IPO market defies odds

By Vikram Barhat | July 6, 2011 | Last updated on July 6, 2011
2 min read

Braving a string of economic uncertainties from Europe, the U.S. and Japan, the Canadian market for initial public offerings continues to flourish, according to the quarterly PwC survey of activity on Canadian equity exchanges.

IPO activity in Canada picked up speed in the second quarter of 2011, but could have returned a better figure were it not for turbulent economic conditions muffling global growth, the survey showed.

“Unfortunately, we’re in an environment where there’s a lot of near-term focus on the calamity of the day that has unsettled the market,” said Neil Manji, PwC national IPO services leader. “The European economic crisis, concerns over U.S. growth and the aftermath of the Japanese earthquake are all on investors’ minds.”

Led by the energy and mining sectors, the number of new issues on Canadian exchanges in the second quarter grew to 21, with an initial value of $1.2 billion. That’s up from 13 issues, worth less than $200 million in the first quarter.

“IPOs are still coming to market, with energy and mining driving most of the activity. But we’ve also seen IPOs delayed until things stabilize,” said Manji. “Recent performance of some IPOs has also been weak, which hasn’t helped investor sentiment.”

Manji, however, remains, bullish on the future of the Canadian IPO market and the nation’s ability to lure foreign players. “Longer term, we’ll see more IPOs as we get confirmation of a sound economic footing, and as investors get more comfortable with the market,” he said. “Canada is still attracting foreign companies in areas like the resource sector, but also in exciting new areas like clean energy and technology.”

While the number of issues has increased since last year, there has been a decline in the total value of these issues. The first half of 2011 saw 34 IPOs with a value of $1.4 billion, compared to 32 IPOs in the corresponding period of 2010 with a total value of $2.9 billion.

A lot of new IPOs have been on hold because of the loss of confidence stemming from the European crisis and the general state of global financial markets. Those who dared to go ahead with their IPO fell far short of the amount of cash they expected to raise.

Although this has prompted many issuers to delay their offerings—despite extensive planning and preparations—investors remain optimistic about the future of Canadian IPO market.

Rick Nathan, managing director at Toronto-based Kensington Capital Partners, expects activity to pick up soon. His outlook was shared by many at the recent annual Canadian Venture Capital and Private Equity Association meeting in Ottawa.

Nathan was quoted by Reuters as saying, “I think we should expect to see a lot more (IPOs) through the balance of the year, unless there’s some other major new (market) event.”

Vikram Barhat