

But whatever the strategy, it’s clear that private equity is a source of capital that comes with conditions that are significantly different from those surrounding money that flows from banks or volatile public markets, Nathan says.

“When you’re out looking for new capital, the windows open and close, just depending on market sentiment,” he says, “and they’re not that wide open today.” IE