Several analysts have warned that Canadian business innovation is slowing down, citing the fact that new listings on the TSX are due to new ETFs and other diversified products, rather than IPOs. But a new report from PwC suggests another possible conclusion.
In the recent third-quarter PwC survey of Canadian equity markets, which covered a three-month period ending on September 30, the firm reported just one new issue of $690,000 on the CSE. The first three quarters of 2016 are turning out to be the worst on record, with less than $2 million in new issues for the year.
But there’s another explanation, according to Dean Braunsteiner, national IPO leader at PwC in Canada.
“The factors weighing on the IPO market are well known: global economic uncertainty, persistent weak performance in China, negative interest rates and a troubling outlook for European banks are daily news,” he explained, adding that the upcoming US elections are contributing to the current chill. However, he pointed out that Canada may be forging ahead on a different path.
“Canadian mining companies are quietly making a comeback,” he said. Their shares have gone up significantly since January, with late-stage mining companies enjoying the benefit of improved access to capital from secondary markets. He also pointed to a pending $400 million IPO from apparel merchandiser Aritzia as a sign of continuing investor appetite for quality issues.
The secondary market’s buoyancy, coupled with the popularity of flow-through limited partnership companies and new special-purpose investment companies, is additional evidence of a market redirection, Braunsteiner added.
Canada is not alone in its IPO stupor. For most of 2016, the mega-deals that have driven IPO markets in the US, Europe, and Asia have been mostly absent, even with rising share prices and optimistic forward price-to-earnings multiples promise high prices for upcoming issuers. But for Braunsteiner, the question is when – not if – big IPOs will reignite the markets.
"We're certainly at a critical juncture in Canada," Braunsteiner says, "but suggestions that the traditional Canadian IPO market is dead are simply not supported by facts. This is just going to take time."
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