Canadian tech companies D2L, Dialogue, eyeing possible IPOs as fortunes surge in pandemic

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Two Canadian online companies that have experienced soaring demand during the pandemic held meetings with investment bankers in the past month to explore initial public offerings.

The chief executive officers of D2L Corp., a Kitchener, Ont.-based online learning provider formerly known as Desire2Learn, and Montreal telemedicine provider Dialogue Technologies Inc., told The Globe and Mail they each invited investment bankers to pitch their services and offer their views on how their companies would fare if they went public.

D2L also met with about five underwriters while Dialogue brought in about 10.

Both say it’s too early to know whether they’ll proceed. Their boards are weeks away from deciding whether to hire underwriters to start the process – and if they go public, it likely wouldn’t be until at least 2021. Strong market conditions for tech companies could change given the still unfolding scope of the COVID-19 pandemic, uncertainty over the approval of vaccines, and the outcome of the U.S. election in November. Already tech stocks experienced a sharp pullback last week.

But each CEO left the pitch sessions feeling their potential IPOs would be well-received.

“It is clear from these meetings that there is a huge appetite for high-quality Canadian stories like Dialogue’s,” said Cherif Habib, CEO of Dialogue, which provides “doctor-on-demand” services to patients online and has raised more than $100-million from Sun Life Financial Inc., National Bank of Canada, Portag3 Ventures, the Caisse de dépôt et placement du Québec, White Star Capital and others.

“I don’t think there’s any secret – the public markets are open for good technology companies,” said John Baker, CEO, founder and majority shareholder of D2L, which provides online learning tools for grade school, university and corporate clients and last raised outside venture capital in 2014. “We’ve made a decision to strongly consider it. … It’s probably a strong potential outcome.”

Valuations for publicly traded technology companies have skyrocketed this year. Many companies such as Ottawa’s Shopify Inc., now Canada’s most valuable public company, have seen a spike in demand as homebound consumers and workers increasingly turned to online tools. Others have been propelled by investor beliefs that corporations will increasingly digitize operations coming out of the pandemic-related economic depression, benefiting technology vendors.

The stocks of two Canadian tech companies that have gone public in the past year on the Toronto Stock Exchange have soared: Legal software provider Dye & Durham Ltd. closed Friday more than 250-per-cent above its $7.50 issue price in July, while the share price of online training software provider Docebo Inc. has tripled in value since its IPO last October.

A third, Montreal online payments processor Nuvei Corp., filed last week to go public on the Toronto Stock Exchange. They have been joined by recent U.S. IPO filings from high-profile tech companies Palantir Technologies Inc., Snowflake Inc. and Unity Software Inc.

Other public Canadian tech companies, including Kinaxis Inc. and Enghouse Ltd., have hit historic highs this year, driving up the S&P/TSX information technology index 38.5 per cent in 2020, compared with a 3.6-per-cent drop for the composite index.

Four-year old Dialogue, which has hired hundreds of employees this year and increased the number of Canadians that can access its platform more than twelvefold to five million people since January, has “metrics, a growth profile and market leadership that would make us a uniquely attractive IPO candidate if we decided to go now,” Mr. Habib said.

“It’s hard to comment on timelines but [an IPO] in 2021 is certainly conceivable if we continue on the same growth trajectory. Four months ago I would have said, ‘Not for another few years.’ But we’ve experienced superfast growth and the world needs virtual care more than ever.”

D2L has experienced a 200-per-cent spike in the number of new bookings this year compared with 2019 levels and a 250-per-cent increase in usage of its online tools in the latest school semester. The company’s products are used by more than 10 million people a day.

While some of its private-equity-backed rivals have laid off employees during the pandemic, D2L, which is believed to generate about US$150-million in annual revenue, has hired 200 people and has close to 900 employees.

Mr. Baker said raising public money “would give us extra horsepower” to invest in technology and expand globally, on the heels of completing a multiyear transition in 2019 to provide all of its software over the internet. He added D2L has focused on helping clients get on its platform in preparation for the fall school semester, when online learning is expected to remain at heightened levels as coronavirus spread continues.

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