IF YOU BUILD GOOD TECH, INVESTORS WILL COME

In the new COVID-19 financing era, technology companies have emerged as not only a sought-after segment ripe for fundraising, but are also the platforms driving dealmaking on Bay Street.

Mike Lauzon, managing director and head of technology, media and telecommunications investment banking at Canaccord Genuity Corp., says it's been busier than any year since the tech boom in 2000, but, this time, the firm's record dealmaking — including road shows that have traditionally crisscrossed borders and included hours of travel time — has all been done virtually on communications platforms such as Zoom, Skype, and Microsoft Teams.

Travel restrictions meant there were no planes or seemingly endless car rides and dozens of trips up and down elevators to connect management teams with potential investors. The coronavirus pandemic accelerated the move to online work and collaboration and, at the same time, created an immense thirst among investors for companies that make it happen.

Lauzon said the result was a noticeably streamlined and less expensive process as deal activity picked up in the second half of the year. Three weeks worth of work was being done in as little as five or six days.

“You can push more IPOs into a given time frame,” he explained, adding that the crisis revealed that the road shows in days gone by were “needlessly non-streamlined."

The rush to tech over the past year, which included some follow-on equity raises by newly public companies, has been driven in part by a flow of capital away from sectors such as travel and entertainment that have been disrupted by the pandemic and efforts to control it.

“The size of institutions and the breadth of institutions that are interested in technology IPOs is way, way, way higher than (what) it was in past years,” said Lauzon. “Why? Because they don't want to be investing in bricks and mortar, and airlines, and other sectors that are struggling during the pandemic.”

According to data compiled by Financial Post Data, the information technology sector captured nearly 21 per cent of all equity raised in 2020. That was second only to industrials at 21.4 per cent. All in, tech companies raised $7.92 billion in 2020.

Businesses capitalizing on the IPO boom and investor appetite for offerings weren't confined to those that would traditionally be characterized as tech. Growth companies that were taken public included providers or beneficiaries of the shift to virtual shopping, health care, e-learning, and collaboration during the pandemic.

Canaccord, in one case, coled the IPO of Pivotree Inc., a Toronto-based company that designs, builds and connects information technology systems that form the backbone of e-commerce platforms. That deal raised $69 million, up from an initial plan to pull in $35 million from public investors.

With more investors looking to get in on tech deals, valuations have been pushed higher, creating ideal conditions for companies considering tapping public markets to fuel their growth, said Lauzon.

“So that's really what's happened within the public markets is you've had a whole slew of capital come from other sectors to technology, that drives valuations up, (and) the improved valuations drive companies from private to public," he said. “And that's effectively what we're seeing.”

BMO Capital Markets led the equity tables, but Canaccord took second spot as full-credit book-runner in last year's equity deals, accord to Financial Post Data, with an 8.92 per cent share. The independent dealer received 124 mandates — more than any other bank — totalling $3.39 billion. Among operating company IPOs, Canaccord had the most mandates in the year, 10, raising $278 million.

Dany Beauchemin, cohead of global investment banking and Canadian corporate banking at Bank of Nova Scotia, said tech valuations have also been driven higher by soaring stock prices at big technology companies in the United States, such as Amazon Inc., that have benefited from increased online shopping and work-from-home orders as the pandemic raged.

“Tech is still at record levels,” he said, noting that there are about a dozen Canadian IPOs for the newly “in vogue” sector at various stages in the pipeline, with levels expected to meet or exceed last year's totals. Beauchemin added that continued low interest rates will make investments in public markets more appealing to investors.

“If you're a technology entrepreneur, you're seriously thinking about going public,” he said. Scotiabank secured 4 IPO mandates in the year, raising just under $450 million.

A LOT OF ROADSHOWS WILL REMAIN VIRTUAL. I THINK WE'RE GOING TO KEEP A LOT OF THINGS THAT WORKED WELL.

Beauchemin said activity in the space has already quadrupled from five years ago, and “there's lots more work to be done,” with Canada pulling in “its fair share” of the global boom and investors continuing to show support for homegrown startups.

An emblematic deal of the past year for him was Dye & Durham Corp.'s initial public offering at $7.50 a share to raise $172.5 million. The Toronto-based legal technology company that connects a network of professionals with public records followed the IPO with four equity issues, each at a higher price than the last, and used the money to fund a series of acquisitions.

“The stock has quadrupled, almost quintupled,” Beauchemin said, noting that Dye & Durham's stock is held primarily by Canadian investors, in contrast to Shopify Inc., the Canadian-based e-retail platform that went public in 2015 and whose shares are largely held by foreign investors.

He said the IPO wave has been spread across Canada, with Scotiabank and Canaccord co-leading the $172.4-million initial public offering of BroadbandTV Corp., a Vancouver-based media technology company, while Montreal payments company Nuvei Corp. came to market with a US$805-million offering.

Despite the still-closed border between the United States and Canada, the pandemic hasn't put an end to cross-border collaboration on deals.

Canaccord, for example, took part in three cross-border equity transactions: the Nasdaq listings of e-learning platform Docebo Inc. for US$165.6 million, which Canaccord helped take public in 2019, and Vancouver-based Absolute Software Corp. for US$69 million, along with US$397.9 million for Lightspeed POS Inc., a cloud-based point-of-sale technology provider to retailers, restaurants, and other small businesses.

D'Arcy Nordick, co-head of the capital markets and mergers and acquisitions groups at Stikeman Elliott LLP in Toronto, sees few signs of a slowdown. “To a large degree, the pandemic put a spotlight on technology and its importance to a functioning world,” he said. “Until other sectors return to normal and we see what that new normal is, technology will continue to be a focus in the current market.”

Even when that “new normal” comes, Lauzon and Beauchemin don't see dealers returning to the frantic pace of travel-heavy, in-person roadshows that were a staple of IPOs for decades before the pandemic — even once COVID-19 is under control and restrictions on such meetings and travel are lifted.

“A lot of roadshows will remain virtual,” said Beauchemin. “I think we're going to keep a lot of things that worked well.”