The Canadian initial public offering market has shrugged off recent investor fears and is poised to rebound, with at least 15 issuers set to go public over the next few months on the Toronto Stock Exchange. .
The potential deals cover a wide range of industries, including technology, mining, healthcare and consumer products, according to 10 sources familiar with the impending deals. Software names dominate after a good year for new issues from innovative Canadian companies. The Globe is withholding the identities of the sources as they are not authorized to speak publicly about the impending issues.
Several companies have hired investment bankers and started gauging the interest of institutional investors – a process known as “testing the waters” – or are about to do so in hopes of going public. summer here. The list includes Toronto-based software providers Q4 Inc., Softchoice Corp., VerticalScope Inc. and LifeSpeak Inc.; Coveo Solutions Inc. of Quebec; and Circle Cardiovascular Imaging Inc. of Calgary.
They join others previously identified by The Globe as near-term IPO candidates, including Loblaw-backed telemedicine provider Cos. ltd. Other tech companies that have hired bankers but likely won’t go public until later are online furniture seller Cymax Group Inc. and D2L Corp.
Non-tech names seeking to go public include Neighborly Pharmacy Inc., Canada’s third-largest drugstore chain, which this week filed for a $150 million IPO on the Toronto Stock Exchange. Meanwhile, Brookfield Asset Management Inc. is set to divest its US car battery maker Clarios, which it acquired from Johnson Controls International PLC two years ago.
“The IPO market is reopening with a bang,” said Chris Dale, head of equity capital markets at National Bank Financial.
The expected wave of new issuance represents a rapid acceleration of a trend that took hold last fall. As stock markets rebounded from steep losses at the start of the COVID-19 pandemic, investors began clamoring for Canadian IPOs — especially from tech companies, whose fortunes accelerated as that widespread home accommodation increased the use of online tools. The resulting fervor for Canadian and American technology companies has created a pace of deals not seen since the dot-com boom.
The trend continued through early 2021, as Farmers Edge Inc. of Winnipeg, the spin-off of Telus Corp. Telus International (Cda) Inc. and Montreal-based telemedicine company Dialogue Health Technologies Inc. have made well-received deals. But parts of Canada’s booming IPO market began to falter in late February, largely due to fears of rising interest rates. With an end to the pandemic in sight in Canada and the United States, thanks to effective vaccines, many investors expected central banks to consider raising rates, and that worry sparked a sell-off in many growth stocks.
Several Canadian IPOs have subsequently struggled. MDA Ltd., Boat Rocker Media Inc. and ABC Technologies Holdings all had to cut the size and prices of their offerings to complete their IPOs. Vendasta Technologies Inc. of Saskatoon has still not told the market of its plans after struggling to raise funds in its proposed offering, which it began marketing seven weeks ago.
In addition to the prospect of higher rates, investors also realized that new issues produced mixed returns. In the first four months of 2021, the Renaissance IPO Index, which tracks U.S. IPOs, returned -3.2% on Monday, while the S&P 500 Index posted a gain of 11.3%. A Globe and Mail analysis also shows that the average return of the 14 Canadian IPOs worth $50 million or more over the past six months has been -4.3% since trading began. each, while average returns on the TSX over the same periods were 7.3 percent.
The data does not include the strong debut of cybersecurity software company Waterloo Magnet Forensics Inc. and Thinkific Labs Inc., a Vancouver-based online course platform provider, which went public last week, nor the strong market performance of AbCellera Biologics Inc. after that. went public in the United States
However, the success of the two recent showed that there is still plenty of institutional interest in new issues that can push the right buttons with investors. Both Thinkific and Magnet have seen strong investor demand and are both trading above their IPO prices.
“Favorable market liquidity conditions – loose monetary policy and a solid fiscal backdrop – continue to support a strong IPO market,” said Lesley Marks, Chief Investment Officer at Mackenzie Investments.
At the same time, Canada’s publicly traded information technology sector is small relative to other industries and the technology weighting in the US S&P 500. Canadian fund managers used to focusing heavily on traditional sectors such as financials and resources are eager to increase their exposure to a fast-growing sector.
There has also been a shift in the mindset of many investors, said Jeff Mo, portfolio manager at Mawer Investment Management in Calgary. “Canadian investors have always been very reluctant to buy companies that don’t show profitability under GAAP,” he said. The stock performance of software giant Shopify Inc. – which is currently Canada’s most valuable company, but was mostly unprofitable before the pandemic – has caused people to rethink the way they build their portfolios, he said.
If institutional fund managers remain uncomfortable with unprofitable tech companies, they are more likely to underperform their benchmarks by missing out on high-flying but unprofitable names. Among those that have gone public in the past two years are Lightspeed POS Inc., Dye & Durham Corp. and Nuvei Corp.
As investor demand has exploded, bankers point out that investors aren’t jumping on any IPO as quickly as that was six months ago, when just about anything was selling. Higher interest rates could also quickly hurt the IPO market. “Investors are more selective,” said Peter Miller, head of equity capital markets at BMO Nesbitt Burns, adding that quality deals will always sell. “If anything, I think it’s a healthier market.”
Here’s a look at some of the Canadian companies preparing for potential IPOs over the next few months:
Q4 sells online software to public company investor relations departments to support functions such as hosting webcasts of quarterly earnings calls and annual meetings. It has 2,300 clients, about half of them S&P 500 companies, and generates about $50 million in annualized revenue. Its revenue rose 80% last year, with half of the gains coming from acquisitions. CIBC Capital Markets, National Bank and Credit Suisse have been hired as underwriters. Fourth-quarter CEO Darrell Heaps declined to comment.
Coveo sells artificial intelligence-based search tools called “analytics engines” to giants such as American Express, Dell and Geico. It is led by veteran software entrepreneur Louis Têtu, whose last company, Taleo Corp., went public in 2005 on the Nasdaq and was acquired by Oracle Corp. in 2012 for $1.9 billion. OMERS growth capital arm led $227 million equity financing for Coveo in the fall of 2019. Coveo hired BMO, Bank of America, RBC Capital Markets and UBS as underwriters. Mr. Têtu declined to comment.
softchoice sells technologies made by giants such as Microsoft, Google and Cisco to enterprise customers and manages them for customers. Owner Birch Hill Equity Partners took Softchoice private in 2013. TD Securities and Goldman Sachs are leading a planned $350 million offering; other banks are joining the union this week. Softchoice did not respond to a request for comment.
language of life provides digital health and wellness content that companies can distribute to their employees. It raised $42 million from Round 13 Growth Fund, Kensington Capital Partners and Roynat Capital last year, and is profitable and growing by more than 50 percent annually, with annual revenues of approximately $25 million. It’s coming to market following recent offerings from digital health companies MindBeacon Holdings Inc. and Dialogue, and as Maple prepares to do the same. RBC, Scotia Capital and Canaccord Genuity lead the offering. Lifespeak President Nolan Bederman declined to comment.
Vertical reacha Toronto-based online media company 56% owned by Torstar Corp., specializes in websites for enthusiast communities subjects ranging from beekeeping to fancy watches. The company has over 1,200 websites, with 1.7 billion content posts and over 100 million monthly active users. Although organic growth prior to this year has been weak, the business has been very acquiring. It has about $60 million in annual revenue, largely from advertising, and an operating profit margin of about 50%. RBC, Canaccord Genuity and National Bank Financial are leading the operation. Spokespersons for VerticalScope and Torstar declined to comment.