Auto parts maker ABC Technologies Holdings Inc. slashed the size of its initial public offering by 60 per cent and priced its shares below the original marketing range, suggesting the recent euphoria for IPOs has some limits.
Based in Toronto and owned by private equity giant Cerberus Capital Management LP, ABC originally set out to raise $255-million at a price between $12 and $15 per share.
After a few weeks of marketing, the company has priced the offering at $10 per share and cut the deal size to $100-million. Cerberus is receiving all of the proceeds, and will continue to own 81 per cent of the company.
The tepid demand proves investors are not jumping at every new deal in this frothy market. It also illustrates a divide between sectors – and potentially even between companies that make money and those that do not.
Canadian IPOs for technology, health care and biotech companies have seen extraordinary demand over the last eight months. In December, telemedicine startup MindBeacon Holdings Inc. easily raised $65-million and priced at the top end of its marketing range, despite losing $6.5-million over the first three quarters of 2020.
ABC, by contrast, is an established manufacturer with a history of profits, making $65-million in fiscal 2019, which ended in June, 2019. However, the company lost US$26.1-million during fiscal 2020 because the pandemic erupted during its final quarter.
In the current market, the hottest financings tend to be for companies with growth potential – even if the growth comes from purchasing revenue, sometimes at expensive prices. Toronto’s Dye & Durham , which provides software for legal and business professionals, listed its shares at $7.50 each on the Toronto Stock Exchange in July and the company announced yet another financing on Tuesday morning priced at $50.50 per share.
Since Cerberus purchased ABC in 2016, the company’s sales and earnings before interest, taxes, depreciation and amortization have been relatively flat, excluding the anomaly in 2020.
The company’s growth potential also isn’t explosive, with IHS Markit expecting North American light-vehicle production to rebound this year, but then to stay flat for the five years after that.
Originally known as ABC Group, the auto parts maker company was founded in 1974 by entrepreneur Mike Schmidt and specializes in thermoplastics for car manufacturers. Its product groups include interior systems (such as centre consoles and interior trim), exterior systems (such as spoilers and bumpers) and HVAC systems (such as defroster ducts and battery cooling ducts).
Mr. Schmidt, came to Canada from Croatia in 1956, having spent eight years in refugee camps in Austria. According to a profile in a local Ontario publication a number of years ago, he and his wife, Helga, came to Canada with just $64 and a two-year-old son.
After experimenting with plastics manufacturing, Mr. Schmidt finally made inroads with auto parts and grew to have manufacturing facilities across North America, as well as in Spain, Poland, Brazil and China. Ms. Schmidt took over as chief executive officer after her husband’s death in 2009 and she led the company until Cerberus’s purchase in 2016.
Despite the tepid investor demand, other deals continue to come to market. Last week DRI Healthcare Trust priced its own IPO, raising US$400-million at US$10 per share, in line with original expectations.
The pharmaceutical company is owned by Vancouver’s Khosrowshahi family, one of Canada’s wealthiest, and originally hoped to go public in February, 2020, on the London Stock Exchange. Those plans were put on hold because of the pandemic, and then ultimately changed to list in Toronto.
DRI Healthcare is a royalty company, which means it does not engage in research and development to produce its own drugs. Instead, it acquires royalty interests in other inventors’ products, often in exchange for upfront payments. The cash is then used by pharmaceutical companies and research institutions to fund their own R&D.
Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.