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Louis Tetu, CEO of Quebec City-based Coveo, which sells artificial-intelligence-powered search tools known as 'insight engines' to corporate giants such as American Express, Dell and Geico.

Renaud Philippe/The Globe and Mail

Canada’s market for initial public offerings has shaken off recent investor fears and is set to roar back, with at least 15 issuers preparing to go public in the next few months on the Toronto Stock Exchange.

The potential offerings span a wide spectrum of industries, including technology, mining, health care and consumer products, say 10 sources familiar with impending deals. Software names dominate following a strong year for new issues from innovative Canadian companies. The Globe is not disclosing the identities of the sources as they are not authorized to speak publicly on the impending issues.

Several companies have hired investment bankers and started gauging interest from institutional investors – a process known as “testing the waters” – or are set to do so with hopes of going public by summer. The list includes Toronto-based software providers Q4 Inc., Softchoice Corp., VerticalScope Inc. and LifeSpeak Inc.; Quebec City-based Coveo Solutions Inc.; and Calgary’s Circle Cardiovascular Imaging Inc.

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They join others previously identified by The Globe as near-term IPO candidates, including Loblaw Cos. Ltd.-backed telemedicine provider Maple Corp. and Waterloo-based Auvik Networks Inc., which makes software that manages and monitors internet-network traffic. Other technology companies that have engaged bankers but likely won’t go public until later are online furniture seller Cymax Group Inc. and D2L Corp.

Non-technology names looking to go public include Neighbourly Pharmacy Inc., Canada’s third-largest drugstore chain operator, which filed this week to raise $150-million in an IPO on the TSX. Meanwhile, Brookfield Asset Management Inc. is set to spin out its U.S.-based car battery maker Clarios, which it acquired from Johnson Controls International PLC two years ago.

“The IPO market is reopening with a vengeance,” said Chris Dale, head of equity capital markets at National Bank Financial.

The expected flurry of new issues represents a rapid acceleration of a trend that took hold last fall. As equity markets rebounded from sharp losses early in the COVID-19 pandemic, investors started clamouring for Canadian IPOs – particularly from technology companies, whose fortunes accelerated as widespread sheltering at home increased use of online tools. The resulting fervour for Canadian and U.S. tech companies created a pace of deals unseen since the dot-com boom.

The trend extended into early 2021, as Winnipeg’s Farmers Edge Inc., Telus Corp. spinout Telus International (Cda) Inc. and Montreal telemedicine firm Dialogue Health Technologies Inc. completed well-received offerings. But parts of Canada’s booming IPO market started to wobble in late February, largely driven by fears of rising interest rates. With the end of the pandemic in sight in Canada and the U.S., thanks to effective vaccines, many investors expected central banks to consider raising rates, and that worry triggered a sell-off in many growth stocks.

Several Canadian IPOs subsequently struggled. MDA Ltd., Boat Rocker Media Inc. and ABC Technologies Holdings all had to cut their offering sizes and prices to complete their IPOs. Saskatoon’s Vendasta Technologies Inc. still hasn’t updated the market on its plans after struggling to raise money in its proposed offering, which it started marketing seven weeks ago.

On top of the prospects for rising rates, investors have also realized that new issues have delivered mixed returns. Over the first four months of 2021, the Renaissance IPO Index, which tracks U.S. IPOs, returned -3.2 per cent as of Monday, while the S&P 500 index posted an 11.3-per-cent gain. An analysis by The Globe and Mail also shows that the average return among the 14 Canadian IPOs worth $50-million or more over the past six months has been -4.3 per cent since each started trading, while average TSX returns over the same time frames have been 7.3 per cent.

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The data does not include the strong debuts of Waterloo cybersecurity software company Magnet Forensics Inc. and Thinkific Labs Inc., a Vancouver-based online course platform provider, which went public last week, nor the strong market performance of AbCellera Biologics Inc. after it went public in the U.S.

However, the success of the two recent Canadian deals has shown there is still plenty of institutional interest in new issues that can push the right buttons with investors. Thinkific and Magnet both saw heavy investor demand and are both trading above their IPO prices.

“Favourable liquidity conditions in the market – easy monetary policy and a strong fiscal backdrop – continue to favour a strong IPO market,” said Lesley Marks, chief investment officer at Mackenzie Investments.

At the same time, Canada’s publicly traded information technology sector is small relative to other industries, and to technology’s weighting in the S&P 500 in the U.S. Canadian fund managers accustomed to a heavy focus on traditional sectors such as financial services and resources are eager to increase their exposure to a fast-growing sector.

There has also been a shift in many investors’ mindsets, said Jeff Mo, a portfolio manager at Mawer Investment Management in Calgary. “Canadian investors historically have been very reticent to buy companies that don’t show GAAP profitability,” he said. The stock market performance of software giant Shopify Inc. – which is currently Canada’s most valuable company but was mostly unprofitable before the pandemic - has made people rethink how they construct their portfolios, he said.

If institutional fund managers remain uncomfortable with unprofitable tech companies, there is a higher chance they will underperform their benchmark indexes by missing out on high-flying but unprofitable names. Among those that went public over the past two years are Lightspeed POS Inc., Dye & Durham Corp. and Nuvei Corp.

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While investor demand has roared back, bankers stress that investors aren’t as quick to jump at just any IPO as they were six months ago, when pretty much anything would sell. Higher interest rates could also quickly hurt the IPO market. “Investors are more selective,” said Peter Miller, head of equity capital markets at BMO Nesbitt Burns, adding that quality deals will still get sold. “If anything, I think it’s a healthier market.”

Here’s a look at some of the Canadian companies lining up potential IPOs in the next few months:

Q4 sells online software to investor relations departments of public companies used to support functions such as hosting webcasts of quarterly earnings calls and annual meetings. It has 2,300 clients, including about half of the S&P 500 companies, and generates about US$50-million in annualized revenues. Its top line increased by 80 per cent last year, with half the gains driven by acquisitions. CIBC Capital Markets, National Bank and Credit Suisse have been hired as underwriters. Q4 CEO Darrell Heaps declined to comment.

Coveo sells artificial-intelligence-powered search tools known as “insight engines” to corporate giants such as American Express, Dell and Geico. It is led by veteran software entrepreneur Louis Têtu, whose last company, Taleo Corp., went public in 2005 on Nasdaq and was bought by Oracle Corp. in 2012 for US$1.9-billion. OMERS’ growth-equity arm led a $227-million equity financing for Coveo in fall 2019. Coveo has hired BMO, Bank of America, RBC Capital Markets and UBS as underwriters. Mr. Têtu declined to comment.

Softchoice sells technology made by giants such as Microsoft, Google and Cisco to corporate customers and manages it for clients. Owner Birch Hill Equity Partners took the previously public Softchoice private in 2013. TD Securities and Goldman Sachs are leading an expected $350-million offering; other banks are joining the syndicate this week. Softchoice did not reply to a request for comment.

Lifespeak provides digital health and wellness content for companies to distribute to their employees. It raised $42-million from Round 13 Growth Fund, Kensington Capital Partners and Roynat Capital last year, and is profitable and growing by more than 50 per cent a year, with annual revenues of about $25-million. It comes to market following recent offerings by digital health companies MindBeacon Holdings Inc. and Dialogue, and as Maple gears up to do the same. RBC, Scotia Capital and Canaccord Genuity are leading the offering. Lifespeak chairman Nolan Bederman declined comment.

VerticalScope, a Toronto online media company that is 56-per-cent owned by Torstar Corp., specializes in websites for communities of enthusiasts of topics ranging from beekeeping to fancy watches. The company has more than 1,200 websites, with 1.7 billion content posts and 100-million-plus active users per month. Although organic growth before this year was low, the company has been highly acquisitive. It has about $60-million in annual revenue, largely from advertising, and a roughly 50-per-cent operating profit margin. RBC, Canaccord Genuity and National Bank Financial are leading the deal. Spokespeople for VerticalScope and Torstar declined comment.

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