The Canadian tech IPO onslaught that never was
The media coverage of the pending TSX tech IPO onslaught has been intensive. And perhaps the recent attention shouldn’t come as a shock, since they missed the first wave of deals and all (see prior post “Two Tech IPOs moving to the launch pad” Feb. 24-13). There’s only one problem. I’m becoming more convinced by the day that there isn’t going to be a raft of IPOs, after all.
Certainly not an onslaught. I’d expect there to be a couple names hitting the TSX market this fall. But that’s the extent of it. The problem is simple: the media coverage has centred on the prospects of five firms that John Ruffolo and I touched on at the Cantech Letter conference in January (see prior post “Vision Critical’s $10.5M secondary clears the deck for potential IPO” Jan. 17-14), and my gut tells me that most of them are looking southward, to the NASDAQ.
For Canadian retail investors and investment banks, this is bad news. When and if firms such as PointClickCare, Desire2Learn, Shopify and Hootsuite do go public, whether it be this summer (PointClickCare with Goldman) or at some point in 2015 (D2L & Shopify?), I expect them to be doing so on the NASDAQ with US-based investment banks in the driver’s seat. Which means one thing: miniscule allocations to Canadian retail investors, and between 5% and 20% of the syndicate IPO fees being available to Bay Street. At the most.
For the average institutional salesperson on a Canadian trading desk, the lack of domestic IPO product has been a royal pain. The NASDAQ is hitting decade highs, and there are few new local names to talk about with your clients. For those of you who have been around this blog for an extended period of time, you know that I blame these very same people, at least in part, for this sorry state of affairs (see representative prior posts “Belair / Ericsson deal a wake-up call for every Institutional Sales Desk” Feb. 22-12). As I wrote more than two years ago:
What can’t be ignored is that BelAir could have been a public company today had someone truly put their shoulder to the wheel. I have no unique knowledge of the thinking of the CEO and VCs on the topic, but BelAir was definitely a candidate to go public during the past 18 months. All it took was the Head of an Institutional Sales desk at a local dealer to decide to make a go of it, just as the late Ross McMaster did so many times during his career, with awe-inspiring success. Of course its been a tough market for IPOs, but it is always thus in tech land.
You just need someone on the Sales Desk to stand up and be counted.
For every public tech co acquisition, such as Dalsa, MKS, Q9 or Miranda, there was not much in the way of public market backfill prior to 2013 beyond the NexJ nightmare (see prior post “What impact will NexJ have on the next crop of Canadian tech IPOs?” Mar. 9-13). And, if you’re in stock sales, there’s [almost] nothing worse than waking up in the morning to articles on Bloomberg or in the Globe & Mail about market excitement surrounding a bunch of tech IPOs and having not a single roadshow underway. Nor any scheduled.
This lack of local tech IPO product has led to more than a few large, growthy treasury offerings, from such names as Avigilon (AVO:TSX), Espial (ESP:TSX), Knight Pharma (GUD:TSXV), Redknee (RKN:TSX) and so forth. Not to mention an untimely secondary from Halogen (HGN:TSX). Even without a use of proceeds, the buyside can’t be blamed for being attracted to any equity offering with a small cap growth flavour to it. Anything. For fear of having nothing in the portfolio at all, beyond CGI, Catamaran, Constellation, Descartes and…. Well, there’s not much else to buy, is there? Other than DIRTT and ViXs, and neither are trading great post-IPO.
Which is where D2L, Hootsuite, Shopify et al were supposed to come in. And satisfy this market demand. It’s time, though, that people started to appreciate that even if they do come out this year, my money is on the NASDAQ path.
(disclosure: I own CSU, ESP and HGN)