Canadian bank headquarters on Bay Street in Toronto.Brent Lewin/Bloomberg
Acquisitions and financings abound in Canada's hot market for deals – but don't expect them to light fireworks in the dark initial public offering space.
Sizable share sales have propelled Canadian underwriters through 2016, yet IPOs have been notably silent. That's starting to change as the first IPOs of the year begin to take off, but the appetite for additional deals remains muted.
Multiple times in 2016, Canadian investors have shown their willingness to support major transactions – such as Suncor Energy Inc.'s $2.5-billion share issue, which was oversubscribed – but that momentum has delivered only a small kick to new listings on the Toronto Stock Exchange.
The first companies of the year are only just beginning to make their TSX debuts. That mirrors similarly lacklustre conditions in the U.S. markets, where the backdrop of unsteady global economic conditions and a pullback in high-flying startup valuations have put a damper on activity.
The first company to list on the TSX this year was Mainstreet Health Investments Inc., which started trading in early June. Next in line are mortgage finance company MCAP Corp. and PointClickCare Corp., which makes cloud-based software for the senior care industry in North America and first tried an IPO last fall. Both filed their paperwork in preparation to list in Canada, and PointClickCare also plans to list on the Nasdaq.
There are more like them waiting in the wings, according to investment bankers who advise companies looking to go public. However, the recent uptick is unlikely to prompt many more IPOs in the immediate future. Those looking to go public are expected to wait until the fall.
"It's bumpy out there," said Mike Woollatt, chief executive officer of the Canadian Venture Capital and Private Equity Association. "I still expect the IPO market to come back at some point. … It's just going through a real slow period."
Although several burgeoning Canadian companies are close to crossing into public markets, several market factors make staying private an attractive option for growth. The list includes high volumes of "dry powder," or cash, available for investment from the likes of venture-capital funds, as well as the expectation of bumpy public markets related to everything from oil-price swings to this month's vote in Britain over whether to leave the European Union.
Still, investment bankers acknowledge that things are in better shape than they were last August. "Certainly, we've seen greater stability in the market," said Kirby Gavelin, head of equity capital markets at RBC Dominion Securities, noting the VIX, a measure of volatility, has decreased by half since last August. RBC is working on a number of larger-sized IPOs, which aren't confined to one specific sector such as tech, he said. "It's a reasonably diverse group."
Investors have also benefited from buying into recent successful share sales, which typically boosts their confidence. It's still too early to assess whether investors who bought shares in Suncor's latest financing will benefit, but a number of earlier billion-dollar financings should have given buyers comfort.
In February, Enbridge Inc. sold $2-billion worth of shares to help fund its capital spending, and investors are already up 31 per cent on the deal. In April, Hydro One Ltd. took advantage of its hot stock and sold $1.7-billion worth of additional shares, following its IPO last fall. Despite being sold at a rich price, the new shares are already trading 3.3 per cent higher.
If there's any hope of a revived IPO market, this autumn is looking to be the most likely time. Among the companies expected to go public is mortgage services business Real Matters Corp., based in Markham, Ont., which recently raised $200-million privately to fund its expansion through acquisitions. BMO Capital Markets managing director David Wismer, who advises the business, has suggested September could be an ideal time frame for an IPO.
Mr. Woollatt of the CVCA said many companies are choosing to stay private a little while longer to avoid bumpy market conditions. "No one would think that we're going to keep this low level of IPOs for an extended period of time," he said. "There were none in the first quarter – and that's pretty rare."
Tim Kiladze