The sale of Ontario’s public electricity utility accounts for the largest single initial public offering (IPO) of 2015 and more than doubled the value of new equity issued in the final quarter of last year compared to the same period in 2014, according to PricewaterhouseCoopers LLP’s (PwC) annual report on the Canadian equity market.
The offering of Hydro One Ltd. on the Toronto Stock Exchange (TSX) generated $1.6 billion for the Ontario government. It was the only issue on the TSX in Q4 2015 and dwarfed the $810 million raised in the same quarter of 2014, the report states.
“This is the second year in a row where a single blockbuster issue has dominated the market, suggesting that the size of the issue isn’t a limiting factor in the Canadian market,” says Dean Braunsteiner, national IPO leader at PwC in Canada, through a statement. “But equally important is what Hydro One portends for investors looking to get into the infrastructure arena and for governments selling premium assets.”
There were a total of 22 new issues on all Canadian exchanges in 2015, which delivered $3.9 billion of new equity. This is an increase from the $3.4 billion in proceeds from 14 issues in 2014. Thirteen IPOs on the TSX accounted for the vast majority of the funds raised in 2015, according to the PwC survey.
IPOs in 2015 were marked by a diversity of issuers from the retail and consumer sector, with three issues producing $200 million or more, and three IPOs from the technology industry. This points to maturing industries and demand from investors, says Braunsteiner.
Also, the emergence of “special purpose” investment vehicles, which are pools of funds created to purchase operating companies using a private equity model, is another theme from 2015.
“Two of the top five new issues of 2015 were from a brand new sector in Canada, special purpose investment companies,” says Braunsteiner, “and four of the 13 IPOs on the TSX were from that sector. For some time now, we’ve seen demand from retail investors to get into a business that had been the domain of private equity. Now they have a way.”
Last year saw little contribution from the mining or oil and gas sectors with the issuing of only two IPOs from these industries.
The report also provides some insight on what investors may see in 2016. This upcoming year may produce a boost in Canadian IPO activity from private health care companies, manufacturers and technology companies though Braunsteiner issues a note of caution regarding the latter possibility.
“We know there’s an appetite for new tech issues and there are private technology companies looking at going public,” he explains, “but the strength of the U.S. dollar and the allure of [the] Nasdaq [stock exchange] will draw some Canadian companies there.”
Braunsteiner also believes that the appeal of special purpose investment companies looking for under-valued corporations in a down market will continue as well as ongoing pressure on underwriters’ fees for big issues.
PwC has conducted its survey of the IPO market in Canada for more than 10 years. The reports are issued on a quarterly basis and cover new issues from companies headquartered in Canada. They do not include IPOs on Canadian exchanges from companies not incorporated in Canada or on U.S. exchanges with secondary offerings in Canada.