Bay Street is finally showing some swagger again, as investors demonstrate a new willingness to buy shares.
Even as the S&P/TSX composite index climbed 15 per cent in the past year, potential buyers for new issues had remained cautious, resulting in spurts of offerings rather than sustained activity.
But over the past few weeks the tone has started to become more robust. "Investors are feeling confident," said Peter Miller, head of equity capital markets at BMO Nesbitt Burns, "and likewise, our corporate issuers are also feeling confident."
The Street is once again enjoying a period when multiple equity offerings are coming to market in a single day. A week ago, five share sales launched one day and were followed by four issues the next.
Initial public offerings are back in favour, particularly in the energy patch, where Encana is spinning out assets in what is shaping up to be an $800-million deal, and junior energy producer Journey Energy Inc. is looking to raise $248-million.
The deals are starting to pile up, a welcome change after a rough period. TSX-listed companies raised $17-billion through equity financings in the first four months of 2014, versus $10.8-billion in the same period a year earlier.
There are a couple of key reasons for the rebound, according to strategists and bankers.
Investors appear to be gaining confidence that a correction won't come the day after buying into a new deal. While valuations are high, companies have been able to demonstrate their ability to increase their earnings, so the market isn't utterly out of whack.
In addition, sectors that were written off only half a year ago are roaring back. The oil patch has staged a strong resurgence over the past three months and real estate is also showing signs of hope after a disastrous 2013, with the S&P/TSX Capped REIT index up 8.2 per cent since Jan. 1.
Last week Artis REIT launched a $100-million equity offering that sold at only a 1.6 per cent discount to its market price – an encouraging sign since any discount under 2 per cent typically shows that investors are hungry for deals.
Later in the week American Hotel Income Properties REIT LP not only met its goal of raising $40-million, but was able to bump up the size of the deal to $45-million because of strong investor demand.
Despite signs of renewed confidence, not every deal can be a hit. The initial public offering of reinsurer Aurigen Capital Ltd. was adjusted last week to seek less money than originally planned.
There also isn't an insatiable appetite for fresh funds, because so many companies are flush with cash.
"Corporate issuers are not dying for capital," Mr. Miller said, adding that the new issue market will need something special to truly take off, such as big mergers and acquisitions financed by stock sales. "It really needs a catalyst."