The Hamilton Stelco steel plant is seen here from across Lake Ontario in Burlington, Ont. Canada's biggest steelmaker filed a preliminary prospectus last week. REUTERS/Andrew Wallace
TIRED OF BAD news? Here’s reason for hope. Initial public offerings, deader than disco just a year ago, have sprung back to life. Three quarters into the year is it safe to pronounce Canada’s IPO market back in business? “In a word? Yes,” says Andrew Parker, co-head of the National Capital Markets Practice at McCarthy Tétrault LLP in Toronto.
Toronto-based Parker, who was working on a new one the day he was interviewed, says his firm has “several” in the pipeline. How busy is his group? “Busy. I’ve averaged about four hours sleep over the last two weeks.”
His firm is not alone in that, and it’s easy to see why.
Stelco Holdings Inc. filed a preliminary prospectus for a reported $150-million IPO on Thursday and is seeking to have shares listed on the Toronto Stock Exchange (TSX). A week earlier, Brazil-based mining company Votorantim Metais Holding SA filed for an initial public offering on the New York and Toronto exchanges. The pricing was not announced.
Roots Corp. filed the paperwork for a $200-million IPO on September 14. Calgary-based natural-gas producer Fireweed Energy Ltd. filed a prospectus for a $40-million IPO on September 11. Vancouver’s Ero Copper Corp. filed the documents for a proposed IPO on September 8.
That’s not a complete list — and that was just last month. While these IPOs have yet to receive all the necessary approvals and list on the exchanges, many others have already done so.
During the first nine months of this year, $3.3 billion has been raised from 24 new issues on all Canadian exchanges compared to less than $2 million in the same period in 2016, according to the quarterly PwC IPO survey released yesterday.
Companies going public include Clementia Pharmaceuticals Inc., which floated a $120-million IPO on NASDAQ in August, and Jamieson Wellness Inc., the vitamin and health-products company, which raised $300 million and started trading on the TSX in July. Kinder Morgan Canada did a $1.8-billion flotation; MedReleaf, a medicinal cannabis company, floated a $700-million IPO; and Real Matters Inc., a real-estate technology firm, did a $870-million IPO. All three of these corporate stocks started trading in May. Zymeworks Inc., a BC-based biotech firm, made a US $58.5-million initial public offering in April on both the TSX and the New York Stock Exchange.
The PwC survey showed eight new issues on Canadian exchanges, and one by a Canadian firm on only a U.S. exchange (Montreal-based Clementia Pharmaceuticals) in the third quarter alone, generating $433 million in new equity.
That dwarfed the single $690,000 IPO in the third quarter of 2016. And everyone, including PwC, sees many more in the pipeline.
Oil patch waiting for its revival
McCarthy Tétrault’s Parker is not certain what’s behind the revival. It could be the rebounding economy, he says, while the long downturn in commodities has had bankers scouring the landscape for candidates in other sectors.
The majority of 2017’s offerings are not from energy companies. Craig Story, a partner in the Capital Markets group at Stikeman Elliott LLP in Calgary, says there were a number of IPOs contemplated in the oil patch earlier this year, especially in the second quarter, with “rumours and rumblings of a number of other companies either thinking about or at least in some stage of preparing to go.” But many held back, he says, because “the depth of the market was not there to support more at that time in energy.”
Story points to the drop in oil prices, from around US $55 a barrel in spring to around US $45 a barrel in July, as dulling investors’ appetites. “What we’ve heard from the investment bankers and from management and private equity funds is that the support for energy investments is not quite there yet.”
That doesn’t mean companies in the oil patch have abandoned plans for IPOs; rather, they’ve iced them for the time being. “There are still a number of companies considering it,” Story says. In the meantime, market sentiment appears to be more bullish on oilfield service companies, which provide energy companies with services but do not produce on their own, than on explorers and producers themselves.
Calgary-based Source Energy Services, which produces the sand used in hydraulic fracturing, raised $175-million and started trading in mid-April in what was the first large initial public offering by a Canadian firm in the energy sector since 2014. STEP Energy Services Ltd., also headquartered in Calgary, raised $100 million, about half what it hoped for, and started trading on May 2.
Story believes that once there’s more stability or even a rise in oil and gas prices, “we expect some explorers and produces to advance their plans.” They’ll likely take advantage of year-end results and reserve reports before going public, he says, which means pure energy-company IPOs may start showing up in the first half of 2018.
IPOs surge over last year
Almost anything would look good compared to 2016’s crop of IPOs. Last year there were fewer IPOs made than in 2008, at the height of the financial crisis, marking a 19-year low in IPO volume.
Capital markets were spooked by global market volatility, low oil prices, uncertainty surrounding the U.S. election and the Brexit vote, among other things, says Rima Ramchandani, co-head of the Capital Markets Practice at Torys LLP in Toronto. There was not a single initial public offering on the TSX in the first quarter of 2016.
In contrast, 2017 got off to a roaring start with restaurant chain Freshii Inc. raising $124 million through an IPO in January. Fairfax Financial Holdings Ltd. floated its initial public offering of Fairfax Africa Holdings Corp. on the TSX in February, raising about $500 million. Canada Goose Holdings Inc. went public on the NYSE and TSX in March, raising about $340 million through its first public offering.
Ramchandani says the success of those big-name IPOs early in the year “had a big impact. There have been a lot of good companies waiting to go public, watching the market, waiting for the right time.
“There was such a dearth of IPOs for a while that it took one successful company to start to reinvigorate people’s faith. You get a couple of those brand-recognized high-quality IPOs people feel have done very well and, on the heels of that, bankers start to feel more confident in their ability to sell some of these issues, that there’s more investor appetite. So you start to see this succession of deals happening.”
Ramchandani says the IPOs seem to be spread across many sectors, with energy and perhaps technology not quite as strong as some people had hoped. “When I talk to the investment bankers looking at pre-IPO candidates, a lot are keeping their eye on the tech space. A lot of those companies still aren’t large enough to access the IPO markets yet,” she says, “but I think ultimately the long-term goal is eventually . . . going public.”
The big winners in the current IPO boom? Those would be the investors, she says, who will have more choice of companies they believe can deliver good returns. “But it’s also good for the investment bankers, the lawyers, and the TSX, too. I think there’s enough good news here to spread around.”