Deals came fast and furious in the first half
Bay Street dealmakers who have spent their careers in the skies, moving millions of dollars with a handshake, have charged into 2021 from their home offices and dining room tables to set the pace for what could be a record-breaking year of deals.
Office closures not only forced issuers to abandon in-person roadshows and site visits, but it also sped up the deal-making process by moving routine meetings to the virtual world.
“A great deal of my life is spent on an airplane, but instead now I’m at home and I can have call after call with clients,” said Peter Miller, head of equity capital markets at BMO Capital Markets.
“The cadence of dialogue we’ve had with our clients and quality ideas and work that we’ve been able to put in front of our clients has exploded.”
THE ECONOMY IS ROARING BACK, SO COMPANIES ARE IN AGGRESSIVE EXPANSION MODE. ON TOP OF THAT, VALUATIONS ARE VERY HIGH. — PETER MILLER, BMO
In the first half of the year, investment bankers and lawyers brokered deals faster than they have since the dot-com boom of 1999. With stock market valuations on a tear and companies looking to accelerate their growth plans after last year’s Covid-induced lull, issuers raced to capture a piece of the flourishing capital in the market.
During the first six months of 2021, Canadian issuers processed 828 deals, a 29.6 per cent jump from the first half of last year, according to Financial Post Data.
While the overall value of debt and equity fell by 16.5 per cent from the same period a year earlier to $274.2 billion, the individual components went in opposite directions, with debt sales tumbling and equity issuance soaring.
As public health officials across the world battled surging COVID-19 cases, global markets rocketed to record highs this year, fuelled by an investor frenzy for high-flying tech stocks. Companies that had not only weathered the pandemic but thrived in the new environment it created across health care, workplaces and technology, took to public markets to take advantage of high valuations and raise funds to spur their growth plans.
“COVID has taken a chunk out of most companies’ balance sheets, and liquidity and leverage — even for good companies — has been squeezed,” Miller said. “The economy is roaring back, so companies are in aggressive expansion mode. On top of that, valuations are very high.”
Issuance of equity climbed 140 per cent to 503 deals and the total value surged 127 per cent to $36.8 billion from the same period a year earlier, according to Financial Post data.
Meanwhile, a slump in debt issuance weighed on the overall dollar figure of deals done in the first half of the year. The drop comes after a year when debt financing boomed as governments and corporations looked to shore up their balance sheets to withstand economic uncertainty caused by the pandemic.
Corporate debt fell 23 per cent to $122.7 billion and government debt dropped 25 per cent to $114.7 billion compared to the first half of 2020. Even so, debt issuance levels continue to trend above 2019 levels, before the pandemic hit.
“When you compare these six month periods, it’s like two different worlds,” said Trevor Gardner, head of Canadian investment banking at RBC Capital Markets. “Last year, it was either pre-pandemic or immediately post when the market was totally upside down, and then around mid-year was when things started really opening up.”
As the top financier for the first half of the year, RBC Capital Markets acted as bookrunner on 156 deals worth $37.5 billion in debt and equity during the period.
Second in the Financial Post’s overall league tables was National Bank Financial Inc., which worked on 122 deals that raised $29.6 billion.
TD Securities Inc. came in third place, with 105 deals and $27.6 billion in financing. Fourth was Scotia Capital Inc., with 119 deals and $26.5 billion, followed by CIBC World Markets Inc. at 127 deals and $26 billion.
BMO Capital Markets ranked sixth with 133 deals and $25.6 billion. Seventh place was also the highest-ranking non-canadian firm, Bofa Securities, Inc., with 41 deals and $14.5 billion raised.
Ownership equity issuance boomed. The number of deals surged 140 per cent to 477, and the total value of deals climbed 125 per cent to $35 billion — nearly as much as all of 2020.
“We have issued as much equity as we did in all of 2019,” said Roman Dubczak, head of global investment banking at CIBC Capital Markets. “Equity issuance was slow going into the pandemic, but IPOS have been very strong and robust, with very large valuations. And secondary issuance is being raised on a very regular basis, with a deal or two or three a week.”
Canadian tech darling Shopify Inc. booked the largest share sale, raising $1.96 billion in February. At the time, the e-commerce company’s stock price was at a record high. In March, telecommunications provider Telus Corp. raised $1.3 billion to invest in broadband connectivity and rollout of its national 5G network.
The first half of the year was speckled with public market debuts, climbing to record highs. The number of operating-company initial public offerings jumped to 44 and totalled more than $5.9 billion in the first six months of 2021, more than all of last year.
Telus International Inc., a spinout from telecom parent Telus Corp., made its $1.18 billion public market debut in February. Dentalcorp Holdings Ltd., Canada’s largest dental practice network, closed a $718.6 million IPO in May.
Canada’s technology sector spawned a parade of IPOS this year — boosted by pandemic demand for services that allow people to work and access services from home — including Waterloo cybersecurity software company Magnet Forensics Inc. and Vancouver-based online course platform provider Thinkific Labs Inc.
“These businesses have experienced incredible growth and their business plans have been accelerated by a number of years,” said Sante Corona, executive managing director and head of equity capital markets at TD Securities. “A tech company that we previously talked to had said that they’d like to go public maybe two or three years from now, but they hit those milestones over the last year and as a result they came to market much sooner than anticipated.”
But some recent IPOS have struggled to garner the level of investor interest that has fuelled markets. After the blitz of activity, investor fatigue and inflation fears are weighing on IPO plans.
Shares of Dialogue Health Technologies Inc., ABC Technologies Holdings, MDA Ltd., Farmers Edge Inc., Boat Rocker Media Inc. have struggled since their IPOS, and some of the companies had already slashed their offering sizes and prices before taking them to the public market.
But while there may be a lull over the summer, investment bankers say that their pipelines should make for a busy fall season.
“The IPO market in Canada will slow down,” Corona said. “The backlog of IPOS that we have will be targeting the fall for execution to give investors the chance to recharge and some time for the IPOS to perform.”
Many companies poured the proceeds from their equity offerings into their growth-by-acquisition strategies. The flurry of deals extended into the M&A space as companies flush with cash sought expansion opportunities, looking to ramp up after the onset of the pandemic forced M&A deals to plummet to the lowest level in a decade.
More than 846 takeovers were initiated in the first half of the year, slightly behind the same period in 2018 and 2019 at 910 and 949 deals respectively, and valued at $180 billion — surpassing $163.5 billion in 2015 to reach a record high.
There were 123 M&A transactions of more than $100 million in Canada in the first half of the year, valued at $173.5 billion, FP Data shows. That’s up from 47 deals valued at $36.5 billion during the same period in 2020. Before the pandemic dampened the takeover market, the first half of 2019 saw 135 deals of more than $100 million valued at $99.4 billion.
“People really took confidence in what we saw in markets with the availability of capital both in debt and equity markets,” Gardner said. “In terms of people’s business, you saw confidence build as we came through the darkest days and (companies) figured out how to operate their businesses under pandemic conditions and started looking outward.”
Total deal value was propped up by a few gargantuan deals, including two of the largest in a decade. The country’s largest railroad operator, Canadian National Railway Co., outbid rival Canadian Pacific Railway for Kansas City Southern, in the end offering US$33.7 billion. The railway bidding war came on the heels of telecommunications provider Rogers Communications Inc.’s $25-billion takeover of competitor Shaw Communications Inc.
Meanwhile, some of Canada’s fastest-growing companies have gone on shopping sprees. Montreal-based Lightspeed POS Inc. scooped up two California-based e-commerce companies for a total of US$925 million — two of the largest takeovers in the company’s history and the eighth and ninth acquisitions since going public two years ago.
“The path to growth often times is within their sector and the best opportunities are not necessarily constrained by borders and within Canada,” Gardner said. “We’ve seen it within the technology sector, with a company like Lightspeed that has done a number of deals with strong public currency. I don’t think that will slow.”
At the same time, debt issuance fell from last year’s high. When the pandemic forced business closures and an economic slowdown in the first quarter of 2020, governments and corporations took to bond markets to shore up capital while interest rates sank.
Governments sought ways to pay for stimulus programs while restrictions and job losses weighed on tax revenue. And companies turned to debt markets to counter the plummeting stock market last spring.
But by the first half of 2021, with the economy more resilient than anticipated, governments and corporations were leaning less on the debt markets.
There were 164 corporate debt issuances, down 13.7 per cent, with values slumping 23.4 per cent to $122.7 billion, a figure that is still higher than pre-pandemic levels in 2019. RBC booked the largest corporate debt deal with a $4.13 billion sale in January, followed by TD and Ontario Teacher’s Finance Trust.
But Canada’s heated housing sector spurred the biggest deals in the government sector. Throughout the pandemic, banks and governments have tried to mitigate defaults by enabling property owners to defer mortgage payments. The Canada Mortgage and Housing Corp.’s Canada Housing Trust bond issuances were the four biggest deals of the first half, booking $19.7 billion in sales — almost double the amount the agency sold in the first half of 2020.
The largest non-housing government debt deal was the province of Ontario’s $4.42 billion offering in January as Ontario plunged into a third wave of record-level COVID-19 cases, followed by another $3.76 billion offering in April.
Overall, the amount of government debt dropped from the first half of 2020, with the number of deals falling 32.6 per cent to 161 and the total value slumping 24.7 per cent to $114.7 billion, according to Financial Post data. Even so, issuance continues to beat out 2019 levels.
“If you look on a relative basis over the last few years, government debt is still up, it’s just come off of the peak of 2020,” said Sean St. John, managing director and head of fixed income at National Bank Financial, adding that demand for environmental, social and corporate governance (ESG) issuance has spiked as the pandemic magnified climate change and diversity issues.
“Investors are demanding it, but more than that, it’s about making governments and corporations accountable and making sure they have a strategy where they’re working toward reducing carbon emissions and meeting their social targets on employment of women and minorities.”
Legal counsellors also saw an uptick in activity. Canadian legal firms consulted on 398 deals, a 77 per cent jump, valued at $89.2 billion, a three per cent drop from the same period a year earlier.
Blake, Cassels & Graydon LLP ranked first in the league table for Canadian legal counsel to issuers, landing 55 deals worth $16 billion. Mccarthy Tetrault LLP was tops in Canadian legal counsel to underwriters, acting in 35 deals totalling $13.6 billion.
IN TERMS OF PEOPLE’S BUSINESS, YOU SAW CONFIDENCE BUILD AS WE CAME THROUGH THE DARKEST DAYS.