Initial public offerings trickled onto Canadian equity markets in the first quarter of 2007 and it could be a long time before the small and medium-sized players that helped drive IPO activity to record levels in previous years find their way back to the market, , according to the latest PricewaterhouseCoopers survey of IPOs and capital markets.

The PwC survey of IPO activity on the TSX and TSX Venture Exchanges for the first three months of 2007 showed the total number of new offerings fell to 20 from 34 in the same period of 2006. Total proceeds for the three-month period were just under $300 million, down 85% from the $2 billion of the same period of 2006.

There were just five new issues on the TSX in the first quarter with a value of $191 million — 10% of the $1.9 billion in IPO activity on the TSX in the same three months of 2006 when income trusts dominated activity. In the first quarter of 2006, 10 new income trusts representing a value of $1.3 billion reached the market.

The majority of IPOs in the first quarter were smaller issues on the TSX Venture exchange, where 13 new issues accounted for almost $90 million in activity — an unprecedented level nearing 50% of that seen on the TSX.

“It is the second consecutive quarter of very slow activity, suggesting that Canadian small-cap companies are not looking to enter the public equity markets any time soon,” said Ross Sinclair, national leader of PwC’s IPO and income trust services.

“The changes we’ve seen in the environment for new issues, including the federal government’s announcement on income trusts at the end of October have created uncertainty and confusion. The IPO market in Canada has lost its momentum and the billions of dollars companies need for financing are going elsewhere,” said Sinclair.

The IPO market for income trusts took three or four years to gain momentum and acceptance, Sinclair noted. “That market set the high-water mark for equity prices. When the government changed the rules, the buyer of those equities disappeared. It is unrealistic to believe that the 2007 IPO market will reach levels seen in the past few years without a period of stability and adjustment.

“Although it’s hard to say to what extent small cap Canadian companies have gone in search of other means of funding growth and expansion, it’s a pretty safe bet to say that they won’t be waiting too much longer on the sidelines for the IPO market to recover.”

The bleak state of the IPO market is in stark contrast to much of the rest of the Canadian economy, where the strong performance of equities, low interest rates, excellent commodity prices and other positive factors paint a much more upbeat picture.

Canadian IPO activity on the TSX and TSX Venture exchange reached 116 new issues worth $5.8 billion in all of 2006, compared to 119 new issues worth nearly $7 billion in 2005. There were 54 new IPOs with a value of $5.4 billion on the TSX in 2006 versus 74 offerings worth $6.8 billion in 2005.