The finance world is desperately hoping that 2015 will be the year of the Great Canadian tech IPO. Many investment pros believe market listings by Shopify, Hootsuite and Vision Critical could kick off a wave of Canadian stock offerings, bringing excitement unseen in the sector since BlackBerry Inc. was big.
If so, the question is, where will the upstarts list?
A number of tech entrepreneurs are more focused on getting to the NASDAQ than the TSX, but for surging companies looking to go public, listing in Canada first can provide a leg up when they cross into the United States – the equivalent to jumping the queue to get into a hot club. "It's definitely an advantage," says BMO Nesbitt Burns Inc. managing director David Wismer.
That stems from a 1991 deal between the U.S. Securities and Exchange Commission and Canadian regulators to create the Multijurisdictional Disclosure System (MJDS) that made it easier for companies to do cross-border financings. The system allowed Canadian issuers to clear securities filings, including prospectuses to sell stock, with their home regulators. They would then get rubber stamped by the SEC to proceed in the United States. All Canadian firms had to do was qualify as a U.S. "foreign private issuer," list their stock in Canada first, live up to Canadian filing requirements for a year and have a stock float worth at least $75-million (U.S.).
The SEC has no similar deals with other non-U.S. regulators. Perhaps that's because Canadian regulators proved much faster at clearing paperwork than the SEC. If a company files to go public on NASDAQ, the process can take five months. By comparison, an Ontario company using MJDS can usually file and clear a prospectus with the Ontario Securities Commission within weeks. Canadian regulators aim to get their first comments on proposed filings back in three days; the SEC takes 30.
"The MJDS saves a lot of time and money for qualifying companies," says Vancouver lawyer Dan Miller, who handles U.S. dealings for Canadian firms. "It's not like [Canadian regulators] are doing a less careful review," says Andrea Johnson, a partner with law firm Dentons in Ottawa who works with tech companies. "They just do it faster."
That can be particularly beneficial when markets are shaky. BlackBerry, then called Research in Motion, raised $600-million (U.S.) in October, 2000, quickly clearing its prospectus to sell six million shares in the United States just before the dot-com bubble burst and the financing window for tech firms slammed shut. "When the demand emerges, an Ontario tech company can get to the U.S. capital markets earlier than others," says former chief executive officer Jim Balsillie. "We used this at RIM to our advantage."
Using MJDS can also help firms that aren't yet ready for the jump to NASDAQ, says Mahesh Mani, an audit partner and IPO specialist with KPMG in Ottawa. Public tech companies are so scarce in this country that even a small one can get covered by a half-dozen analysts in Canada. "That is the optimal model for quick and efficient access to North American capital markets," Ms. Johnson says.
A solid, fast-growing Canadian tech company can use its first year as a public company here to chat up U.S. bankers and get accustomed to reporting results, talking to investors and living up to disclosure requirements. That gives them extra runway for their U.S. entry. "They can get some of these systems in place in Canada before going public elsewhere," Mr. Mani says.
It would also help diversify the modest complement of publicly traded Canadian tech firms. The current class of tech companies now on the TSX is overshadowed by banks, telecoms and commodities firms. Many tech entrepreneurs are more focused on getting to NASDAQ, or even staying private thanks to a buoyant market south of the border for private deals. "We need the next generation of tech companies to choose to list on the TSX," Ms. Johnson says.
A cross-listing is in the likely future for fast-growing Ottawa business software firm Kinaxis Inc., which went public on the TSX in June, 2014, and has a healthy analyst following here. The firm is eyeing the NASDAQ once its annualized revenues hit $100-million (U.S.), which could come as soon as this fall. "NASDAQ is a very viable option, especially with the multijurisdictional relationship," says Kinaxis' chief financial officer Richard Monkman.