In late January, the Ontario Securities Commission announced that it had seen such a large surge in prospectus filings, it might need to triage them to ensure time-sensitive matters were handled first. The move confirmed what many working in Canada’s capital markets already knew: The deal pipeline is overflowing with companies eager to go public and raise capital, and investors prepared to spend.
Industry insiders say it’s been more than a decade since they’ve been so busy. The pressure on people handling deals made headlines recently when an internal survey of 13 junior bankers at Goldman Sachs in New York revealed complaints of “inhumane” working conditions that barely gave them time to eat, sleep or shower. Employees in Canada’s capital markets sector are also pulling long hours and toiling away on weekends to keep up with market activity. And while many firms have hired more staff to help handle the load, the late-night grinds continue.
“This is the busiest I think we’ve felt it, certainly in a decade, and arguably ever,” said Jeffrey Merk, partner and co-leader of the capital markets group at Aird & Berlis LLP. “The COVID slowdown and seeing depressed GDP numbers … it doesn’t feel like that, in at least part of the financial markets that we work in.”
Mr. Merk says that corporate law firms have been staffing up to manage increased deal flow.
“Corporate departments generally are looking to hire, because people are busy and … I don’t think we see a particular slow down in that business and I think, frankly, neither do our competitors,” he added.
Auditors have also been busy, producing financial statements for companies eyeing a public listing. “In my 30-year career, I haven’t always seen the OSC work weekends, but they certainly are this year,” said Paul Fletcher, a partner in the audit practice at Deloitte. “We’ve certainly been working those weekends [too].”
Financial services firms have also realized that they need more help to meet demand. According to Statistics Canada, the “securities and commodity contracts intermediation and brokerage” sector grew 5.4 per cent year-over-year in January, adding 2,592 jobs. Over the same period, employment in the “securities and commodity exchanges” sector grew 4.4 per cent, and the accounting sector grew 1.9 per cent, adding 2,179 jobs.
In January, the OSC said its prospectus volumes from October to December were 54 per cent higher than they were in the same period in 2019, and warned that it may need to extend review timelines for companies that want to list.
“We have received 95 prospectuses for which the OSC is the principal regulator in the first two months of 2021, representing file volumes we have not seen in almost a decade,” Kristen Rose, the OSC’s manager of public affairs, said in a statement. “Despite this volume, our staff have issued prospectus first comment letters within the time frame outlined in our service standards 97 per cent of the time.” According to the January memo, the regulator prioritized “time-sensitive prospectus filings such as bought deals and overnight marketed offerings.”
But the regulatory process had not slowed down much from the vantage point of Chris Blackwell, head of investment banking at Canaccord Genuity.
“It might be taking a little bit longer now to get a final receipt for a prospectus than it might have six or 12 months ago,” he said, estimating that the wait is now a week or two longer.
“It’s normal to expect with these unprecedented volumes that there will be delays on some of the files,” said Loui Anastasopoulos, president of capital formation at TMX Group, which operates the Toronto Stock Exchange. In June, he says the company saw activity begin to spike, and employees were feeling “the pressure and the strain” of increased volumes.
“At that point, we started to add to our team. We hired for multiple roles, and we can see and add support where it’s needed … the big story is about people and putting in more time, adding more headcount, working weekends.”
Those extra hours are necessary during what Mr. Anastasopoulos says is possibly “the biggest tech IPO window” in TSX history.
The market for mergers and acquisitions has also been intense recently. Bill Vlaad, founder of executive search firm Vlaad & Co., told the Globe that hiring has been trickier for employers because of the demand for bankers in the last six months. Experienced operators, he says, have come at a higher price due to uncertainty onset by the pandemic.
“It is a more risky environment to move over to another [company] right now than it has in the past,” he said. “Those with relationships, those with established M&A track records came at a real premium.”
Mr. Vlaad says that many junior bankers on Bay Street are being overworked, not unlike the Goldman Sachs staff who criticized a work culture that led them to working 100-hour weeks. “This business is about making hay when the sun shines,” he said. “The deals happen right now, and this happens to be a very heavy M&A environment … what we would like to see is firms double and triple the size of their junior staff. But the reality behind it is they just can’t find the people.”
Mr. Vlaad says junior candidates, some of whom have departed urban centres to live in smaller towns and cities, are questioning more often if they should consider other career paths.
“Some of the benefits of the role, like travel, going off to see fun assets in Houston and being able to spend a couple of days doing due diligence and going up to some nice restaurants with clients … that’s all done, and we don’t know if that’s going to come back.”
Jos Schmitt, president and CEO of the NEO Exchange says this is probably the most active Canada’s capital markets have been in the last 20 years.
“There’s an appetite. Valuations are good, they’re high, so companies, of course look at this as a very good and interesting window to consider the go public option,” he said.
But this interest in going public comes at a time when many white-collar staffers are often not with each other in an office, where camaraderie can make long, pressure-filled days more bearable.
“Our team has learned how to work really well together in remote work environments,” said Sherri Altshuler, a partner at Aird & Berlis who co-leads the firm’s capital markets group with Mr. Merk. “We create efficiencies throughout the process, and you really have to try and stay ahead of the curve and stay ahead of issues that will help companies navigate a go-public transaction or a financing.”
Inflation and rising interest rates could eventually reduce the pressure on the deal pipeline, according to Mr. Blackwell, who says the market is already starting to become more selective.
“We’ve seen some recent issues, not by us, but by some of our competitors, such as ABC [Technologies Holdings Inc.] and the Boat Rocker [Media Inc.] IPOs that both did not go well,” Mr. Blackwell said. “It may be on the buy side where they’re just becoming a little bit more selective in terms of the deals that they are spending time on.”
Mr. Schmitt sees it similarly. If interest rates do rise, and governments wind down on pandemic-related stimulus that has injected millions of dollars into the market, he says there will be a reckoning.
“The good is going to differentiate itself from the bad because I think it also leads many companies to go public that should not be going public. It creates hype. With hype comes [companies] with less viable value propositions to go to the market.”
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Jaren Kerr