The largest single initial public offering of 2015 more than doubled the value of new equity issued in the final quarter compared to the same period of 2014 and helped push the total value of all new issues to $3.9 billion for the year, the annual PwC survey of Canadian equity markets shows.
The $1.6 billion Hydro One Limited IPO on the TSX in the last quarter of the year dominated both the quarter and the calendar year 2015, the PwC survey reveals. It was the only issue on the TSX in the quarter and dwarfed the $810 million raised in the same quarter of 2014.
A total of 22 new issues on all Canadian exchanges in 2015 delivered the $3.9 billion of new equity, an increase of 13 per cent in funds raised compared to the $3.4 billion in proceeds from 14 issues in 2014. Thirteen IPOs on the TSX accounted for the vast majority of the funds raised in 2015, according to the PwC survey.
The year was remarkable for the diversity of issuers, the emergence of special purpose investment vehicles and the lack of influence of some of the traditional players on Canadian equity exchanges in 2015, said Dean Braunsteiner, national IPO leader at PwC in Canada.
"Two of the top five new issues of 2015 were from a brand new sector in Canada, 'special purpose' investment companies," said Braunsteiner, "and four of the 13 IPOs on the TSX were from that sector. For some time now, we've seen demand from retail investors to get into a business that had been the domain of private equity. Now they have a way."
The strength and diversity of issues coming from the retail and consumer sector (three issues of $200 million or more) and from the tech industry (three IPOs) point to a maturity in those areas and demand from investors, Braunsteiner said.
The Hydro One IPO was the biggest story of the year, Braunsteiner said, and not just for its size. "This is the second year in a row where a single blockbuster issue has dominated the market, suggesting that the size of the issue isn't a limiting factor in the Canadian market. But equally important is what Hydro One portends for investors looking to get into the infrastructure arena and for governments selling premium assets," he noted.
The relatively healthy 2015 market total was achieved without significant contribution from the mining or oil and gas sectors, Braunsteiner added. "Just two issues on the TSX Venture made 2015 a very quiet year on what used to be one of our busiest routes to going public."
It would be tempting to project the trends of last year into 2016 but Braunsteiner urges caution.
"We know there's an appetite for new tech issues and there are private technology companies looking at going public," Braunsteiner explained, "but the strength of the U.S. dollar and the allure of NASDAQ will draw some Canadian companies there." Private health care companies in Canada may yet look to public markets here to duplicate a trend in the U.S., and Canadian manufacturers may be tempted to exit private ownership to take advantage of growth opportunities across the border, he added. And the larger public issues that used to have to go to U.S. markets can now be assured of a good reception in Canada, but only if they are of sufficient quality.
The appeal of the special purpose investment companies that seek out under-valued or distressed corporations in a down market should extend into this year, Braunsteiner says. He also sees pressure on underwriters' fees for big issues to continue into 2016.
PwC has conducted its survey of the IPO market in Canada for more than 10 years. The reports are issued on a quarterly basis to provide information to the corporate sector, investors, the media and others that will help them put the market into better perspective. The survey covers new issues from companies headquartered in Canada. IPOs on Canadian exchanges from companies not incorporated in Canada or on U.S. exchanges with secondary offerings in Canada are not included in the survey. For the purposes of the survey, investment vehicles such as structured products are not considered IPOs because they do not represent new equity raised for operating companies.