The full recovery of the market for initial public offerings of new equity will have to wait for the new year, the annual PricewaterhouseCoopers (PwC) survey of IPO activity on Canadian exchanges in 2009 has revealed.

Despite many hopeful signs that pointed to a recovery in the last half of the year, the PwC survey showed that 2009 ended with 28 new issues on all Canadian exchanges for a total value of more than $1.8 billion. That represented an improvement over the $682 million raised through 57 new issues in all of 2008, but well short of the record activity levels of earlier in the decade.

A single $300 million new issue in the fourth quarter brought the total number of IPOs on the TSX in 2009 to four. The total value of new issues on Canada’s senior exchange reached $1.75 billion during the year, up from the $547 million generated by 10 issues on the TSX in 2008.

The TSX Venture exchange saw 20 new issues in 2009, including 12 in the final three months of the year, the survey revealed. Fourth quarter activity contributed less than $52 million to the year’s total of $69 million.

Three IPOs of $300 million or more on the TSX during 2009 suggest the market can absorb quality new issues in 2010, says Ross Sinclair, national leader of PwC’s income trust and IPO services.

“There wasn’t an abundance of activity during the year, but the larger issues certainly tested the market’s appetite for new equity,” says Sinclair, “and the appetite is there. The market is ready for new issues; the new issues just aren’t ready for the market yet.”

After two years of market turmoil and diminished activity, Sinclair sees the key ingredients in place for a meaningful recovery in 2010. “An IPO market of $1.8 billion is not what we would expect for Canada at this stage of a recovery. With the fundamentals falling into place, an annual IPO market of $4 billion is not out of the question,” he advises. “The volume of secondary equity offerings as ‘bought deals’ speaks to investor confidence. Rising valuations, improved liquidity, more stable markets, better pricing and credit spreads will also help.”

The largest issues in 2009 came from the utilities, insurance and retail sectors, but Sinclair doesn’t see those results as predictive of the growth sectors in 2010.

“The first companies to test the IPO market waters happened to be from those sectors. Companies that represent a lower risk in the eyes of investors were the first to capitalize on the market in 2009. We expect that those same fundamentals will drive the market in 2010,” he concludes.

IE