A sign board displays the TSX in the Richmond Adelaide Centre in the financial district in Toronto on Sept. 29, 2021.Evan Buhler/The Canadian Press
The hot market for initial public offerings in 2021 allowed Canada’s largest pension plans to turn two dozen of their private investment holdings into public companies via billions of dollars of IPO transactions – but many of the stocks have stumbled since their public debut.
In some cases, the pension plans were controlling shareholders and made the choice to bring their companies to market. In others, they were minority investors from their early-stage commitments and came along for the ride when the company decided to do an IPO.
Either way, the strong investor demand for new stock offerings in hot industries, particularly technology, gave the pensions an additional option for making their long-term investments liquid, rather than selling their stake to another private investor. The underwhelming performance of some of the offerings, however, may prompt plans to extend their holding periods in the new public companies.
According to data from Refinitiv, 2021 was one of the best years for IPOs involving Canadian pension plans. Typically, there are four or fewer offerings each year, with just a few billion dollars raised.
The Globe and Mail asked Canada’s eight largest pension plans which of their private company holdings completed initial public offerings in 2021. The IPO list shows the plans’ global reach: It contains 24 companies around the world, with just three in Canada. As of last week, the companies combined for nearly $110-billion in market capitalization.
Tech sector IPOs are booming in Canada. But their returns, on average, are pretty dismal
“The public market valuations have just gone up so incredibly in the last couple years,” said Damien Steel, a global managing partner who specializes in tech investing for OMERS Ventures, a wing of the Ontario Municipal Employees Retirement System. “Especially in Canada, historically, the capital markets just weren’t as open as they are [in 2021]. So you have this flood of tech companies that saw that as a cheap way to raise capital.”
True to the current trend that a company no longer needs to show years of profits before going public, just five of the 24 showed positive net income for the past 12 months, according to S&P Global Market Intelligence. Of the 24, 15 showed negative EBITDA (earnings before interest, taxes, depreciation and amortization) over the past year.
The markets allowed recent tech startups, “most of them still burning cash,” to go public, Mr. Steel said in an interview with The Globe. “You know, these are not profitable companies. They’re getting close to it, but they’re focused on growth more than anything else. And you see access to capital at such a discount.”
However, volatile markets in the latter half of 2021 have made for a rocky time for many of the pension IPOs. According to data from S&P, shares in 12 of the 24 are down at least 25 per cent from their closing price on their first day of trading.
OMERS Ventures and other affiliates of the pension plan participated in five IPOs, with all having some type of tech angle. In Canada, OMERS has 7-per-cent stakes in artificial-intelligence company Coveo Solutions Inc. and online-learning company D2L Inc. Both went public on the Toronto Stock Exchange in November; D2L is down about 20 per cent since then, while Coveo’s shares are flat.
OMERS also has as-yet-undisclosed holdings in software-development company GitLab Inc. , Canadian-founded self-driving-truck company Embark Technology Inc. and Rover Group Inc. , described as an “Airbnb for the pet-sitting industry.” Embark and Rover Group each went public via a SPAC, or special-purpose acquisition company. All three issues are listed on the Nasdaq exchange.
Canada’s two biggest pension investors, Canada Pension Plan Investment Board and Caisse de dépôt et placement du Québec, were responsible for more than half of the IPOs. And owing to their size and global reach, their holdings represent a broad range of industries, company sizes and geographies.
CPPIB retains major holdings in several companies in which its private equity division was a major holder. CPPIB owns about 40 per cent of artificial-intelligence company Informatica Inc. , which went public in October on the New York Stock Exchange and has a market capitalization of about $13-billion. It’s one of the IPO winners, up more than 25 per cent from its first-day close.
CPPIB and its partners acquired all of Informatica in 2015 for US$5.3-billion. (Public market capitalizations and other financial data in this story have been converted to Canadian dollars, regardless of the country in which the company trades, unless otherwise noted.)
“Investors were attracted to companies that are flourishing as a result of the digital transformation of the economy, which accelerated during the pandemic,” Suyi Kim, CPPIB’s global head of private equity, said in an e-mail. “For example, we saw this with the IPO for Informatica, which we originally invested in six years ago. We expect this trend to continue in 2022 as the pipeline for fast-growing tech and health care companies remains robust.”
After a complicated history, CPPIB owns about 40 per cent of the holding company for Mytheresa, a European online luxury retailer that was once part of Neiman Marcus Group LLC, an investment that CPPIB and its partners rode from a US$1.55-billion cash investment in 2013 to zero in a 2020 bankruptcy. After a contentious battle with creditors, CPPIB and Ares Management LLC emerged with Mytheresa, which has a market value of just over $2-billion on the New York Stock Exchange. It’s down about 35 per cent since its January debut.
CPPIB also owns about 25 per cent of Sportradar Group AG , a Swiss sports-data company that went public in September on the Nasdaq and is worth about $6.8-billion. When CPPIB invested in mid-2018, the company had an enterprise value – the value of its stock and debt – of US$2.4-billion. And CPPIB and a partner own 70 per cent of Petco Health and Wellness Company Inc. , the U.S. pet retailer that went public last January on the Nasdaq and is now worth about $6.6-billion. Sportradar is down about 26 per cent, while Petco is down about 33 per cent.
Smaller CPPIB ownership stakes include talent agency Endeavor Group Holdings Inc. , which is up by more than a third from its IPO. While CPPIB owns only about 8 per cent of Endeavor, its $11.4-billion market value makes CPPIB’s stake worth about $900-million. It also owns stakes in health care company Yidu Tech Inc. and Brazilian gym operator Smartfit Escola de Ginastica e Danca SA.
Ms. Kim said CPPIB’s long-term approach “provides us the flexibility to evaluate different opportunities based on market conditions and the specific company ... we can avoid timing the market.”
The Caisse owns nearly 70 per cent of Zevia PBC, a beverage maker that went public in July on the New York Stock Exchange. It was a particularly quick liquidity event, as the Caisse made its US$200-million investment just a few months before, in December, 2020. However, Zevia’s early days as a public company have been a bit rough: The stock is off by half from its first day, and a market cap that topped $1-billion at its 52-week high is down to about $300-million.
The Caisse has a stake of about 6 per cent in AvidXchange Holdings Inc. , a maker of accounts-payable automation software that went public in October on the Nasdaq but has fallen by more than a third and has a market value of nearly $4-billion. The Caisse put US$100-million into the company in mid-2017.
The Caisse has an as-yet-undisclosed investment in Dialogue Health Technologies Inc. , which operates a digital health care and wellness platform and is 23 per cent owned by Sun Life Financial Inc. The only other Canadian IPO in the group, Dialogue Health, went public in March on the Toronto Stock Exchange, but has seen its value fall by nearly half and is worth about $440-million.
The Caisse also has small or undisclosed stakes in plant-based food company Benson Hill Inc. , electric scooter company Bird Global Inc. , background-check company Sterling Check Corp. and Chinese online content company Zhihu Inc. The companies all went public on U.S. exchanges in 2021 and have market values between $1.5-billion and $3.7-billion, but as of the end of the year, all have fallen between 24 per cent and 42 per cent from their first day of trading.
In an unpublished interview with The Globe last summer, Caisse CEO Charles Emond said the record level of IPOs meant the market was getting “overly crowded” and sentiments could turn at any time – which proved to be true. “I tell the team we’ve got to be careful about that. We don’t mind at all when we stay private. Often when we go into an IPO, we stay as an investor at that juncture and exit later on. We try to show that we have confidence in the companies.”
Ontario Teachers’ Pension Plan participated in four IPOs. It has a little less than 10 per cent of Synlab AG, a laboratory and diagnostics company in Germany that went public in April on that country’s stock exchange. With $1.18-billion in net income over the past 12 months, it posted twice as much in earnings as the other five profitable IPOs combined, according to S&P Global Market Intelligence. But with a market value of about $7.5-billion, Synlab is nowhere near the most valuable, despite a gain of more than 20 per cent since its IPO.
Teachers also owns about 21 per cent two U.S.-listed companies: grill maker Traeger Inc., which went public in July and is worth about $1.8-billion despite falling by nearly half since its IPO; and about 5 per cent of artificial-intelligence company Stem Inc. , with a market capitalization of nearly $3.5-billion. And Teachers owns an undisclosed stake in $2-billion Italian beauty-products company Intercos S.p.A..
Other pension plans had more limited IPO experience this year. Alberta Investment Management Corp. had just one IPO, but it was a winner: It has about 16 per cent of Hayward Holdings Inc. , a seller of swimming pool equipment that went public on the NYSE in March, is up by nearly 50 per cent and is worth more than $7-billion.
British Columbia Investment Management Corp. said it had no IPOs, while Healthcare of Ontario Pension Plan had an IPO of mortgage company Better Home & Finance Holding Co. postponed in December. Public Service Pension Plan, the pension for many federal employees, declined to provide data for this story.
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