National Post (National Edition)
Are IPOs going out of fashion?
Investors show cold shoulder in recent times
Here’s something from left field: maybe the number of initial public offerings has been trending lower over the past few years not because of the amount of work that’s involved to go public, but because investors don’t want them.
Based on the performance of some recent IPOs, investors have more than enough supporting evidence to justify not needing them. In short, most of them haven’t consistently traded above issue price, though two of this year’s IPO crop — Canada Goose Holdings Inc. and Jamieson Wellness Inc. — are both trading about 20 per cent higher than their issue price.
But those outliers have to be considered against the others. Source Energy Services Ltd. is down by just over 35 per cent from its revised $10.50 issue price (the original plan was to sell stock in the $17-$20 range); Real Matters Inc., which according to reports at the time was well oversubscribed, is off by more than 30 per cent; and Freshii Inc., which raised its offer price during the marketing period, is down by more than 23 per cent from its $11.50 a share IPO price.
Also consider Vancouverbased Zymeworks Inc., a clinical-stage bio-pharmaceutical company, which went public, largely in the U.S., last May at US$13 a share. Buyers were prepared to pay just over half that price on Thursday.
Not to be forgotten is Aritzia Inc., which raised $460 million in its IPO last fall at $16 a share — a price that was the top end of the range. This year, in a move that surprised the market, it did a $350-million secondary offering at $17.45 a share. The shares closed Thursday at $12.76.
Most of the offerings have performed worse than the S&P/TSX composite, which is about flat for the year.
STEP Energy Services, which planned to price its IPO in the $14-$16 a share range before settling on $9, is a relative winner in that it’s off by about six per cent. So is Kinder Morgan Canada Ltd. which is up seven per cent.
One possible explanation for the overall lacklustre performance of most IPOs is the lack of adequate tension between seller and buyer. Clearly the companies aren’t worth as much as the issuers are demanding. Bucking the trend this year, Canada Goose Holdings and Jamieson Wellness have traded above issue price.
Even special purpose acquisition companies, or SPACS have not been spared. Of the four that have completed a qualifying transaction, three are trading below the $10 original issue price: Alignvest Acquisition Corp. (which morphed into Trilogy International Partners) trades at $9.64; Acasta Enterprises Inc., which made three acquisitions, closed Thursday at $5.54; Gibraltar Growth Corp. (which acquired LXR Produits de Luxe Internationale Inc.) trades at $6.70; Kew Media Group Inc., which acquired 10 companies, closed Thursday at $10.06. The SPACs are different because investors also received a warrant at the time of the IPO that, if nothing else, has time value.
Even some issuers that enjoyed a good run for a period of time are now struggling, Consider Cara Operations Ltd., the country’s “largest full-service restaurant company,” which went public in the spring of 2015 at $23 a share. It hit a high of $36.48 in the fall of 2015. The shares, which pay a dividend, closed Thursday at $22.67.
Of course there are the exceptions, both of which are in the technology area. Consider Shopify Inc.,a company that provides the back office solutions for ecommerce companies. It has been a winner. It went public at US$17 a share through an offering geared to U.S. investors. Those same shares closed Thursday at $133.50. But the Ottawa-based company still doesn’t generate a profit. Another is Spin Master Corp. which defines itself as a “leading global children’s entertainment company with significant scale and reach.” It went public in the summer of 2015 at $18 a share; those shares closed Thursday at $45.26.
MOST OF THEM HAVEN’T CONSISTENTLY TRADED ABOVE ISSUE PRICE.