The year of the IPO? Bankers see surge in 2017

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While 2016 was largely a bust for initial public offerings in Canada, some of the country's top bankers are predicting that 2017 could see a surge in activity.

A host of new listings is expected across sectors ranging from energy to mining to technology. That renewed confidence is being fuelled, in part, by recovering oil prices and the equity rally spurred by the U.S. presidential election. Bankers say those factors have created more optimal market conditions for companies to go public.

"There are probably seven IPOs that we're aware of right now that are coming to market in the first half of 2017," Kirby Gavelin, the head of equity capital markets in Canada at RBC Dominion Securities Inc., said during a mid-December interview.

Since then, Fairfax Financial Holdings Ltd. announced plans to launch a new public company as it seeks more growth in Africa. The Toronto-based insurance and investment firm filed IPO papers for Fairfax Africa Holdings Corp. on Dec. 23 and is seeking to raise as much as $1-billion in a Toronto listing. RBC is one of its underwriters.

Eatery chain Freshii Inc., meanwhile, filed a preliminary prospectus to go public on Dec. 19 and, according to Bloomberg News, is said to be seeking to raise $100-million. The offering will be managed by a syndicate of underwriters that is co-led by RBC and CIBC World Markets Inc.

"We're going to see an increase in the IPO markets," Mr. Gavelin added.

It would be hard to do much worse, with 2016 being one of the quietest years on record for IPOs in Canada, despite the S&P/TSX composite index gaining about 18 per cent. A steady stream of IPOs is ideal for healthy capital markets in order to keep money moving.

In 2016, only a few senior corporate issuers made it over the finish line.

Health-care real estate firm Mainstreet Health Investments Inc. went public on the Toronto Stock Exchange last June, raising $109-million (U.S.). Shares of Vancouver-based clothing retailer Aritzia Inc. began trading in October, raising $460-million (Canadian). Then in late December, medical-marijuana company CanniMed Therapeutics Inc. listed its stock on the TSX, raising $60-million.

Mortgage finance company MCAP Corp. had planned a $275-million share sale in June, but the company shelved the idea, citing market volatility in the wake of Britain's Brexit vote.

To be sure, 2016 was a year dominated by uncertainty, largely fuelled by political events that caught investors off guard. Sharp swings in the stock market were first caused by moribund oil prices.

Then months of turbulence ensued after Britain voted in June to leave the European Union and in the runup to the U.S. election in November. Markets have rallied since Donald Trump became president-elect. His term begins Jan. 20.

"There's a lot of companies that have been sitting on the sidelines and looking at accessing the market for IPOs," Peter Miller, the head of equity capital markets in Canada at BMO Nesbitt Burns Inc., said in an interview.

Many companies have been preparing to go public, but they found that the timing wasn't right. Mr. Miller believes 2017 will be "a very, very busy year" and sees companies from "a wide range of sectors" lining up to list. "There's a lot of confidence that things are going to be much, much brighter," he added.

After a disappointing 2016, a rosy outlook should come as welcome news for investors, securities lawyers and investment bankers, as well as for TMX Group Ltd., which operates the country's main senior and junior stock exchanges. TMX generates a portion of its revenue by charging issuers a fee to list on one of its markets and then an additional fee every year to maintain that listing.

"When you look at [stocks] like Aritzia, there have been a lot of institutions both in Canada and the U.S. that didn't get as much as they wanted to get," said Ungad Chadda, the president of capital formation for equity capital markets at Toronto-based TMX.

"The pent-up demand for good, solid growth names is massive."

With oil prices starting to recover and sharp swings in the rear-view mirror, Mr. Miller sees a large number of 2017's IPOs coming from Canada's battered energy sector, particularly in oil services. Up to 90 per cent of these corporate IPOs in BMO's pipeline are backed by private-equity firms, which would be looking to exit these positions and redeploy this capital.

In the mining industry, companies with streams and royalties, which have tended to trade at premium valuations through the downturn, are also looking at pursuing IPOs, he added.

The consumer discretionary space, which saw particular strength in 2015 with the likes of Cara Operations Ltd. and Sleep Country Canada Holdings Inc. going public, is also expected to rebound in 2017. RBC's Mr. Gavelin shares that optimism, noting investors from all over the world are hunting for strong Canadian stocks outside the financial and resource industries.

Finally, after years of "will they or won't they" moments from the country's nascent technology companies, Mr. Miller also sees some of those technology and financial technology companies completing IPOs in the coming year.

Mr. Chadda said TMX is trying to do its part to foster a more vibrant tech sector where more IT, bio-tech and life-science companies decide to access the public markets for funding.

"I don't know how and when it is going to manifest itself in terms of IPOs and new listings," he said, "but I can tell you that our sights are set on those companies."