Which way from here? Third quarter leaves Canadian IPO market at critical juncture: PwC survey

TORONTO, Oct. 3, 2016 /CNW/ - Is the traditional Canadian market for initial public offerings dead?

That's one possible conclusion from today's third quarter PwC survey of Canadian equity markets. With just a single new issue of $690,000 on the CSE for most of the three month period ending September 30, the first three quarters of 2016 were shaping up as the worst on record – less than $2 million in new issues for the year to date with no IPOs on the TSX.

Only news of the pending $400 million IPO of Vancouver-based apparel merchandiser Aritzia Inc. on the TSX in the dying days of the quarter kept the results from being the lowest point in memory.

But PwC's Dean Braunsteiner has another view.

Braunsteiner, national IPO leader at PwC in Canada, points to a host of temporary influences that have kept the IPO market stalled and a list of positive factors that speak to market resilience and, eventually, recovery.

"The factors weighing on the IPO market are well known: global economic uncertainty, persistent weak performance in China, negative interest rates and a troubling outlook for European banks are daily news. Add to that the uncertainty over the impact of the U.S. election and investors are understandably cautious," Braunsteiner explains. But there is more at play.

"Canadian mining companies are quietly making a comeback," he notes, "with some of their share prices up substantially since January. Mining companies in production or in late-stage development have seen the benefit, with improved access to capital via secondary markets. That buoyancy hasn't reached the junior miners yet, but it's a hopeful sign," says Braunsteiner.

"And the $400 million Aritzia issue is a reminder that there's a real investor appetite for quality issues," he adds.

The buoyancy of the secondary market and the popularity of new special-purpose investment companies and flow-through limited partnership companies is more evidence that the market has changed direction rather than withered, Braunsteiner adds.

The global IPO market has also been in the doldrums for most of 2016. The mega-deals that propelled IPO markets in the U.S., Europe and Asia have largely been missing, even as rising share prices and enthusiastic forward price-to-earnings multiples promise high prices for issuers waiting in the wings. It's a matter of when – not if – big IPOs light up international markets, Braunsteiner says. And while a blockbuster international issue wouldn't necessarily kick-start the Canadian market, the oft-mooted flotation of a large Canadian utility like Toronto Hydro would have an immediate – and positive – impact on the entire market, he notes.

In the meantime, he says, patience is the watchword.

"We're certainly at a critical juncture in Canada," Braunsteiner says, "but suggestions that the traditional Canadian IPO market are dead are simply not supported by facts. This is just going to take time."

PwC has conducted its survey of the IPO market in Canada for more than 15 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. 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.

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About PwC Canada
PwC Canada helps organizations and individuals create the value they're looking for. More than 6,500 partners and staff in offices across the country are committed to delivering quality in assurance, tax, consulting and deals services. PwC Canada is a member of the PwC network of firms with more than 195,000 people in 157 countries. Find out more by visiting us at www.pwc.com/ca.

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SOURCE PwC (PricewaterhouseCoopers)

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