You can read more of Big Deals, the Globe's exclusive report on mergers and acquisitions, here.
Nearly five years after the darkest days of the financial crisis, the main driver of markets hasn't changed: the demand for yield.
Despite all the chatter about a great rotation into equities, and despite relatively stable, if not rising, stock markets, many investors crave the dependency of steady income streams.
Dividend-paying investments such as telecom stocks and real estate investment trusts are up 17 per cent and 7 per cent in the past year, respectively, before distributions. Meanwhile, the Canadian materials subindex fell by 22 per cent.
The selective demand is affecting deal making. Early in 2013, new equity issues are down heavily from the past year. Bankers say that out-of-favour sectors such as mining are looking at more creative ways to finance prospective acquisitions instead of issuing new stock.
But they also promise the deals are coming – particularly initial public offerings. It's just that the new issues will have to come from safer sectors, or, if a company is a riskier sell, investors will likely be offered some yield for extra comfort.
"We've had a market where there are buyers for yield … but what we haven't seen is the return of investors to smaller-cap, high-growth" stories, said Kevin Li, head of Canadian investment banking at CIBC World Markets. "I don't think the market's really quite ready for that yet."
Two months into 2013, the Canadian market's seen just three oil and gas equity financings and a few mining deals.
This is despite the fact that the two sectors account for about 40 per cent of the S&P/TSX composite index. And on the blockbuster day in February when $1.9-billion of new shares were unleashed to the market, all four deals came from financial services.
Why the hesitance, even though the TSX has been, with the exception of one week, above 12,000 points for the past six months? Investors have simply been burned so many times. Early in 2012, it looked like the market was finally ready for a solid rebound, but then the European crisis flared up again and stock markets tumbled in May.
"The retail investor likes to see the momentum, likes to see the proof before coming in" to the equity markets, said Peter Miller, head of equity capital markets at BMO Nesbitt Burns.
Should the market stay this strong, at least some investors are bound to dip their toes back into stocks, and the timing could very well coincide with the return of IPOs that the investment banks have promised are piling up. Expect to see those hit the market in sectors such as power and industrials in March, April and May, which would follow in the footsteps of the U.S. market, where IPOs have come roaring back.
Although many of these deals have been sitting on the sidelines for some time, all the financial models need to be updated with current market numbers, and management teams need to get comfortable with where their peers are trading because the valuations of comparable companies – key benchmarks when pricing IPOs – have all changed.
For those who want growth stories, Kirby Gavelin, head of equity capital markets at RBC Dominion Securities, believes that the coming deals can fulfill this need even though many are expected to be dependent on dividends. Over the past few years, some of the best-performing sectors have been those that pay solid distributions, offering much more capital appreciation than even the traditionally risky sectors.
"Growth ain't dead," he said; it just comes from new places.