Nowhere to go but up for IPO market

If it wasn’t for a few new issues in the fourth quarter, 2016 would have been a complete flop for Canadian initial public offerings.

The prospects for 2017 naturally look brighter given how bad last year was, and because the S&P/TSX composite index is coming off an impressive 17.5-per-cent gain in 2016.

But Canada’s capital markets could really use a lift after the worst 12-month period for IPOs in nearly 20 years.

“It’s really tough to bring your IPO through the process when the markets are jumping up and down on a daily basis,” said Dean Braunsteiner, national IPO leader at PwC in Canada.

The hangover from the European debt crisis, the shock of the Brexit vote in the U.K. and the U.S. presidential election campaign are all to blame for the disappointing year in Canadian IPOs.

Retailer Aritzia Inc.’s $400-million IPO in October was one of only three new issues on the Toronto Stock Exchange in 2016, and one of eight on all exchanges in Canada, according to a new survey from PwC.

Two other small issues in the final months of the year, including CanniMed Therapeutics Inc.’s $60-million IPO on Dec. 29, brought the annual total for the TSX to $464 million.

That’s a far cry from 2015, when there were 13 IPOs on the TSX worth $3.9 billion.

While those macro factors hurt the market for new issues in Canada and developed countries across the globe, there are signs of light.

“The IPO market always lags the traditional equity market, and markets in Canada and the U.S. have marched higher since the U.S. election,” Braunsteiner said. “Companies considering an IPO are watching that steady upward trend like everyone else. They won’t want to get left behind.”

The tech sector is one possible starting point for an IPO revival. Real Matters Inc., Vision Critical Communications Inc., Hootsuite Media Inc., D2L Inc., and PointClickCare Corp. could all go public in 2017, after sitting on the fence for the past 12 to 18 months.

That’s allowed them to generate capital through the private market, and provided more time to bolster their business plans.

“These are all companies that have proven their business model,” said Eyal Ofir, senior technology analyst at Dundee Capital Partners. “They are larger companies that already generate a significant amount of revenue.”

Ofir doesn’t think there is an appetite for earlier-stage startups from the public equity standpoint, but did note that more activity in the U.S. this year should spill over and improve sentiment for Canadian names.

That includes Snap Inc., which filed for an IPO that could value the popular messaging platform Snapchat at US$25 billion, but more importantly, smaller companies.

Waterloo’s Thalmic Labs Inc. recently raised US$120 million from investors that included Intel Capital, an Amazon fund, and Fidelity Investments Canada. That could pave the way for an IPO, or push back the need for a foray into the public markets.

Vancouver-based online merchant Shoes.com Inc. is another potential candidate, as it has been considering an IPO for several years.

Investors will surely be looking for the next great Canadian tech IPO given the success they’ve had with Kinaxis Inc. and Shopify Inc., which went public in May, 2014, and May, 2015, respectively.

That appetite is likely greater due to the lack of offerings in the resource space.