Canada's main stock exchange is in the midst of an IPO revival.
The market for initial public offerings nearly dried up entirely last year, which also marked a new low point in what has been the long-term decline in the number of firms listed in Canada. But an uptick in new listings on the Toronto Stock Exchange this year has its chief executive talking about a comeback for the public company model.
Just halfway through 2017, IPO activity has already surpassed the annual average of the previous five years. In the past six months, there have been 10 corporate IPOs that each have raised more than $100-million in Canada, totalling $3.5-billion in proceeds, according to data compiled by CIBC World Markets. For investors in a market starved for new listings, this is a welcome reversal.
"This notion, or stigma, of companies avoiding going public is rapidly diminishing," Lou Eccleston, CEO of TMX Group Ltd., the public company that runs the exchange, said in a speech at an industry event earlier this month in Toronto. "The public channel is now a part of every conversation."
New consumer listings have been the biggest home runs this year, including Freshii Inc. and Canada Goose Holdings Inc. The parka maker's stock has done so well – up 66 per cent since the March IPO – that its major investors are in the process of selling another 12.5 million shares to the market.
Tech stocks Real Matters Inc. and Zymeworks Inc. also went public, along with energy players Kinder Morgan Canada Ltd., STEP Energy Services Ltd. and Source Energy Services Ltd. These five companies haven't been as lucky, as their shares are currently trading below their IPO prices.
And there are more new listings on the way. Vitamin producer Jamieson Wellness Inc. and sushi maker Bento Inc. are set to price their IPOs this week.
"For any sponsor or shareholder who is looking to exit over time, the IPO is a real option and the valuations are still very healthy," Benoit Lauze, the head of equity capital markets at CIBC, said in an interview. "When we bring up a quality new name, everybody wants to look at it because there are so few."
Businesses don't have to be public to raise money.
Private sources of capital have proved to be attractive alternatives to going public for many entrepreneurs, many of whom are choosing to spend the mercurial earlier years out of the public spotlight. And over time, the burden of leading a public company has gotten heavier, more time consuming and more expensive.
In 2016, even as the S&P/TSX composite index stormed back from the nadir of oil shock, only three companies went public on the senior market. Even in the depths of the global financial crisis, IPOs in Canada never sank that low.
As the supply of new listings has dwindled, the ranks of existing stocks have also thinned out amid a wave of mergers and acquisitions. The number of corporate listings on the TSX has dropped by 30 per cent since 2008, from 1,232 stocks to 858 companies trading on the TSX, as of the end of May.
But Mr. Eccleston says that, by many measures, the TSX is on track for its best year in a long time.
"The rumoured demise of the public company is greatly exaggerated," he said at a panel discussion hosted by the C.D. Howe Institute in mid-June. "There is renewed acknowledgement of the advantages of being a public company."
The TSX is on track for its best year in new listings since 2013. Plus, the $2.9-billion raised so far this year in the more junior TSXV market represents a doubling over last year's pace, Mr. Eccleston said. And the long tradition of graduation from the Venture to the TSX means there is a lot of young talent destined for the big board in the years ahead, he said.
And while it's true that the IPO market is not what it used to be, public companies are tapping the stock market for record amounts, David Skurka, deputy chair of investment banking at TD Securities, said at the C.D. Howe event. In 2016, $58-billion was raised by companies listed on the TSX, the highest in seven years, according to the TSX.
"Perhaps the IPO market is declining, but the death knell for the public company is way off," Mr. Skurka added.
However, the billions raised are going to a narrowing number of the country's largest public companies, says Melinda Park, a securities lawyer at Borden Ladner Gervais LLP in Calgary.
"In 2016, the sheer amount of money raised was extraordinary, but it went to a handful of companies," Ms. Park added. "Are we aggregating so much that everything else withers and dies?"
To be sure, the rebound in IPO activity is coming off an extremely low base, notes Tom Caldwell, chairman of Caldwell Financial and a past governor of the TSX. Similarly, the rate of TSXV graduates has improved somewhat this year, but the decline over the previous 10 years has exceeded 90 per cent.
"It is picking up, but it's nowhere near as robust as we need to fuel innovation, create jobs, grow the economy," Mr. Caldwell said. "It's not enough."
But it's improving.
Mr. Lauze, the head of ECM at CIBC, says he is working with a dozen other companies that are mulling an IPO over the next six to 12 months. They represent a mix of oil producers, tech, consumer and infrastructure companies.
In the energy space, so much hinges on the price of oil trading above $50 (U.S.) a barrel, Mr. Lauze added. The latest swoon in energy prices could also prove to dampen the resurgent IPO market, with the price of WTI tumbling to $43.38 a barrel on Monday, from more than $50 in late May.
"Above $50, there are a lot of very good companies that are profitable at these levels and could come to market," he said. But below $50, going public could be a gamble.