Canada’s largest company by market capitalization has once again largely bypassed Canadian-based underwriters for its latest capital raise.
Shopify Inc. late Tuesday priced an offering to raise US$800-million in convertible senior notes and to sell 1.1 million subordinate voting shares at US$900 each, for gross proceeds of US$1.79 billion (about C$2.36-billion). Wall Street banks Goldman Sachs, Citigroup and Credit Suisse were the only banks initially listed in the regulatory documents as underwriters and stand to earn millions in fees on the financings. The company said Royal Bank of Canada’s RBC Capital Markets division, which played a secondary role on Shopify’s May, 2015, initial public offering, would be added as a co-manager on the debt and equity deals - a junior role in the underwriting syndicate.
The underwriters have the option to buy an additional US$120-million of the notes and 165,000 shares.
This is the second time Shopify has sought to sell more than C$1-billion of stock this year, after netting US$1.46-billion from an overnight block trade in May that was led by Citigroup and Credit Suisse, with National Bank of Canada in a junior role as co-manager. Shopify stock has been on a tear this year as the company, whose internet-based commerce software platform is used by more than one million merchants, benefited from a rapid increase in the adoption of online commerce during the pandemic.
Shopify, which also trades on the New York Stock Exchange, typically uses Wall Street banks for the vast majority of its financing needs, sometimes bringing in Canadian underwriters as bit players in underwriting syndicates. Of its seven previous share offerings dating to its IPO, Canadian-based underwriters have earned less than 10 per cent of the US$86.9-million in combined underwriting commissions and discounts.
The lack of Canadian presence in Shopify’s financing pursuits has rankled some on Bay Street, though the company is relatively undercovered by Bay Street analysts, underweighted by Canadian fund managers and underappreciated by domestic equity strategists, The Globe and Mail reported earlier this year. Several Canadian fund managers stated earlier this year they like Shopify, but found the stock too pricey. It continued to appreciate in value, along with other technology companies, fuelling growing concerns that the tech sector – and stocks in general – may be due for a correction, following several sharply lower days for tech stocks in the past two weeks.
Shopify’s senior director of investor relations, Katie Keita, earlier this year said the company is “not out to make a bunch of friends among the banks,” and treats the financing process as something it tries to do as expediently as possible, typically through overnight “block trades” where underwriters buy the entire offering, taking on the risk and effort of reselling shares. This has favoured U.S. banks, which can charge much lower fees than Canadian banks do for similar “bought deals” given the depth and size of the U.S. market.
“If you have banks that can come to you and cover what you want to place, why would you not go with them?” Ms. Keita said in May. “You want to minimize the discount, maximize the dollars to you.”
Ms. Keita said in an e-mail Tuesday that the latest deal is not a block trade but a marketed deal, in which the investment banks gauge demand and take orders from their clients.
The notes, which matures in November 2025, pay 0.125 per cent in interest annually and convert to stock at a rate of $1,000 of notes for 0.6944 of a share. Shopify’s subordinate voting stock closed Tuesday at US$929.39 on the New York Stock Exchange Tuesday, down 0.26 per cent.
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