Frothy markets and a recent frenzy for software-focused businesses have convinced more Canadian technology companies to consider going public, setting the stage for a potential surge of initial public offerings that could eclipse last fall’s rush. At least six firms have recently lined up investment bankers to explore IPOs, potentially by the spring, The Globe and Mail has learned.
Farmers Edge Inc., a Winnipeg-based agricultural technology provider controlled by Fairfax Financial Holdings Ltd., is set to file a prospectus with regulators for a deal underwritten by National Bank Financial.
Auvik Networks Inc., a Waterloo-based maker of software that manages and monitors internet-network traffic, is also considering going public. It has tapped Canaccord Genuity and RBC Dominion Securities as investment banking advisers. Magnet Forensics Inc., also based in Waterloo, is a creator of software that fights cybercrime and has lined up BMO Nesbitt Burns and Canaccord Genuity for a potential IPO.
Saskatoon’s Vendasta Technologies Inc., which sells a suite of digital tools including white-label e-commerce platforms to companies that serve small businesses, has engaged CIBC World Markets, National Bank and TD Securities to explore an IPO. And Thinkific Inc., whose software platform is used by entrepreneurs and businesses to create and sell online courses, has picked BMO and CIBC as its lead advisers should the Vancouver company proceed with the idea.
Those five IPO candidates join Vancouver-based Cymax Group Inc., an online furniture marketplace provider controlled by billionaire Markus Frind, which hired Royal Bank and Toronto-Dominion Bank late last year to lead its IPO. Several other companies are believed to be in early-stage discussions with advisers.
The Globe is not disclosing its sources because they are not authorized to speak publicly about these matters. The sources stressed that in most cases final decisions about whether to pursue public listings have not been made and will depend on market conditions and how each successive deal is received by investors.
Current IPO candidates are keen to cash in on the recent craze for new tech issues in Canada and the United States. Montreal-based online payments company Nuvei Corp., for example, set out to raise US$600-million in September but bumped its final haul to US$805-million – a record for a Canadian tech IPO – after the deal was 20-times oversubscribed.
Many newly issued stocks have soared once they began trading. Nuvei went public on the TSX at US$26 per share and closed Thursday at US$55.91, while shares of Dye & Durham Ltd., a consolidator of software providers for legal and business professionals, are up almost sixfold from their $7.50 issue price on the TSX last July. Online-commerce software provider Shopify Inc., which went public in 2015, became Canada’s most valuable company by market capitalization last year.
Investors have rushed into tech stocks since the depths of the pandemic last spring, chasing companies they feel will benefit from greater adoption of online commerce, learning platforms and remote health care services, as well as those that offer the efficiency benefits of increased digitization. Many of the companies are not profitable, though, and valuations have approached what some market watchers warn are dangerously high levels.
Prior to 2020, just 12 IT company IPOs in the previous 11 years had raised $50-million or more. By early last year, Canadian tech companies were increasingly avoiding or delaying going public because they had ready access to private capital at attractive valuations. Now, public markets are just as competitive, if not even more lucrative.
Telemedicine startup MindBeacon Holdings Inc. scrapped plans to raise $30-million from private investors last year after investment bankers told CEO Sam Duboc he could do better on the public markets. The company raised $65-million in an IPO on the TSX last month, even though MindBeacon generated revenues of just $6.6-million in the first nine months of 2020.
Because of this heavy investor interest, IT stocks now account for 10.3 per cent of the value of the S&P/TSX Composite index, quadrupling their position over the past decade.
Auvik made a name for itself selling network management and monitoring software to companies that oversee those networks for small- and medium-sized businesses. It expanded its capabilities during the pandemic as companies went remote, helping to reduce bottlenecks and disruptions from the increased use of virtual private networks.
Thinkific has also seen a jump in usage during the pandemic. The nine-year-old company announced four months ago that it had raised $22-million in venture capital to fund a hiring spree after experiencing a 144-per-cent jump in revenue, to an annualized rate of $33-million. Last month, Thinkific said it had seen 63 million new course enrolments in 2020.
Magnet has benefited from a different digital trend – the global growth of cybercrime. Founded by former Waterloo police officer Jad Saliba and former BlackBerry Ltd. executive Adam Belsher a decade ago, the company is built around software Mr. Saliba developed to help police with criminal investigations. Originally shared for free with police forces, the software automated the process for investigators to access incriminating data on devices and networks that was thought to be hidden, lost or deleted. It has aided with investigations into terrorism and child pornography.
The 275-person company has increasingly sold its products to corporations to help them guard against the theft of their digital assets. It has about 4,000 customers, split between law-enforcement agencies and companies.
Vendasta, which secured the largest venture-capital investment ever by a Saskatchewan tech company in 2019, has experienced steady growth since a short-term lull early in the pandemic. The company, which has about 500 employees and generates about $50-million in annualized revenue, offers tools to help small businesses speed up digitization efforts in such areas as e-commerce, remote collaboration and online learning.
Farmers Edge, meanwhile, was an early Canadian agricultural-technology leader, using data science and AI-powered software to help farmers improve yields. It raised private capital in the mid-2010s from Silicon Valley-based Kleiner Perkins Caulfied & Byers and Toronto-based Osmington Inc., which is controlled by David Thomson. (Woodbridge Co. Ltd., the Thomson family holding company, owns The Globe and Mail.)
Fairfax bought Kleiner Perkins’s stake in 2016 and has since gained majority control of the company. Fairfax recently reported a loss of $21.8-million in the nine months ended Sept. 30 for its stake in Farmers Edge.
Despite heavy demand from public investors, some Canadian tech companies still prefer to stay private. Kurtis McBride said his Waterloo-based traffic-signal-management technology provider, Miovision Technologies Inc., is not looking to go public until its operating metrics become more predictable. However, he’s been overwhelmed by interest “from bankers telling you the public markets have gone bananas.”
Spokespeople for Vendasta, Thinkific and Magnet declined to comment on potential IPO plans. Auvik and Farmers Edge did not respond to requests for comment.