The insatiable TSX

The news (see below) out of the TSX is curious in light of the incredibly large number of firms already listed on Canadian stock exchanges, according to the Federal government’s Canadian Advantage release in Monday’s budget. The TSX team is setting off to the USA — that alleged dearth of listed companies according to the Canadian Dept. of Finance — in search of fresh fee meat; err, new listing candidates for our local senior and junior exchanges.

This is not an early April Fool’s joke.

This from Monday’s budget releases:

Canada has almost 3,800 publicly-listed companies, far more per capita than many other developed countries. For example, the U.S., with a population nine times that of Canada, has 5,100 listed companies. The average size of a Canadian listed company is smaller than in other countries. Small and medium-sized enterprises (SMEs) have relatively limited access to foreign capital markets, so they depend on domestic capital markets for cost-effective debt and equity financing for growth and expansion.

And this from the TSX March newsletter:

TSX and TSX Venture are gaining recognition for their ability to raise capital for small and mid-cap enterprises (SMEs), King said. TSX Group’s equity exchanges are increasingly being recognized as the global marketplace for financing SMEs. “If you want to raise money anywhere between $1 million and $1 billion, there is no better marketplace in the world to do it than on TSX or TSX Venture, depending on your stage of development.”

“Nasdaq, and the American market in general, have gone large cap over the past two years, and many tech companies simply aren’t large enough to list down there,” he said. Many U.S. investment bankers now say that companies must come onto the U.S. market with at least a U.S. $500 million market capitalization to ensure some sort of successful listing. Anything less is considered microcap, and tends not to be well-received by investors and analysts.

“And on the other side of the coin, AIM simply hasn’t delivered in the technology space. There are a number of reports of technology companies – Canadian, US, Israeli and others – that have had trouble making a success of an AIM listing. There’s an ongoing issue with the lack of follow-on financings.” This has not been helped by the fact that tech financings on AIM came down significantly in the second half of 2006, King said.

“AIM can make sense for companies that have a reason to be in Europe,” said King. “But it doesn’t support follow-on financing. That’s why we have a number of companies that have been listed on both. We provide a more liquid market for small- and mid-cap financings.”

And then the big push:

For the first time, TSX Group is heading a campaign to the United States to attract new listings for Toronto Stock Exchange and TSX Venture Exchange. TSX is collaborating with key stakeholders from the Canadian capital markets to create a marketing consortium to generate awareness of listing and raising capital on both the junior and senior markets.

The U.S. Campaign will be launched on March 5th at a press conference at the Prospectors and Developers Association of Canada (PDAC) annual convention in Toronto. It will officially kick off in the U.S. at a luncheon in New York on April 11th, in association with the local Canadian Consulate to raise awareness of TSX within the New York investment community.

The Campaign will then be executed in three sector roadshows:

Mining Roadshow (Denver and Reno) – May
Energy Roadshow (Houston and Dallas) – June
Small Cap Roadshow (tech, life sciences, industrial) – Cities and dates to be determined

Does SME refer to “small and medium-sized enterprises”, as the Feds would claim. Or is it a “small and mid-cap enterprise” as per the TSX? Only Wikkipedia knows for sure, and I certainly agree. But I digress.

The AIM stuff is interesting, but don’t you wonder when you read these two citations if the TSX public affairs team drafted “The Importance of Capital Markets to Canadians” section in the Canadian Advantage policy paper on behalf of the Federal Department of Finance? The themes are remarkably familiar.

More importantly, if Canada is knee-deep in public companies, as per the budget document, why are TSX staff chasing U.S. companies to list up here? Unless there is a resource angle, for example (Canada is one of the global centres for energy and mining listings) should Canada’s stock exchange be home to a Boulder, Colorado-based microcap firm with no Canadian physical presence and no existing Canadian shareholder base?

While it might generate more fees for TSX shareholders, chasing phantom stories won’t solve the core issue: why do Canadian firms such as Sandvine, Redline, Redknee and others feel they need to go exclusively to the AIM to get their first public listing? Particularly when Canadian money managers are the key buyers of many of the shares being offered via these Canadian-based AIM-only IPOs, yet are lacking the local regulatory oversight and shareholder protection that comes when a firm files a prospectus in Canada.

MRM